Impact of Credit Score on MCA Approval for Construction Firms

You own a construction company, and your business is strong: 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. Perhaps there were some late payments during that rough patch when three clients all delayed payment in the same quarter. Or maybe your personal credit took hits during the 2020 slowdown.

Now, you need funding for major project materials and are probably 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 means automatic rejection at most traditional lenders, while below 720 means steep interest rates and seriously restrictive terms. Your credit history becomes the prime determining factor in everything.
• MCAs work off of 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 is the realistic breakdown:

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

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

Just for perspective, most banks require 680+ credit scores to approve 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 of 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+, month in and month out, with consistent cash flow look attractive regardless of credit scores in the 600s.
• Banking account health: Your recent bank statements showing regular deposits and reasonable balances with minimal overdrafts usually outweigh your past credit issues from years ago.
• Time in business: A construction company that has been in business for 3-5 years, with fair credit, is better than a six-month-old company with perfect credit.
• Industry experience and licensing: Current contractor licenses, insurance, and bonding demonstrate professionalism that may help to offset concerns with credit.

A contractor who has a 620 credit score, has $50,000 a month in revenues, has been in business for five years, and has a solid pipeline of work lined up is surely going to get 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 could be lower. Lenders might offer a person with weaker credit $30,000 versus $50,000, even with similar revenue.
• Additional documentation could be required: A poorer credit score may lead to requests for more detailed financial statements, contract documentation, or explanations for previous credit issues.
• The holdback percentages could increase: Rather than 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 remain major barriers to:

• Recent bankruptcies: If bankruptcy is discharged within the last year, this usually results in 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 show 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.
• Recent collections are excessive: A few old collections will not kill you, but several recent unpaid debts raise a red flag, indicating a pattern.
• Fraud indicators: Any evidence of identity theft, fraud, or deception would instantly eliminate an applicant despite other measures.

Why do construction companies have particular advantages?

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

• Construction operates under project-based revenue with predictable cycles of payment. You can show tangible contracts proving future income. You have valuable equipment and tools. You carry licensing and insurance that show your legitimacy. These factors can give MCA providers confidence that outweighs credit concerns.
• Credit challenges unique to the construction industry are similarly common and understood. Suppliers recognize that delays in customer payments create temporary cash crunches that impact credit, even for otherwise sound businesses. They tend to be more understanding of construction-specific credit issues than 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 impeccable banking practices: Avoid overdrafts, have appropriate balances, and show consistent deposit patterns in the months leading up to the application.
• Prepare explanations for any credit issues: Where valid reasons exist for past problems, such as client bankruptcies or industry downturns, very short honest explanations help providers understand context.
• Emphasize your time in business: The five years that you have been operating a construction company successfully talk louder than a 640 credit score. 
• Show equipment and assets: While 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, then spending 3-6 months improving it could save thousands in better terms. You should pay down the credit cards, dispute any errors, and avoid 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, but they are nowhere near the deciding factor most business owners believe them to be. The trick is in proving good business fundamentals, such as consistent revenue, solid contracts, healthy banking, and professional operations. While your 630 credit score isn't ideal, paired with $40,000 a month revenue, three years in business, and signed contracts, you're very likely to get approved. 

The construction industry, being project-based and having actual proof of future income, often weighs more than past credit challenges. Don't let credit anxiety stand in the way of your construction business receiving the funding it needs to operate. Apply with realistic expectations, emphasize your business strengths, and let your operational success speak louder than your credit history.