Initial Underwriting Process
An underwriter receives the file and pulls the merchant’s personal credit. While credit is not terribly important the underwriter wants to see if the merchant has sub 500 credit. If he does, he generally will not qualify for a traditional merchant cash advance, but he will be able to get a Starter Program. The underwriter checks for outstanding current tax liens, recent or open bankruptcies, collections or judgments. A word to merchants: at this point honesty is the best policy, because any delinquent accounts will come up during the underwriting process.
Lenders appreciate a merchant who is forthright from the beginning, and they will work harder and feel more comfortable overcoming these difficulties in deals and getting you funding. Tax liens, open bankruptcies, and collections are problems which lenders are willing to work around. Provided that the underwriter wants to move forward with the process, he will produce a program for the merchant including the maximum amount of money he qualifies for. This maximum value usually ranges between 125%-150% of what the merchant process in monthly Visa/MasterCard sales, but every file is unique, and merchants can qualify for more or less. For example, let’s say that credit card sales only amount to 20% of the merchant’s gross sales. The lender would be willing to advance the merchant more money and take a higher percentage of his credit card receivable because he knows that it won’t harm his cash flow. However, if a merchant’s credit card sales compromise the majority of his business, then the underwriter will be more hesitant to take a large portion of the credit card sales as it could disrupt cash flow.
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