Bank Statements and MCA Applications: 5 Checks Before You Submit the File

MCA funders usually scan your bank statements first. They want to know if you are missing deposit days or have a string of negative days. They want to see the existing advances to other funders. They want to know your true deposits and your average balance. Your business checking account is the star of the show, not your credit score. Before you send the file, check it the way they will: Complete pages, true deposits, negative days and NSFs, average daily balance, existing advances. You want to get the facts right, get the red flags out, and make their job as easy as possible.

For best results, scan every page of the bank statement. Now take your magnifying glass and scan it again. Are the last three to six months in the file? Do the pages fall into place? Is the last page cut off? Funder analysts don’t like it when you accidentally omit pages. They think you’re hiding something. You want to answer their questions up front. Start a good discussion by giving them everything that they ask for, not just most of what they ask for. The easier the underwriter’s job is, the faster the process will move.

Cash Flow

Don’t assume that you can count all deposits. Once you have the statements, tally up the deposit totals by day. Then check the types of deposits. What you see is not always what the underwriters see. The challenge for a funder is sorting through your deposits and separating the ones that actually count from the ones that don’t. A check from a consumer is a good example. A loan isn’t. A transfer is moving money between your accounts. The transfer itself is not business income. Underwriters understand that the money in your savings account may have come from business revenue, but for accounting purposes, the transfer is different from a deposit. Steady deposits are easier to underwrite than inconsistent deposits. A deposit every day is better than a deposit every week. Many funders want to see $10,000 per month or more. These are minimums, not targets.

A negative day is any day that ends in a negative balance. Look at your NSF fees. If there are more than three to five NSFs in a three-month span, funders often decline or expect a bigger cash reserve. Negative days or NSFs can’t be ignored or hidden. They will come out during the due diligence process. Negative days indicate your cash flow struggles. A few negative days don’t make the deal fail, but many negative days make funders say that you just can’t make payments.

Your average daily balance (ADB) is the average amount of money that rests in your business checking account. You can have strong daily deposits and still maintain a low daily average balance. It depends on how often you withdraw cash. A typical funder likes to see at least 5% of your monthly deposits in cash left in the business account. Average balance matters because the more cash that you leave in the account, the easier it is to make payments.

Too Many MCA Funders

Existing advances can be okay. They can also signal big problems. Funder analysts can see the existing MCA funders on your business account. You can’t remove the advance or hide it. If they see too many MCA funders, the questions begin. Some underwriters really don’t want to fund any existing advances.

The funder holdback is the percentage of each batch that must be held back to pay off the advances. It’s not always the number of MCAs that cause the holdback problems. It is the actual size of all of the payments combined. If the existing payments are too high, funders often decline the deal. Low-risk holdback bands are those that are below 12% of your deposits. Medium-risk holdbacks take up 12-24% of your deposits. High-risk holdbacks cover over 24%. Your offer depends on the risk level. When the holdback is too high, the business struggles.

What Isn’t in the Bank Statement

The bank statements do not show the full picture. The MCAs are sometimes declined because of what isn’t in the bank statement. Many funders will not offer a proposal if you have not been in business for at least six months or even a year. Liens, bankruptcy filings, prior MCA defaults, and open judgments can prevent a deal from being funded, even when the business is strong. Your challenge is to find them before the funder does.

What you can’t do is alter the statements. Don’t do it. A statement modification is fraud. The statements must be true and unaltered. If you alter information on the application, you can be charged with criminal fraud. Whether you’re trying to hide something or not, altering statements never ends well. What you can alter is your behavior to improve your file. Reduce your negative days.

Your bank matters too. ACH is the system that draws payments from your bank account. Some funders don’t mind online banks. Other funders decline them outright. Accounts with the least resistance are those that are brick and mortar.

Double-check everything. Did you put the correct account into the file? Do you have everything that you need? Are you sure that all of the pages are complete? Build a solid file. The stronger the file, the better the offer. Your objective is to get the deal through the underwriting process, so show them what they need. All funders want is an easy deal that doesn’t come with any surprises.