8 min read
LendMatrix Team
•
January 10, 2025
Most MCA companies only talk about their wins. The deals they funded. The merchants they helped. The growth they enabled.
We're going to talk about our rejections.
Last month, we received 216 applications through our platform. We funded 127 of them. The other 89—about 40%—we declined.
That might sound like a bad thing. Aren't we supposed to help businesses get capital? Isn't rejection the opposite of that?
Not always. Sometimes, the most helpful thing we can do is say no.
In MCA, we call it a "dead file"—an application that looks promising on the surface but will never fund. Or worse, an application that funds but defaults within weeks.
Every experienced broker has war stories. The merchant who swore their bank statements were accurate (they weren't). The business that looked healthy until you noticed the seven other MCAs they'd hidden. The owner who planned to use the advance to pay off gambling debts.
Dead files waste everyone's time. They waste the merchant's time chasing capital they'll never get or can't afford. They waste underwriters' time processing applications that shouldn't have been submitted. They waste brokers' time on deals that will never close—or worse, deals that close and then claw back.
Our 40% rejection rate isn't a failure. It's us catching dead files before they become everyone's problem.
Let's get specific. Here's what actually disqualifies merchants in our underwriting:
"Stacking" is when a merchant has multiple MCA positions at once. It's not automatically disqualifying—plenty of healthy businesses manage multiple advances. But when we see:
That's not a business seeking growth capital. That's a business in a debt spiral. Funding them doesn't help—it accelerates the crash.
We're not looking for perfect financials. Seasonal businesses have slow months. Startups have lumpy revenue. That's normal.
But when we see:
We're not going to fund an advance that the merchant can't realistically pay back. That's not helping them—that's setting them up for default, collections, and worse credit than they started with.
Some industries have higher default rates. That's just data. We're more cautious with:
This doesn't mean we won't fund these merchants—but we need to see compensating factors. Strong personal credit. Solid cash reserves. A clear use of funds with measurable ROI.
Sometimes applications fail on paperwork:
We'll usually ask for clarification before declining. But when clarification doesn't come, or when the explanations don't add up, we move on.
MCAs work best for specific purposes: inventory purchases, equipment, marketing spend, hiring, bridging receivables. Stuff that generates return.
When merchants tell us they want capital to:
We get concerned. MCA isn't cheap capital. Using it for anything other than revenue-generating activity usually means the merchant can't afford the payback.
Let's be clear about what a rejection from us doesn't indicate:
It doesn't mean you're a bad business. Sometimes timing is just wrong. A business that's a "no" today might be a clear "yes" in six months.
It doesn't mean you can't get funded elsewhere. Different providers have different risk appetites. We're more conservative than some. If you have a solid business but don't meet our criteria, a higher-risk funder might say yes.
It doesn't mean we think you'll fail. It means we think this particular advance, at this particular time, isn't the right fit. That's a much narrower statement.
Here's the thing about MCA defaults: they're catastrophic.
When a merchant defaults on an MCA:
A rejection is annoying. A default is devastating.
When we decline an application, we're often preventing a scenario where the merchant takes on debt they can't service, defaults in 90 days, and ends up in worse shape than when they started.
We'd rather say "no" today than watch you go bankrupt next quarter.
We don't just send a form letter. When we decline an application, we try to explain:
Not everyone does this. Most providers just send a "thanks but no thanks" and move on. We think that's a missed opportunity to actually help.
There's a selfish reason we're careful about approvals too: clawbacks.
When a funded deal defaults early, the broker's commission gets clawed back. The provider loses money. Everyone loses.
Some providers play a volume game—approve everything, fund fast, deal with defaults later. Their brokers take on huge clawback risk. Their merchants end up in debt spirals. But hey, the funded volume numbers look great.
We'd rather have a 60% approval rate with a 3% default rate than a 90% approval rate with a 15% default rate. The math works out better for everyone except the people selling "funded volume" metrics.
If you're applying for MCA (with us or anyone), here's how to not be a dead file:
Be honest about existing positions. We're going to see them in your bank statements anyway. Hiding them just wastes everyone's time and kills trust.
Have clean bank statements. No overdrafts in the last 90 days. Consistent deposits. No unexplained large movements.
Know your numbers. What's your monthly revenue? Gross margin? Current debt obligations? If you can't answer these questions, you're not ready for an MCA.
Have a clear use of funds. "I need $50K for inventory because I'm launching a new product line in Q2" is better than "I just need some capital."
Time it right. Don't apply when you're desperate. Apply when you're growing and need to accelerate. The difference in approval rates is night and day.
Our 40% rejection rate is a feature, not a bug.
It means we're actually underwriting. It means we're catching problems before they become disasters. It means we're protecting merchants from themselves, protecting brokers from clawbacks, and building a sustainable book of business instead of chasing volume.
If you want a provider who'll fund anything with a pulse, we're not it. If you want a provider who'll give you honest feedback and only fund deals that actually make sense, let's talk.
Curious where your application would land? Our pre-qualification tool gives you an honest assessment in 60 seconds, before you go through full underwriting. No commitment, no credit pull, just clarity.