Merchant Cash Advance Lending: Quick Capital for Canadian Businesses | 7 Park Avenue Financial

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Merchant Cash Advance Loans: A Guide for Business Borrowers

How Does a Business Fund Its Cash Flow Needs?

There isn’t a day when we don’t meet or talk to a small business client with cash flow funding challenges.

Several solutions in the alternative finance area are becoming increasingly popular. These include short-term working capital loans, long-term loans of the same nature, merchant cash advances, and asset-based lines of credit.

While obtaining a business loan often involves stringent requirements, such as high credit scores and extensive documentation, merchant cash advances offer a more flexible alternative with higher approval rates and less information required for application.

With the right partner firm, we have found this type of financing to be a solid interim solution for cash flow financing and working capital. Let’s look at how this type of financing helps our clients achieve working capital success and why it might be right for your firm.

Fast Business Funding: Your Path Through Cash Flow Challenges

Cash-strapped businesses need quick capital but face rejection from traditional lenders. Daily operational costs mount while lengthy bank applications gather dust.

Let the  7 Park Avenue Financial team show you how Merchant cash advance lending provides same-day approvals and funding within 24-48 hours, using your future sales to secure immediate working capital.

Three Uncommon  Takes on these short term Short-Working Capital Loans

1. MCAs can improve cash flow management by aligning repayment with revenue cycles
2. Businesses can leverage MCA data tracking to optimize their sales patterns
3. Strategic stacking of MCAs with traditional financing can create optimal capital structures

Did You Know ?

• 64% of Canadian small businesses seek small business funding / alternative financing versus bank loans
• Average MCA approval rate: 85%
• Typical funding time: 24-48 hours
• Average advance amount: $50,000-$250,000

What is a Merchant Cash Advance?

Definition and Explanation

A merchant cash advance (MCA) is a type of financing that allows businesses to borrow money against future credit card sales.

Often referred to as a business cash advance, an MCA provides quick funding with more lenient qualification requirements than traditional loans.

When you get a merchant cash advance, you receive a lump sum payment upfront for a percentage of your future credit card sales. Essentially, the merchant cash advance provider purchases a portion of your future sales.

Unlike traditional loans, there is typically no set repayment schedule; instead, payments are made as a fixed percentage of daily credit card sales. This flexibility can be particularly beneficial for businesses with fluctuating revenue.

Short-Term Working Capital Loans

A Growing Trend in Non-Traditional Financing

You can call it nontraditional or alternative, but quite frankly, it's becoming more popular every day, and thousands of businesses are taking advantage of this type of business cash flow funding.

The success of short-term working capital advances finance always seems to come back to the issue of your business not being able to secure working capital financing from what we call our traditional sources, i.e., banks and finance firms.

The Reality of Quick and Easy Financing

The reality around this type of financing is that it is quick, easy, and, more remarkably, often unsecured, depending solely on your ability to generate sales based on historical performance and projected profits.

Unlike traditional business loans with fixed interest rates, merchant cash advances use factor rates to determine the total repayment cost.

Even though the government continues to encourage banks to pay more attention to small business financing, traditional financing is 99.9% of the time secured via collateral, personal net worth, strong personal credit scores of the owners, and generally stable financial performance from a historical perspective.

Challenges for Traditional Lending Criteria

The above is all good but tends to eliminate the hundreds of clients we meet who have real business challenges and can’t meet some or all of the aforementioned lending criteria.

How Does This Type of Financing Work?

The Role of Factoring in Business Financing

You may have heard of the business financing known as factoring. In a nutshell, this is the financing of your receivables as you generate them—i.e., same-day cash for sales you make.

However, thousands of firms, perhaps yours, have a significant revenue component made up of cash and credit card sales, and you still need financing for the same reasons: purchasing inventory, reducing payables, making loan payments, etc.

A merchant cash advance calculator can calculate repayments based on borrowing amount, factor rate, and monthly card sales to help businesses estimate their repayment costs.

Cash Today for Future Sales

That’s where short-term working capital loans come in. You receive cash today for future credit and cash sales, but the formula is based on your historical and current sales revenues.

Is This Risky for the Lender?

Isn’t this risky for the lender? Ask our clients. That may or may not be… but the reality is that if your firm, for example, can demonstrate via bank statements or credit card sale stats that it has solid sales, then the working capital lender is prepared to advance your funds today for a percentage of those future sales.

Different merchant cash advance providers have varying qualification standards and repayment terms, which can affect the costs and terms of the cash advances available. A quick example is that you could receive, again, as an example, an $80,000 cash flow loan today and repay it, by agreement, with, for example, 20% of all future cash or credit sales. You are receiving cash today, allowing you to fuel further growth in sales and profits.

Typical Loan Terms

These loans typically last 1-2 years. Longer terms, with better rates, are available for businesses with fairly decent financials and who can demonstrate current positive cash flow.

