MCA Underwriting Process: What You Need to Know

Merchant Cash Advances (MCAs) have gained immense popularity in the world of alternative financing, especially for small to medium-sized businesses seeking fast access to capital. However, the process behind approving an MCA isn’t as instant as it may seem. MCA underwriting is a critical component that determines whether a merchant is eligible for funding, how much they can receive, and under what terms.

This guide dives deep into the underwriting process of MCAs, exploring what it is, how it works, what criteria are considered, and how businesses and funders can optimize the process for better outcomes. Whether you’re a merchant seeking funding or a broker/funder looking to improve your underwriting system, this article covers all aspects.

What is MCA Underwriting?

MCA underwriting is the process by which funders evaluate the risk of providing a merchant cash advance to a business. Unlike traditional bank loans, which often take weeks for approval and depend heavily on credit scores, MCAs rely on cash flow analysis, bank statements, and sales volume.

The goal of underwriting is to assess:

The business’s ability to repay the advance
Risk level associated with the merchant
How much funding the business can receive
What holdback percentage is appropriate

MCA underwriting is both art and science. It combines data analysis, historical performance, and intuition built from market experience.

Why are Underwriting Processes so Important in the MCA Industry?

Underwriting processes play a critical role in the MCA (Merchant Cash Advance) industry because they serve as the foundation for assessing risk, ensuring responsible funding, and protecting both the funder and the merchant. Unlike traditional loans, MCAs are based on future receivables, meaning funders are advancing capital based on the expected sales of a business. A thorough underwriting process evaluates these sales patterns, cash flow, and overall business health to determine the merchant’s ability to repay the advance. This reduces the likelihood of default and allows for more confident and calculated funding decisions.

Moreover, accurate underwriting helps prevent fraudulent applications by verifying business legitimacy and historical financial data through bank statements, credit reports, and third-party integrations. In an industry known for high-risk lending, effective underwriting ensures that only credible and financially stable merchants receive funding. This minimizes exposure to loss, enhances portfolio performance, and builds a trustworthy reputation for the MCA provider.

Efficient underwriting also contributes to faster approval times, which is a competitive edge in the MCA space where speed is crucial. With streamlined and automated underwriting tools, funders can deliver same-day or next-day funding without compromising risk analysis. Ultimately, strong underwriting processes not only protect capital but also support long-term business growth and client satisfaction within the MCA ecosystem.

Key Factors in MCA Underwriting

Merchant Cash Advance (MCA) underwriting hinges on a detailed assessment of a business’s financial health and risk profile. One of the most critical factors is cash flow stability, as it directly impacts the merchant’s ability to make consistent repayments. Underwriters scrutinize bank statements to evaluate average daily balances, overdraft history, and overall transaction activity.

A business with steady, predictable deposits and minimal non-sufficient funds (NSFs) is seen as a lower risk. Another essential element is monthly revenue, with most funders requiring a minimum threshold—often $10,000 to $15,000—to ensure the merchant can handle the proposed repayment structure.

Time in business (TIB) also plays a significant role; businesses operating for more than 12 months typically receive more favorable terms, as longevity suggests sustainability.

Additionally, the industry type influences underwriting decisions, as some sectors like construction or hospitality may pose higher default risks compared to healthcare or professional services. While credit scores are considered, especially to check for tax liens or bankruptcies, they carry less weight than in traditional lending.

Lastly, existing liabilities such as other MCA positions or loans are evaluated to prevent over-leveraging, which can lead to payment defaults. By analyzing these key factors, underwriters can make informed decisions that balance opportunity with risk.

Benefits of MCA Underwriting

MCA (Merchant Cash Advance) underwriting offers several advantages for both funders and small business owners seeking fast and flexible financing. One of the primary benefits is the speed of approval; MCA underwriting processes are typically much quicker than traditional loan evaluations, often delivering funding within 24 to 48 hours. This rapid turnaround is ideal for businesses that need immediate capital to cover urgent expenses or seize time-sensitive opportunities.

Additionally, MCA underwriting places less emphasis on credit scores and collateral, focusing instead on the company’s daily or monthly revenue. This makes it accessible to a wider range of businesses, especially those with less-than-perfect credit. Another benefit is the adaptability of repayment structures—repayments are usually based on a percentage of daily sales, aligning the business’s repayment capacity with its cash flow.

