Impact of Credit Score on MCA Approval for Construction Firms

You have a construction company, and business is solid. You have contracts lined up, a skilled crew, and years of experience. But your credit score? Let's just say it's seen better days. Maybe you had some late payments during a rough stretch when three clients all delayed payment simultaneously. Or perhaps your personal credit took hits during the 2020 slowdown.

Now you need funding for big project materials, and you're wondering: will my credit score kill my chances of getting a Merchant Cash Advance?

Here's the straight answer: your credit score matters, but probably not as much as you think. Credit is just one piece of a much larger puzzle when it comes to construction companies seeking MCAs. Let's break down how exactly credit scores impact the approval of MCAs for construction firms and what really matters.

The Great Divide: MCAs versus Traditional Loans

• Banks obsess over credit scores. A FICO score below 680 gets you automatically rejected at most traditional lenders; below 720, steep interest rates and restrictive terms await. Your credit history becomes the prime determining factor in everything.
• MCAs operate on entirely different logic: instead of asking, "Has this person historically repaid debts?" they ask, "Does this business generate enough revenue to handle repayment?" It's a fundamental philosophical shift that opens the doors for construction companies with imperfect credit.

What Credit Score Range Works for Construction MCAs?

Here's the realistic breakdown:

Credit score 680+: You're in excellent shape. Credit won't be a problem, and you will likely have better factor rates with higher funding amounts.

• Credit score 600-679: You're still very much in the game. This is the sweet spot where most of the construction MCA approvals take place. Your credit is considered acceptable, and providers will focus primarily on your business performance.
• Credit score 550-599: You're viable, but closer scrutiny will come. Compensate with positive business metrics at this credit score-such as solid revenue, good contracts, and clean banking. Factor rates may be slightly higher.
• Credit score below 550: It gets really tough. You will not be summarily eliminated, but you will need really strong business performance and can expect much higher costs or lower funding amount.

Just for perspective, most banks require 680+ credit scores for business loans. The fact that construction firms with 580 credit scores regularly get MCA approval really shows the difference in standards.

What MCA Providers Actually Focus on for Construction Companies

While checking your credit, providers focus much more heavily on these factors:

• Your pipeline and contracts for the project: Are there signed contracts or steady work lined up? This is more important than the credit score because it proves that revenues are coming in.
• Monthly revenue volume: Construction companies doing $30,000+ a month with consistent cash flow look attractive regardless of credit scores in the 600s.
• Banking account health: Your recent bank statements showing regular deposits, reasonable balances, and minimal overdrafts often outweigh past credit issues from years ago.
• Time in business: A construction company operating successfully for 3-5 years, with mediocre credit, looks better than a six-month-old company with perfect credit.
• Industry experience and licensing:  Current contractor licenses, insurance, and bonding show professionalism that can help to offset credit concerns.

A contractor with a 620 credit score, revenues of $50,000 per month, in business for five years, and with a solid pipeline of work lined up will surely be approved over a startup with 750 credit but spotty revenues.

How Poor Credit Actually Affects Your MCA Terms

Your credit score may not determine approval, but it does influence the specifics.

• Factor rates run higher: A construction company with 720 credit might get offered a 1.18 factor rate while a 580 score might see 1.35 or 1.40. On a $40,000 advance, that's the difference between repaying $47,200 versus $54,000 to $56,000.
• Funding amounts may be lower: Providers may offer a person with weaker credit $30,000 instead of $50,000, even with similar revenue.
• Additional documentation may be needed: A lower credit rating may prompt requests for more extensive financial statements, contract documentation, or explanations for prior credit issues.
• Holdback percentages could go up: Instead of 12% of receivables, you could be looking at 15% or 18% to speed up repayment and lower provider risk.

Credit Issues That Can Still Derail Applications

Although MCAs are forgiving, some credit issues do remain major barriers to:

• Recent bankruptcies: Bankruptcy discharged in the past year is usually an automatic denial. If it is 2-3 years old with credit rebuilt since then, you are much better off.
• Outstanding tax liens or judgments: Pending liens against your construction business indicate that you are not meeting the very minimum of your business obligations, and there is little to no tolerance for such situations, even from the most flexible of MCA providers.
• Excessive recent collections: A few old collections won't kill you, but several recent unpaid debts raise a red flag, suggesting a pattern.
• Fraud indicators: Anything that would suggest identity theft, fraudulent activity, or dishonesty will immediately disqualify someone regardless of other factors.

Why do construction companies have special advantages?

Here's something that many owners of a construction business don't realize: your industry actually works in your favor, even with imperfect credit.

Construction operates on project-based revenue with predictable cycles of payment. You have tangible contracts proving future income. You maintain valuable equipment and tools. You carry licensing and insurance that show your legitimacy. These factors can give MCA providers confidence that outweighs credit concerns.

Construction industry credit challenges are also common and understood. Providers realize that delays in client payments create temporary cash crunches that affect credit, even for otherwise solid businesses. They tend to be more forgiving of construction-specific credit issues compared to consumer credit problems.

Strategies to Improve Approval Despite Credit Issues

If your credit isn't ideal, strengthen these areas:

• Document your contract pipeline clearly: Signed contracts, letters of intent, or regular client relationships show proof of consistent work for the future.
• Keep immaculate banking practices: Avoid overdrafts, have appropriate balances, and exhibit consistent deposit patterns during the months leading up to the application.
• Prepare explanations for credit issues: If you have valid reasons for past problems (client bankruptcies, industry downturns, medical emergencies), brief honest explanations help providers understand context.
• Emphasize your time in business: Your five years successfully operating a construction company speaks louder than a 640 credit score.
• Show equipment and assets: Although MCAs do not require collateral, stating owned trucks, tools, and equipment shows business substance.

When to Wait vs. Apply Now

If your credit is below 550 and you have time, spending 3-6 months improving it could save thousands in better terms. You should focus on paying down credit cards, disputing errors, and avoiding new inquiries.

But if you need funding immediately for a time-sensitive project, don't let imperfect credit stop you from applying. The opportunity cost of missing a profitable project often exceeds the cost of slightly higher MCA terms.

The Bottom Line

Credit scores have an effect on MCA approval for construction companies, but they are nowhere near the deciding factor most business owners believe them to be. The trick is proving good business fundamentals: consistent revenue, solid contracts, healthy banking, and professional operations.

Your 630 credit score isn't ideal, but combined with $40,000 monthly revenue, three years in business, and signed contracts, you're very likely getting approved. The construction industry's project-based nature and tangible proof of future income often outweigh past credit challenges.

Don't let credit anxiety prevent you from seeking the funding your construction business needs. Apply with realistic expectations, emphasize your business strengths, and let your operational success speak louder than your credit history.