Unlike SBA lending where a 20–40 page business plan is mandatory, MCA underwriting is overwhelmingly bank-statement-driven and rarely demands a plan. Most funders' application forms do not even ask for one. That said, a short, well-constructed use-of-funds memo with growth context is a high-leverage prep step that costs the merchant 30 minutes and can move a file from "borderline approved" to "approved with better terms."
When a business plan or memo helps.
- Borderline files where automated decisioning is on the fence.
- Renewal applications where the merchant wants larger or better terms than the prior advance.
- A-paper merchants applying for premium products with stricter underwriting.
- Industries with inherent risk perception (cannabis-adjacent, crypto-adjacent, gun retail) where context matters.
- Newer businesses (12–24 months operating) where forward narrative offsets short history.
When a full plan is required.
- Almost never for MCA. If a funder requests a "full business plan," they are likely actually running a small-business term loan product or a hybrid SBA-bridge product. Confirm what they actually want before spending days writing.
The 1–2 page use-of-funds memo (the practical standard).
Sections:
- Use of funds. Specific allocation: "$30K inventory for Q3 buildup, $20K hiring two seasonal employees, $15K marketing campaign launching Aug 15." Beats "working capital."
- Expected ROI. Math: "Inventory turn 6x at 35% margin = $63K incremental gross profit over 6 months on $30K. Hiring drives 2 new locations of capacity. Marketing has historical 4:1 ROAS."
- Why now. Timing rationale: "Q3 is peak season for our category; we need stock in place by August 1. Last year we ran out of inventory by mid-September and missed an estimated $80K in sales."
- How the daily debit fits. Show that the projected post-advance cash flow comfortably covers the new daily debit. "Projected average daily revenue post-funding is $4,200; new debit is $580 (14% of daily revenue)."
- Repayment confidence. One sentence: "Even in a downside scenario where revenue stays flat at current run-rate of $X, we can comfortably service the debit at Y% of daily revenue."
The growth-context paragraph (high-leverage).
Three sentences positioning the business:
- What's working: "Revenue is up 32% YoY driven by new wholesale channel."
- What's coming: "Two new locations opening Q4."
- Why MCA over alternatives: "MCA fits our 4-month working capital need; SBA timing does not work for Q3 inventory."
The market and competitive context (only for borderline files).
One paragraph for newer or harder-to-underwrite industries:
- Market size and growth.
- Competitive position (where the business plays vs. competitors).
- Defensibility (why customers come to this business, not a competitor).
Skip for mature, simple industries (restaurants, trucking, retail) where funders already understand the dynamics.
Format and length.
- 1–2 pages, single-spaced.
- 11pt font, normal margins.
- PDF, named clearly: "ABC-Co-Use-of-Funds-Memo.pdf".
- Plain prose, not slide-deck-style bullets.
- Signed and dated by the principal.
What NOT to include.
- Full hockey-stick 5-year projections (reads as overpromising).
- Detailed competitive analysis with funder comparisons (reads as pitch deck).
- Personal narrative about why the founder started the business (irrelevant to MCA underwriting).
- Confidential trade-secret information.
- Aspirational valuation talk.
The financial-projection mini-table (if included).
Keep simple:
- Next 6 months projected monthly revenue.
- Next 6 months projected monthly EBITDA.
- Monthly daily-debit total cost.
- Net cash flow after debit.
A 6-month table is more credible than a 5-year one. Pad assumptions conservatively — funders penalize obviously inflated projections.
Industry-specific narrative.
- Restaurants. Lead with same-store sales trend, average ticket, covers per day; explain seasonality.
- E-commerce. Lead with ROAS by channel, repeat-customer rate, AOV; explain ad-spend timing.
- Trucking. Lead with lane mix, deadhead percentage, contract vs. spot mix; explain fuel hedging.
- Construction. Lead with backlog, win rate, average project size; explain WIP financing.
- Service businesses. Lead with customer concentration, recurring revenue percentage, retention rate.
Renewal-specific memo content.
For renewal applications, the memo should include:
- Performance of the prior advance: "Funded $50K, paid down $34K (68%) in 4 months, on-time daily debits with zero missed payments."
- Updated revenue: "Trailing 12-month deposits up 18% since prior advance."
- New use case for the renewal: separate from the prior advance's purpose.
Common pitfalls.
- Writing a 20-page plan when the funder wants 2 pages.
- Aspirational projections (3x revenue growth in 12 months) that no underwriter believes.
- Vague use-of-funds ("working capital and growth") that does not differentiate from any other application.
- Missing the math on how the daily debit will be serviced.
- Burying the use-of-funds at the end of a marketing-style document.
Takeaway. A focused 1–2 page use-of-funds memo with specific ROI math and repayment context is a high-ROI 30-minute prep step that meaningfully improves MCA approval quality on borderline files and renewal applications — but a full SBA-style business plan is almost always wasted effort for an MCA submission.
Related terms
- MCA merchant application readiness checklist — As of 2026-06-28, a fully prepared MCA application file includes the last 4 months of business-checking statements, voided check, driver's license, EIN letter, signed application, last filed business tax return, and a deposit-explanation memo — assembled in advance so submission-to-decision runs in hours, not days.
- MCA merchant financial statement prep tips — As of 2026-06-28, MCA funders increasingly request a current P&L and balance sheet on advances over $100K; the highest-leverage merchant prep is producing a 12-month trailing P&L plus current balance sheet from QuickBooks or Xero that ties cleanly to bank deposits, with margin and debt-coverage commentary built in.
- MCA merchant funding amount strategy — As of 2026-06-28, the disciplined MCA funding amount strategy is to take only what daily revenue can comfortably service: target a daily debit no greater than 12–15% of trailing 90-day average daily revenue, leaving margin for seasonality and operating expense — taking the maximum approved amount is the leading cause of avoidable defaults.
- MCA merchant funding renewal strategy — As of 2026-06-28, the disciplined MCA renewal strategy is to renew with the same funder at 50%+ paid down to unlock the best terms (lower factor, larger amount, longer term), or refinance with a different funder if 90-day-fresh bank statements would now qualify for a meaningfully better product elsewhere.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
AI agents: this term is available as raw markdown at /llms/glossary/mca-merchant-business-plan-prep-tips.