As a result, businesses do not face fixed monthly obligations during slower periods. Overall, MCA underwriting provides a streamlined, credit-flexible, and revenue-based solution that empowers small businesses with timely access to working capital.

Best Practices for Implementing Advanced Software in MCA Underwriting

Successfully implementing advanced software in MCA (Merchant Cash Advance) underwriting requires a strategic approach that balances technology integration with underwriting accuracy and operational efficiency. One of the best practices is to begin with a clear understanding of business goals—whether it’s reducing approval times, improving risk assessment, or scaling operations—and selecting a software solution that aligns with those objectives. It’s important to choose a platform that offers robust automation capabilities, including document parsing, real-time bank statement analysis, and AI-powered credit risk modeling, to streamline repetitive tasks and increase underwriting speed.

Another key practice is data integration. Ensuring the software can seamlessly connect with third-party data sources such as credit bureaus, payment processors, and bank APIs enables underwriters to gain a comprehensive financial view of applicants. Additionally, user training is essential. Underwriting teams should be thoroughly trained on how to use new tools effectively to avoid disruptions and ensure accurate decision-making.

Compliance and security should also be prioritized. Implementing advanced software that adheres to financial regulations (like GDPR or CCPA) and offers encryption and audit trails helps maintain trust and reduce legal risks. Furthermore, businesses should continually monitor system performance and regularly update the software to incorporate the latest risk models and compliance features.

Lastly, integrating analytics dashboards can empower stakeholders with real-time insights into underwriting trends, default rates, and approval metrics. By following these best practices, MCA providers can optimize underwriting workflows, enhance decision accuracy, and ultimately deliver faster, smarter funding solutions.

Step-by-Step Guide to Underwriting a Merchant Cash Advance

Underwriting a Merchant Cash Advance (MCA) involves evaluating a business’s financial health to determine its eligibility for funding based on future revenue. Unlike traditional loans, MCA underwriting focuses on revenue consistency rather than credit scores or collateral. Here’s a detailed step-by-step guide to the MCA underwriting process:

Step 1: Initial Application Review

The underwriting process begins with the merchant submitting a funding application. This typically includes:

Basic business information (name, industry, time in operation)
Owner’s personal details
Requested funding amount
Purpose of the advance

Tip: At this stage, verify that the business meets minimum requirements such as time in business (usually 3–6 months) and a minimum monthly revenue threshold.

Step 2: Collect and Analyze Bank Statements

Merchants must provide recent bank statements—typically the last 3 to 6 months. Underwriters assess:

Daily balances and deposit frequency
Average monthly revenue
Overdrafts and NSF (non-sufficient funds) history
Chargeback patterns

Why it matters: Strong cash flow with minimal overdrafts indicates a higher likelihood of repayment.

Step 3: Review Credit Reports (Business & Personal)

While credit score is less important than in traditional lending, underwriters still check:

Personal credit reports (especially for sole proprietors)
Business credit profiles (if applicable)
Any liens, judgments, or bankruptcies

Insight: Credit data can help assess character and predict default risk even if it’s not the primary factor.

Step 4: Analyze Daily Revenue Trends

Advanced underwriting software often helps visualize:

Seasonal fluctuations
High-revenue days versus slow periods
Sustainability of income over time

Outcome: This helps funders set repayment structures that align with business revenue cycles.

Step 5: Check Industry Risk and Business Model

Not all industries carry the same level of risk. Underwriters evaluate:

Merchant’s industry (e.g., retail vs. construction)
Type of product/service sold
Market competition and economic conditions

Consideration: High-risk industries may require stricter terms or lower advance amounts.

Step 6: Assess Requested Advance vs. Repayment Ability

Underwriters calculate a “factor rate” and determine:

Total repayment amount
Daily/weekly repayment estimates
Holdback percentage of future receivables

Formula Example: If a merchant requests $20,000 with a 1.3 factor rate, they repay $26,000. This must be manageable based on their revenue trends.

Step 7: Decision and Offer Structuring

Based on the data gathered, underwriters make a decision:

Approve the advance with defined terms
Decline due to risk factors
Request more documentation for clarification

What’s included in the offer:

Advance amount
Total repayment
Estimated term (e.g., 6 months)
Payment frequency (daily/weekly)

Step 8: Final Verification and Contract Signing

Once approved, the merchant must:

Sign the funding agreement
Provide additional documents if required (e.g., business license, voided check)
Complete a phone interview or verbal verification

Note: Final compliance checks ensure that no discrepancies exist between application and underwriting data.

