Guides
How to underwrite a merchant cash advance: a step-by-step guide
Step 1: application intake and document collection
MCA underwriting begins at intake. The application should capture: business legal name and EIN, time in business, stated monthly revenue, requested advance amount, intended use of funds, and the principal's contact and identification information. Required documents at intake typically include: three to six months of complete business bank statements, a voided check for ACH authorization, a government-issued ID for the principal, and proof of business (articles of incorporation, business license, or secretary of state filing).
Requiring complete documentation at intake — rather than chasing it during underwriting — compresses deal timelines and ensures the underwriter is evaluating a complete picture. Cases with missing bank statements should stay in document-collection stage until the gap is filled, not be underwritten with partial data.
Step 2: KYB, identity, and fraud checks
Before reviewing bank statements, confirm that the business and merchant are who they claim to be. KYB verification confirms the business is registered, in good standing, and owned by the principals named on the application. Identity verification confirms that the principal's ID matches the application data. A UCC search at this stage surfaces any existing secured positions — an early stacking signal before the bank statement analysis.
Common fraud signals to check at this stage: the business was formed very recently (weeks before the application), the EIN does not match the business name in public records, or the stated address does not match any verifiable business location. Document the outcome of each check in the case file with the source consulted and the timestamp of the check.
Step 3: bank statement analysis and advance sizing
Bank statement analysis is the analytical core of MCA underwriting. Review the full statement period — not just totals — for: average monthly gross deposits, average daily balance, deposit consistency month over month, NSF and overdraft frequency and recency, evidence of existing advance remittances (competing ACH debits), and any unusual deposit patterns suggesting inflated revenue.
Advance sizing uses the bank statement analysis to calibrate repayment capacity. A common approach: identify average monthly deposits, apply the proposed holdback rate, calculate the implied daily remittance, and assess whether that remittance leaves adequate cash flow margin given the merchant's observed average daily balance and fixed operating costs visible in the statements. The advance size and factor rate that result from this analysis — and the reasoning behind them — should be in the case file.
FAQ
How to underwrite a merchant cash advance — common questions
How long does MCA underwriting typically take?
MCA underwriting at small non-bank funders ranges from minutes (for automated, pre-screened deals with complete documentation) to a few business days (for deals requiring manual review of complex financials or fraud investigation). The bottleneck is usually document completeness — deals with complete bank statements at intake move fastest.
What documentation should the underwriting case file contain?
At minimum: the completed application, original bank statements, KYB and identity verification results, stacking check outputs, the underwriter's analysis notes, the advance sizing rationale, the signed agreement, and the funding record. For deals with risk flags, the file should also include the underwriter's disposition of each flag — what was investigated, what was found, and why the deal was approved or declined.
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