Does a merchant cash advance affect your credit score?
By Helm, Funding Specialist
- Applying for an MCA typically involves no hard credit search
- MCAs do not appear on your credit file as a loan
- Your personal credit score is not affected by MCA repayments
- Some providers may run a soft check for verification purposes
- An MCA should not impact your ability to access other finance
Your credit score matters. It affects your ability to get mortgages, credit cards, and other financial products. So it is natural to wonder whether taking out a merchant cash advance will have any impact on your personal or business credit file.
The good news is that, in most cases, a merchant cash advance has minimal to no impact on your credit score. Here is why.
Does applying for an MCA affect your credit score?
Most MCA providers do not carry out a hard credit search when you apply. A hard search is the type of check that leaves a mark on your credit file and can temporarily lower your score. Banks and traditional lenders almost always perform hard searches.
Instead, MCA providers may carry out a soft credit check. A soft check allows the provider to verify basic information without leaving a visible footprint on your credit file. It will not affect your score.
Does an MCA appear on your credit file?
No. A merchant cash advance is not classified as a loan. It is a purchase of future card receivables. Because it is not a loan, it does not appear on your personal or business credit report.
This is one of the key advantages of an MCA for business owners who want to keep their credit file clean. It will not show as outstanding debt, and it will not affect your debt-to-income ratio.
What about missed repayments?
With a traditional loan, missed or late payments can damage your credit score. An MCA works differently because repayments are automatic. A fixed percentage is deducted from your daily card sales, so there is no manual payment to miss.
If your card sales drop, your repayments simply reduce proportionally. There is no concept of a late or missed payment with an MCA.
MCA vs traditional loan: credit impact comparison
Here is how the credit impact of an MCA compares to a standard business loan.
| Credit Factor | Merchant Cash Advance | Business Loan |
|---|---|---|
| Hard credit search on application | No (soft check only) | Yes |
| Appears on credit file | No | Yes |
| Affects credit score | No | Can do, positively or negatively |
| Late payment risk | None (automatic repayments) | Yes |
| Debt-to-income ratio impact | None | Increases ratio |
Can an MCA help your credit score?
Because an MCA does not appear on your credit file, it will not directly improve your credit score either. However, it can indirectly help by providing the cash flow you need to pay other bills and obligations on time.
If you use an MCA to invest in growth that increases your revenue, this can also improve your financial position and make you a stronger candidate for other forms of finance.
Will an MCA affect my mortgage application?
Since an MCA does not appear on your credit report, it should not directly affect a mortgage application. Mortgage lenders review your credit file and income, and an MCA will not show on either.
However, if a mortgage lender requests business bank statements, they may see the MCA repayments being deducted from your card revenue. This is unlikely to be a problem, but it is worth being aware of.
Frequently asked questions
Will applying for an MCA leave a mark on my credit file?
No. Most MCA providers use soft credit checks that do not leave a visible mark on your credit report.
Can I get an MCA with a poor credit score?
Yes. MCA providers focus primarily on your card transaction revenue rather than your personal credit score. Many businesses with poor credit are approved.
Does repaying an MCA improve my credit rating?
Not directly, because the MCA is not reported to credit reference agencies. However, the improved cash flow can help you stay on top of other payments that do affect your score.
Will my business credit score be affected?
In most cases, no. An MCA is not a loan and is not typically reported to business credit reference agencies.