Step 9: Disbursement of Funds

After verification, the MCA provider transfers funds to the merchant’s business bank account—often within 24–48 hours.

Step 10: Post-Funding Monitoring

Even after funding, many providers:

Monitor repayment behavior
Adjust repayment terms if sales decline
Offer renewal options for repeat funding

Top MCA Underwriting Courses

1. Funder Intel – MCA Underwriting Course

This self-paced online course offers comprehensive training on MCA underwriting, covering topics such as credit models, bank and credit card statement analysis, and fraud detection. It’s designed for brokers, ISO managers, sales professionals, and those transitioning into commercial finance. The course includes 114 minutes of video content, 21 steps, and 38 quiz questions, with 8 weeks of access. Priced at $397, it aims to provide practical knowledge for professionals seeking to understand the underwriting process from submission to funding.

CFGMS Underwriter Academy

CFG Merchant Solutions offers a structured program combining bootcamp training, mentorship, and portfolio management. Participants gain hands-on experience with CFGMS’s underwriting tools and processes, focusing on risk assessment strategies tailored to small and medium-sized businesses. The program spans 6 to 12 weeks, depending on the participant’s experience, and includes compensation during the training period. A bachelor’s degree in finance, business, economics, or a related field is preferred but not required.

MCA Broker Bootcamp

While primarily focused on brokers, this course provides valuable insights into the MCA underwriting process. It covers the differences between loans and MCAs, commission structures, factor rates, operational infrastructure, and the underwriting process, including file submissions. The course is designed to guide participants through setting up their company and starting to fund deals.

Web Shield – Advanced Merchant Acceptance and Underwriting

This course presents a comprehensive investigative methodology for underwriters, including tools to detect, analyze, and prevent various types of acquirer risk. It covers the entire process from pre-onboarding to the final decision to decline or accept a merchant, making it suitable for those looking to deepen their understanding of underwriting practices.

✅ Choosing the Right Course

When selecting an MCA underwriting course, consider the following:

Career Goals: If you’re new to the industry, a comprehensive course like Funder Intel’s may be beneficial. For those seeking hands-on experience, CFGMS’s Underwriter Academy offers practical training.
Learning Style: Self-paced courses provide flexibility, while structured programs offer mentorship and real-time feedback.
Budget: Course prices vary, so consider your investment in relation to the potential career advancement opportunities.

By aligning your choice with your professional objectives and learning preferences, you can effectively enhance your expertise in MCA underwriting.

MCA Underwriting Process Criteria

The MCA (Merchant Cash Advance) underwriting process involves assessing a business’s financial health to determine its eligibility for funding, and the criteria used are different from traditional loans. Since MCA funding is based on future receivables, the underwriting process focuses primarily on a business’s cash flow and ability to repay the advance. Below are the key criteria used during the MCA underwriting process:

1. Business Revenue and Cash Flow

The most critical factor in MCA underwriting is the business’s daily or monthly revenue. Underwriters will request recent bank statements (typically 3-6 months) to analyze:

Average daily or monthly deposits
Consistency in revenue (steady income over time vs. seasonal fluctuations)
Deposit frequency (daily deposits indicate stronger cash flow)

Why it matters: The merchant’s ability to repay the advance is directly tied to their cash flow, so consistent and high revenue is essential.

2. Time in Business

Most MCA providers require that a business has been operating for a minimum amount of time, typically around 3 to 6 months, before they are eligible for an advance. This ensures that the business has a proven track record and a steady revenue stream.

Why it matters: Newer businesses are considered riskier due to limited financial history, and older businesses are typically more stable and predictable in terms of revenue.

3. Industry and Business Type

The type of business and the industry in which it operates also influence the underwriting decision. Certain industries, like restaurants or retail, may be considered higher risk due to their vulnerability to economic fluctuations and seasonality. On the other hand, more stable industries like healthcare or technology may face less risk.

Why it matters: The industry can impact a business’s overall revenue stability and repayment capability. High-risk industries might face stricter lending terms or lower advances.

4. Personal and Business Credit Scores

Although MCA underwriting does not prioritize credit scores as much as traditional loans, some providers will still check both the personal credit of the business owner and the business credit profile (if applicable). A poor credit score can be a red flag, although it may not automatically disqualify a merchant from receiving an advance.

