How To Qualify For An MCA Based On a Seasonal Business?

Running an annual business is no easy task. You could be doing well for a few months and nowhere near as well for the remaining year. A beach café business, gift business during holidays, ice cream parlor, landscaping firm, and festival vendor premises each face more or less similar issues. Money flows in currents and not in a straight line.

You start preparations for the peak season months well beforehand. You have to arrange for your inventory to be stocked up, get your staff ready, fix all your equipment, and finally market your products beforehand. This means that you have to invest before you start getting any income. It is at this point that many seasonal businessmen turn to funding to get some help.

Banks look to customers to provide a steady flow of income all year long, but that is not possible with businesses that have seasonal patterns of income and expenses. It is at this point that Merchant Cash Advances, or MCAs, can, in some cases, provide relief. However, to qualify for an MCA as a seasonal business, it is essential to learn how the lenders think.

Reasons Why Businesses That Operate Seasonally May Find It Difficult to Obtain Financing

• Banks prefer predictability. They look for regular monthly income, a steady flow of money, and a longer business history. This is not easily possible for seasonal businesses.
• From the bank’s perspective, it seems risky to have income flowing in for just four or five months. You may have good earnings during your peak periods, but income during other periods is always questionable. Banks also demand that you review at least two years of tax returns to verify that you have a stable income. Your seasonality may cause your accounts to appear irregular.
• This means that many strong seasonally based businesses get denied financing despite proven demand year after year. It has nothing to do with performance. It has to do with timing and structure.

What Merchant Cash Advances Think About Seasonal Revenue?

Merchant cash advance providers think differently from banks. They are less focused on overall annual performance and more interested in current and recent sales volumes.

• Rather than requiring long tax history documentation, MCA lenders typically review bank statements from the past three to six months. They look at funds deposited, payments from customers, and working capital. Credit card and debit card transactions make a significant difference.
• If your business happens to be in season and sales are occurring, you may be eligible even with slower months in the past. For example, a Christmas store with strong sales from October through December, or a lawn care business during peak summer months.
• An MCA is based on sales activity, not a fixed monthly payment. You receive money from the lender, and a percentage of your daily or weekly sales is used for repayment.

Requirements You Need to Meet to Be Eligible for an MCA as a Seasonal Business

For most seasonal businesses to qualify for a merchant cash advance, they typically need the following:

• An active business bank account.
• Bank statements from the past three to six months.
• Evidence of regular sales during the active season.
• Monthly revenue of at least $10,000 on an ongoing basis.
• Card sales or consistent bank deposits.

Your personal credit score is much less relevant. What the lender wants to know is whether your business is currently generating revenue.

Timing also carries considerable weight. Applying during the off season may lower approval chances or result in lower funding amounts. Applying during peak sales periods increases the chances of approval and higher funding.

Why Speed Matters for Seasonal Businesses?

Seasonal businesses often have limited time to make money. Missing this window can mean waiting another year.

You may need cash to purchase inventory before prices rise, repair equipment before the season starts, or hire workers early. Bank loans are not immediate and often take weeks or even months. By the time approval happens, the season may already be halfway through.

MCAs can be approved within 24 to 72 hours. This speed is one of the biggest advantages for seasonal businesses that need fast action.

The Meaning of MCA Cost

The main disadvantage of MCAs is that they are costly. They are more expensive than traditional loans.

• Instead of interest rates, MCAs use factor rates. A factor rate usually ranges between 1.2 and 1.5. This means that if you receive $20,000 with a factor rate of 1.4, you will repay a total of $28,000.
• Repayment happens daily or weekly, depending on your sales percentage. When business is busy, more money is paid. When sales slow, payments reduce. This flexibility can help seasonal businesses, but the total repayment amount remains high.
• For businesses with thin margins, these payments can feel heavy. It is important to ensure that the advance will help you earn more than it costs.

When an MCA Makes Sense for Seasonal Businesses

MCAs are not always bad. In some situations, they can be appropriate.

• High return on investment
  If the funds are used to generate quick sales growth, the cost may be justified. This could include purchasing extra inventory that sells quickly or securing a prime seasonal location.
• Short funding gap
  If there is a short gap before peak season revenue begins, an MCA can serve as a temporary bridge.
• Limited alternatives
  If bank loans or grants are unavailable, an MCA may be the only option.
• Clear exit strategy
  The best use of an MCA is when repayment timing and method are clearly planned, ideally before the season ends.

Common Mistakes Seasonal Businesses Should Avoid

Many seasonal businesses face problems when borrowing without proper planning.

• Avoid taking an MCA during weak sales periods unless you are confident that revenue will increase soon. Avoid taking multiple advances at the same time, as this can drain daily cash flow quickly.
• Never use an MCA to cover ongoing losses or declining demand. It should support growth, not hide problems.
• Always read the contract carefully. Make sure it clearly explains total repayment cost, daily deductions, and repayment terms.

Improved Funding Alternatives to Consider First

Before committing to a merchant cash advance, consider other options. Business credit cards can help with short term expenses. Community lenders and microloans can be helpful for seasonal businesses. Equipment loans work well if you need tools or machinery. Revenue based financing operates similarly to MCAs but can be less expensive.

Some seasonal businesses also use profits from previous seasons to reduce borrowing needs. This approach helps lower costs.

Conclusion for Entrepreneurs Operating in Seasonal Markets

Seasonal businesses are not fragile businesses. They simply operate on different cycles. Traditional funding sources often fail to understand this, while MCAs recognize these patterns.

A merchant cash advance can be a useful tool when used at the right time and in the right way. It can help you prepare for, grow during, and benefit from peak seasons. Understand your numbers, respect the cost, and always have a repayment plan. When used wisely, an MCA can support seasonal success instead of causing financial strain.