Advantages and Disadvantages

Benefits and Drawbacks of a Merchant Cash Advance

Merchant cash advances come with a unique set of advantages and disadvantages that business owners should consider:

Advantages:

• Fast and Flexible Funding: MCAs provide quick access to cash, which can be crucial for covering unexpected expenses or seizing new business opportunities.

• No Collateral Required: Unlike traditional loans, MCAs do not require collateral, making them accessible to businesses without significant assets.

• Repayments Based on Credit Card Sales: The repayment amount is a percentage of your credit card sales, helping you manage cash flow more effectively.

Disadvantages:

• High Interest Rates: MCAs often have higher interest rates than traditional loans, increasing the overall cost of borrowing.

• Fees for Late Repayment: Late repayments can incur additional fees, which will add to the total cost of the advance.

• Risk of Default: If your business struggles to generate sufficient sales, you may risk defaulting on the advance, which can have serious financial consequences.

Eligibility and Requirements

Criteria for Business Borrowers

To qualify for a merchant cash advance, businesses typically need to meet the following criteria:

• Credit and Debit Card Payments: Your business must accept credit and debit card payments, as the advance is repaid through a percentage of these sales.

• Minimum Monthly Sales: You should have at least $7,500 in monthly sales over the last three months.

• Working Capital Needs: The advance should support growth strategies or cover operational expenses.

• Business Bank Account: A valid business bank account is required to facilitate the advance and repayments.

• Financial Documentation: You must provide bank statements and other documents supporting your application.

Even businesses with bad credit may still be eligible for a merchant cash advance, as the lender focuses more on your business’s credit card transactions than on personal credit scores. However, a “soft” review of your credit rating may still be conducted to assess overall risk.

By understanding these criteria and preparing the necessary documentation, you can streamline the application process and improve your chances of securing a merchant cash advance.

Asset-Based Lines of Credit

A Robust Solution for Asset-Rich Firms

Working capital via asset-based lines of credit is a more robust solution for firms with assets. These non-bank credit lines combine your inventory, receivables, and equipment into one borrowing line that fluctuates with your needs and cash flow.

Case  Study

A Toronto small business owner faced seasonal inventory challenges until discovering merchant cash advance lending. Within 24 hours of applying, the company accessed $75,000 in working capital. The flexible repayment structure aligned with the sales cycle, resulting in 40% revenue growth over six months—the quick funding enabled inventory optimization and expansion of sales revenues.

Key Takeaways

• Factor rates determine the total repayment amount.

• Daily or weekly repayments align with sales

• Approval based primarily on revenue history

• Flexible funding amounts based on sales volume

• Quick application and funding process

Conclusion

Are you looking for the right way to fund short-term or longer-term cash flow and working capital needs?

Call 7  Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor with a track record of business finance success. Find out how your company can benefit from innovative and valuable cash flow financing.

FAQ

What makes merchant cash advance lending faster than traditional loans?

• Digital application process

• Simplified documentation requirements

• Same-day approval decisions

• Funding within 24-48 hours

How does flexible repayment benefit seasonal businesses?

• Payments adjust with sales volume

• Lower payments during slow periods

• No fixed monthly obligations

• Automatic payment processing

What businesses typically qualify for merchant cash advances?

• Minimum 6 months in operation

• $10,000+ monthly revenue

• Valid business bank account

• Consistent sales history

How does the application process differ from traditional loans?

• Online application platform

• Basic documentation needed

• No extensive financial statements

• Quick decision-making process

What makes MCAs suitable for emergency funding needs?

• No collateral requirements

• Quick access to capital

• Simple qualification criteria

• Flexible use of funds

 How do merchant cash advance repayments work?

• Automatic deductions from sales

• Fixed percentage of daily revenue

• No hidden fees

• Transparent factor rates

What documentation is required for approval?

• Bank statements (4-6 months)

• Business ID/license

• Proof of ownership

• Processing statements

When should a business consider alternative financing?

• Immediate funding needs

• Traditional loan delays

• Seasonal business cycles

• Growth opportunities

How much funding can small business owners typically access from merchant cash advance companies?

• Based on monthly revenue

• Usually 80-150% of monthly sales / credit card payments

• Multiple advance options

• Renewable funding available

What affects merchant cash advance costs?

• Business industry type

• Monthly revenue volume

• Time in business

• Payment history

How do merchant cash advances differ from traditional loans?

• Revenue-based repayment

• No fixed terms

• Faster approval process

• Less emphasis on credit scores

What makes MCAs suitable for retail businesses?

• Daily revenue monitoring

• Flexible payment structure

• Quick access to inventory funding

• Seasonal adjustment capability

How can businesses optimize MCA use?

• Strategic timing with cash flow

• A clear purpose for funds

• Revenue projection alignment

• Stacking considerations