Why it matters: While MCA is more flexible than traditional financing, credit scores can provide additional insight into the merchant’s financial management and payment history.

5. Merchant’s Debt-to-Income Ratio

This ratio compares the merchant’s business debts to their income, helping underwriters assess the merchant’s ability to handle additional debt. A high debt-to-income ratio could indicate financial strain, making it riskier for the lender to provide funding.

Why it matters: A lower ratio signifies that the business has sufficient cash flow to handle the new debt without overextending its resources.

6. Chargeback History and Payment Consistency

Underwriters will also examine the merchant’s chargeback history. Frequent chargebacks or refunds could signal issues with product quality, customer service, or business management, all of which can impact the merchant’s future revenue and repayment ability.

Why it matters: A high chargeback rate increases the likelihood of irregular revenue, which affects the merchant’s ability to repay the advance on time.

7. Repayment Structure and Terms

Once all the above criteria are analyzed, underwriters determine the terms of the MCA, including the advance amount, factor rate, and repayment schedule. Repayments are typically tied to a percentage of the merchant’s daily or weekly sales, meaning repayment amounts fluctuate depending on revenue performance.

Why it matters: The repayment structure must be designed to ensure that the business can meet obligations without impacting its daily operations, making a revenue-based repayment schedule more suitable for businesses with fluctuating sales.

Role of an MCA Underwriter in Your MCA Application

The MCA underwriter plays a central role in determining whether your merchant cash advance (MCA) application is approved, how much funding you receive, and under what terms. Unlike traditional lenders, MCA underwriters focus less on credit scores and more on real-time business performance—especially cash flow. Their goal is to assess risk quickly and fairly, ensuring your business can handle repayment without disrupting operations.

1. Evaluating Your Business’s Financial Health

One of the first things an MCA underwriter does is evaluate the health of your business by reviewing:

Bank statements (typically 3 to 6 months)
Merchant account activity (for credit/debit card sales)
Daily deposit trends
Frequency of overdrafts or NSF (non-sufficient funds) occurrences

This allows the underwriter to assess how stable and consistent your cash flow is, which is critical for determining your repayment capacity since MCAs are paid back through daily or weekly sales percentages.

2. Assessing Risk and Approving Terms

Once your business’s revenue and banking behavior are analyzed, the underwriter uses this data to determine:

Whether your application is approved or denied
How much funding you qualify for
The factor rate (cost of the advance)
The holdback percentage (daily repayment rate from sales)

The underwriter must balance your need for funding with the lender’s need to minimize risk. A lower-risk business will typically qualify for more favorable terms.

3. Reviewing Supporting Documentation

MCA underwriters also verify and cross-check all the information provided in your application. This includes:

Proof of business ownership
Government-issued IDs
Voided checks or bank verification documents
Business licenses or permits (if applicable)

The goal is to ensure the application is legitimate and to avoid fraud or misrepresentation.

4. Communicating with Brokers and Sales Teams

Underwriters frequently interact with brokers or MCA sales representatives to clarify document issues, request additional information, or negotiate terms. While they usually don’t communicate directly with the applicant, their decisions heavily influence the final offer presented to you.

5. Finalizing and Funding the Advance

Once the underwriter has approved your application and terms are accepted, they issue a final funding decision. If approved, the MCA provider transfers the funds—often within 24 to 48 hours. From that point, repayment begins as per the agreed terms, typically as a daily deduction from your sales.

Conclusion

Understanding the role of an MCA underwriter in your MCA application is key to navigating the funding process successfully. These professionals do more than assess your financials—they structure your funding in a way that promotes business growth while protecting the funder’s investment. Whether you’re seeking fast capital or considering MCA underwriting as a career, it’s clear that the underwriter plays a central role in balancing opportunity with risk.

FAQS

Q: Do MCA underwriters check personal credit scores?

Yes, they typically conduct a soft pull of the personal credit score, mainly to check for red flags like bankruptcies or tax liens. However, cash flow weighs more than credit in MCA underwriting.

Q: What documents does an MCA underwriter need?

Common documents include 3–6 months of business bank statements, a voided check, a driver’s license, and sometimes business tax returns or credit reports.

Q: How long does MCA underwriting take?

With automated systems, the underwriting process can be completed within 24 to 48 hours, depending on the completeness of your documents and the complexity of your business model.