Leveraging Credit Report Insights For Better Merchant Cash Advance Business
Have you considered using soft credit pull software in your Merchant Cash Advance (MCA) business?
Business credit reporting agencies and individual borrower credit reports can be beneficial tools for lenders, even MCA lenders.
But how can your business use a credit report?
Key Takeaway:
MCA lenders can use credit reports to evaluate risks, collect valuable data, customize financing solutions, and support cross-selling opportunities.
Let’s take a closer look at how merchant cash advance companies can leverage the power of credit reports in their businesses.
What Is a Credit Report?
A credit report holds critical information about an individual’s financial standing. It is typically used by businesses, especially lenders, to make an informed decision about who to lend to. Credit activity and current credit situation are the two most essential elements of the credit report.
What Information Do Credit Reports Provide?
Credit reports hold the following information:
- Names and aliases a person has used in the past with any credit account
- Current and former addresses
- Social security number
- Birth date
- Phone numbers
- Current and historical credit accounts, including types of accounts
- Credit limit or amount per account
- Payment history
- The date accounts are opened or closed
- Creditor name
- Account balance
- Collection items, including bankruptcies, civil suits, foreclosures, and judgments
- Overdue child support provided by state or federal agencies
- Inquiries from companies who have attempted to access the credit report
How the Process Works for Merchant Cash Advance Companies
To receive a merchant cash advance, clients must go through an application process, which, in most cases, requires an analysis of personal credit. While brokers don’t report to agencies, they can use these reports to make better decisions, which we’ll get into later.
An individual’s personal liability is assessed during the application process for a loan. Most funders require a 500 credit score to receive any type of funding. Merchant cash advance brokers work with multiple funders, and a credit pull happens for each application run through a funder.
This is an issue for the applicant, as each pull affects their credit score. However, the degree that pull affects an applicant’s credit score is dependent on whether it is a soft or hard credit pull.
Soft inquiries don’t affect credit scores. They influence it the same way a background check will. Hard pulls, on the other hand, can impact credit scores. Things like mortgage loans use hard pulls to qualify individuals, and each hard pull can reduce a credit score.
Most merchant cash advance companies use both hard and soft inquiries. Small businesses that do not qualify for traditional loans often seek merchant cash advance loans to get the funding they need without excellent credit.
A good sales volume is typically the most critical determining factor for MCA providers. However, annual business income, projected future income growth, and credit card processing statements are required by MCA lenders.
The total amount to be repaid to an MCA lender is based on a factor rate. That factor rate converts into an annual percentage rate (APR).
For small businesses with good credit ratings, terms will be more favorable than those with poor credit ratings. In fact, bad credit ratings = higher risks of default, which is not good for MCA providers.
How Credit Report Information = Better Lending Decisions
Merchant cash advance brokers and lenders can benefit from doing soft credit pulls in the following ways.
Evaluating Risks
Credit reports offer incredibly important insights into the health and creditworthiness of potential clients. Payment histories, credit scores, and other key indicators help MCA companies determine risk for borrowers. These insights are crucial in finding borrowers who honor repayment obligations and minimize risks of defaults and losses.
Streamlining Application Processes
Credit reports also speed up the application and underwriting processes for MCA brokers. Companies can reduce the time it takes to approve or decline a loan application, which benefits both the company and clients by getting access to funds more quickly. Credit reports are an excellent source of information for lenders, whether or not they are used for the final decision.
Customizing Financing Solutions
The creditworthiness of clients determines the type of financing solutions available. Credit reports help MCA brokers define the best loan terms, interest rates, and repayment schedules for borrowers. This also benefits the borrower, as they are set up to receive financing that aligns with their financial capabilities to nourish a healthy lending relationship.
Supports Cross-Selling Opportunities
Credit reports contain highly valuable information. They provide a detailed view of a client’s financial behavior, such as their purchasing patterns and existing relationships with various other lenders. MCA companies can leverage this information to identify and cross-sell other opportunities. An example of this would be if a client has a history of using business credit cards, MCA companies can build customized financing products their clients can use.
Relationship Building
Using credit reports, MCA brokers reveal their commitment to responsible lending practices. For many business owners, MCA financing represents a significant risk they may not want to take. But if credit reporting is used, they may feel more secure in using an MCA broker for their lending needs. Trust is critical in fostering long-term relationships and generating positive word-of-mouth referrals.
But the question is, what type of credit reports should MCA companies use to make these decisions? As we discussed, hard credit pulls can negatively affect clients' credit scores, and the secondary option of soft credit pull software can significantly benefit borrowers and MCA providers.
Benefits of Using Soft Credit Pull Software
Soft credit pulls allow lenders to check borrower eligibility before completing an application. This reduces the risk to a person’s financial record and won’t affect their credit score—both are big selling points for potential borrowers.
Soft checks also help consumers find pre-qualified loans when browsing for a lender. This also enables lenders to gauge the risk level they’re taking with a potential borrower.
Soft credit pull software, like the tools we provide at Soft Pull Solutions, reduces risks for both sides of the lending process. By minimizing the risk of default loans and application rejection, MCA providers and borrowers stand a better chance of saving time and money.
Where to Get Started with Soft Credit Pulls for MCA Providers
You can drive business success by leveraging soft credit pulls in your business as an MCA provider. The valuable insights from these credit reports reduce your risks and create the foundation for a trusted relationship with borrowers. Additionally, tailored financing solutions, streamlined processes, and identifying growth opportunities are major selling points for using credit reports in your application processes.
Embracing the potential power of credit reports can successfully position MCA companies to create sustainable growth in an ever-changing financial landscape. Unlock the full potential of your business and set it up for more tremendous long-term success by using credit reports in your business.
Want to get started? Submit an inquiry, today!