For many small business owners, maintaining good credit can be a challenge. Life happens—unexpected expenses, cash flow problems, or just difficult times can take a toll on your credit score. Traditionally, getting approved for a business loan with bad credit is an uphill battle, as banks and other lenders often use credit scores as a key factor in their approval process. However, Merchant Cash Advances (MCAs) are becoming a popular option for business owners with less-than-perfect credit. But can you get a merchant cash advance with bad credit? The short answer is yes.
In this article, we’ll explore how merchant cash advances work, why they’re accessible to business owners with bad credit, and what you need to keep in mind if you’re considering this type of financing.
What Is a Merchant Cash Advance?
A merchant cash advance is a type of financing that gives businesses quick access to cash in exchange for a portion of their future credit card sales. Instead of a fixed repayment schedule, you repay the advance with a percentage of your daily or weekly sales. This unique structure makes MCAs an attractive option for businesses that have fluctuating revenue streams.
Since merchant cash advances aren’t technically loans, the approval process focuses less on your credit score and more on the strength of your sales and cash flow. If you regularly process credit card transactions or have steady monthly deposits, you’re more likely to be approved for an MCA—even with bad credit.
How Do Merchant Cash Advances Work?
The process of getting a merchant cash advance is straightforward. Here’s how it works:
- Application: To apply for a merchant cash advance, you’ll typically need to provide basic information about your business, including recent credit card processing statements or bank statements. Your personal credit score plays a smaller role in the approval process than it would with a traditional loan.
- Approval: Lenders focus on your business’s daily or monthly sales volume. They’ll look at how much revenue your business generates and how stable that income is. If your business shows consistent credit card sales or regular bank deposits, you can qualify for an MCA, even if your credit score is low.
- Offer: If approved, the lender will offer you an upfront lump sum of cash. The amount you receive typically depends on your average monthly sales—usually between 50% and 150% of that amount.
- Repayment: Repayment is tied to your daily sales. The lender takes an agreed-upon percentage of your credit card sales until the full advance, plus fees, is repaid. This allows you to repay more when sales are high and less when sales are low.
- Factor Rate: Instead of charging traditional interest, MCA lenders use a factor rate to determine the total repayment amount. The factor rate typically ranges from 1.1 to 1.5, which means for every dollar borrowed, you’ll repay between $1.10 and $1.50.
Why You Can Get a Merchant Cash Advance with Bad Credit
Unlike traditional business loans, where your personal credit score heavily impacts the approval process, merchant cash advance lenders focus on different criteria. Here are the key reasons why MCAs are accessible to businesses with bad credit:
- Sales History Matters More Than Credit Score: MCA lenders primarily evaluate your sales history and business cash flow rather than your personal or business credit score. If you have a stable history of processing credit card payments or consistent bank deposits, you stand a good chance of being approved.
- No Collateral Required: Many traditional loans require collateral—such as real estate or business assets—to secure the loan. Merchant cash advances are unsecured, meaning you don’t need to put up any collateral. This is especially helpful for businesses with bad credit that may not qualify for secured loans.
- Flexible Repayment: Because repayment is based on a percentage of your sales, you don’t have to worry about missing a fixed payment if your revenue drops unexpectedly. This flexibility is appealing to businesses with fluctuating income, such as seasonal operations or businesses going through tough times.
- Faster Approval Process: Since MCAs are based on your sales, the approval process is much quicker than traditional loans. In some cases, you can be approved and receive your funds within 24 to 48 hours. Lenders don’t require as much paperwork, and your credit score is not the primary factor for approval.
Things to Consider Before Getting a Merchant Cash Advance with Bad Credit
While merchant cash advances can be a lifeline for businesses with bad credit, it’s important to be aware of the potential downsides. Here are some things to keep in mind:
- Higher Costs: One of the biggest drawbacks of merchant cash advances is their cost. MCA lenders charge higher rates compared to traditional loans, especially for businesses with bad credit. The factor rate can make the total repayment amount significantly higher than what you originally borrowed. Be sure to carefully review the terms before accepting any offers.
- Impact on Cash Flow: Repaying a percentage of your sales might seem flexible, but it can also impact your cash flow. If your sales drop unexpectedly, the daily or weekly deductions might create financial strain. Make sure you can handle the repayment schedule even during slower periods.
- Short-Term Solution: MCAs are typically short-term financing solutions. Most are designed to be repaid within 6 to 12 months. If your business needs a long-term funding strategy, a merchant cash advance may not be the best option.
- Limited Regulation: The merchant cash advance industry is not as heavily regulated as traditional lending. It’s essential to work with a reputable lender to avoid predatory practices. Read the fine print, ask questions, and make sure you understand the terms before agreeing to any advance.
Tips for Finding the Best Merchant Cash Advance Lender
If you’ve decided that a merchant cash advance is the right option for your business, it’s important to choose the right lender. Here are some tips to help you find a reliable MCA provider:
- Research Multiple Lenders: Don’t settle for the first offer you receive. Shop around and compare terms from multiple lenders. Look for transparency in their pricing, factor rates, and fees.
- Check Reviews and Testimonials: Look for reviews and testimonials from other business owners who have used the lender’s services. A reputable lender like Sapphire Sky Capital will have positive feedback from previous clients.
- Understand the Terms: Be sure to ask questions about the factor rate, repayment schedule, and any additional fees. The more you know about the terms, the better prepared you’ll be to manage the repayment process.
Get the Capital You Need with Bad Credit
At Sapphire Sky Capital, we understand that your credit score doesn’t define your business’s potential. We specialize in providing merchant cash advances to businesses that need fast funding, even with bad credit. Our flexible repayment terms, quick approval process, and commitment to transparency make us a trusted partner for businesses across the country.
Ready to get started? Contact us today to see how a merchant cash advance can help you get the capital you need to grow your business, even with bad credit. Apply now and get approved in as little as 24 hours!