How MCA funders decide: what they read in your bank statements

An MCA funder usually decides from your bank statements. Understanding what they read helps you see how an offer was sized, and why the payment may not match your real sales.

What they read

Practices differ from funder to funder, and this is not a description of any one funder. These are the items that commonly come up in a review of statements.

• Average monthly deposits. The main number. It is a quick stand-in for sales.
• Number of deposits. Many steady deposits look different from a few big ones.
• Ending and average daily balance. A balance that is always close to zero leaves little room for a daily debit.
• Negative days and NSFs. Overdrafts and returned items suggest cash stress.
• Existing positions. Debits to other funders show how much of your cash is already spoken for. See Stacking and renewals.
• Time in business. A longer history is usually read as a lower risk.
• Credit. Some funders check the owner's credit, even though the product is not a loan. Policies vary.

How the size and payment are set

One common approach: take average monthly deposits, pick an amount as a fraction or multiple of that number, apply a factor rate to get the purchased amount, and divide by a term to get the payment. The funder then expresses the payment as a share of your deposits. That share is the holdback. Each funder sets its own multiple, factor and term, so the numbers below are assumptions to show the method.

A worked illustration

Suppose three months of statements look like this. In each month, some deposits were not sales: a transfer from another account, a loan payout, an owner deposit.

If the funder sizes from total deposits, the offer is based on $64,133 a month, not $57,967.

The same payment looks like 18.9% of deposits and 20.9% of real sales. That is a higher share of your actual money. See Your real holdback percentage for the formula.

Deposits are not always sales

The funder's number comes from what lands in the account. Several things can make deposits larger than sales:

• Money moved between your own accounts.
• Loan or advance proceeds from other sources.
• Owner contributions.
• Refunds returned to the account.

It can also go the other way. If a lot of your sales are paid in cash and not deposited, deposits understate sales. Reconciliation, if your contract has it, is meant to correct this gap by starting from your actual receipts. See What counts as receipts.

Signals that work against you

A few patterns on a statement can change how an offer looks, whether or not they say anything about your actual business.

• A month with an unusual deposit. A single large transfer or loan payout can lift the average and make the offer look bigger, or make a normal month look weak by comparison.
• Seasonal swings. Three months of statements may catch only your slow season or only your busy season. The payment is then sized for a year you do not have.
• Other debits. Payments to other funders reduce what is left. Funders may count them when they decide, and the combined load can be heavy.
• Overdraft days. A few of these can shape the offer, even if the cause was a timing gap and not a lack of sales.

If you know a month on your statements is not typical, say so up front and show why. A short note explaining a large one-time deposit is easier to give before signing than to explain afterward.

Reading the pitch

When someone says "you qualify for up to" a number, ask how they got it. A fair answer names the months of statements used, the average deposit figure, and the multiple. If the answer is vague, ask for the calculation in writing. You are entitled to know whether the number reflects your sales or your deposits, because the payment you carry will be set from it.

Also ask what changes if your sales fall after you sign. A funder that sized the deal from your best months should have a plain answer about how the payment adjusts.

What to do with this

• Before applying, look at your own statements the way a funder would. Note transfers, loan money and owner deposits.
• Ask how the offer was sized. If it was sized from deposits that include non-sales, the payment will take a larger share of real sales than the contract's percentage implies.
• Check that the contract's percentage and its definition of receipts match what you were told.
• Keep a simple monthly record of true sales, separate from the bank view.

Do not stop, block or reverse payments on your own if you find a gap. Raise it with the funder in writing under the contract. If you receive a default notice, lawsuit or lien notice, talk to a lawyer licensed in your state.

Education only, not financial advice. Each funder's methods differ, and the multiple, factor and term in this example are assumptions.

Education only, not legal advice. Agreements differ; your contract's exact wording controls.