Merchant Cash Advance Working Capital Loan: Funding Canadian Businesses | 7 Park Avenue Financial

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ARE MERCHANT CASH ADVANCES AND SHORT-TERM WORKING CAPITAL LOANS RIGHT FOR YOUR BUSINESS FINANCING NEEDS?

Merchant cash advance loans are fast becoming a mainstream financing strategy for Canadian business-to-business loan transactions.

They are quite unlike traditional small business loans.

To qualify for a merchant cash advance, businesses must accept credit and debit card payments, as these transactions are essential for determining eligibility.

Credit card sales volume is a key factor in assessing both qualification and the maximum funding amount available.

Merchant cash advances are also accessible to businesses with bad credit, making them a viable option for those who may not qualify for traditional loans. Invoice factoring is another alternative for businesses with less-than-ideal credit scores.

The application process is straightforward and does not require changing your existing bank account, ensuring compatibility with your current financial setup.

The entire process, from application to funding, is streamlined and can be completed in as little as one business day, providing quick access to capital.

Repayment is structured so that an agreed-upon percentage of the business's future sales is deducted on a daily or weekly basis.

This is a fixed amount set by the provider, based on your ongoing sales. Instead of an interest rate, merchant cash advances use a factor rate to determine the total repayment amount. The factor rate is a multiplier applied to the borrowed sum, which differs from traditional interest rates used in other loan products.

Once approved, the funds can be used for any business purpose, such as covering unforeseen expenses or investing in growth.

After repaying a portion of the initial advance, businesses may qualify for additional funding if needed, offering flexibility for evolving financial needs.

While merchant cash advances offer fast and flexible funding, it is important to be aware of the high costs associated with some advances and to carefully review all terms before proceeding. Compared to Government SBL loans and traditional loans, merchant cash advances differ in loan amount, approval criteria, and the use of interest rates versus factor rates.

Merchant cash advances can help small businesses maintain overall health by providing flexible access to capital when it is most needed.

Introduction to Merchant Cash Advances  

A merchant cash advance is a flexible financing option that provides businesses with a lump sum of cash in exchange for a percentage of their future credit card sales and debit card sales.

Unlike traditional loans, merchant cash advances are directly tied to your business’s future sales volume, making them especially attractive for small business owners who experience seasonal or fluctuating cash flow.

This type of cash advance is ideal for businesses that need quick access to funds to manage daily operations, invest in inventory, or cover unexpected expenses.

With merchant cash advances, the application process is streamlined, and businesses can often receive cash within just a few business days.

Repayment is simple and automatic, as a fixed percentage of your daily or weekly card sales is used to pay down the advance, allowing your business to maintain healthy cash flow while meeting its financial obligations.

Comparison to Other Financing Options

Merchant cash advances offer several unique advantages compared to traditional bank loans and other financing options.

One of the most significant benefits is that merchant cash advances do not require collateral, making them accessible to businesses that may not have significant assets to pledge. The application and approval process is typically much faster than with traditional bank loans, with many providers offering funding in as little as 24 hours.

This speed and convenience can be crucial for businesses facing urgent cash flow needs. However, it’s important to note that merchant cash advances often come with higher factor rates—usually ranging from 1.1 to 1.5—which can result in higher overall repayment amounts compared to traditional loans. Before choosing a merchant cash advance, businesses should carefully compare the rates, terms, and repayment structures of all available funding options to ensure they select the best solution for their needs.

Merchant Cash Advance Requirements  

Qualifying for a merchant cash advance is generally more straightforward than applying for traditional loans, but there are still some key eligibility requirements to keep in mind.

Most merchant cash advance companies look for businesses that have been operating for at least six months and can demonstrate a consistent flow of credit card sales.

A minimum credit score is often required, but businesses with poor credit or even open bankruptcies may still be considered, though they may face higher factor rates or stricter repayment terms. Additionally, providers typically require a minimum monthly revenue to ensure the business can support regular repayments.

It’s essential for business owners to review the specific eligibility requirements and terms of each provider before applying, as these can vary. Understanding these requirements can help businesses find funding that matches their unique financial situation and sales volume.

Industries that Can Benefit from Merchant Cash Advances  

Merchant cash advances are a versatile financing solution that can benefit a wide range of industries, particularly those that rely on regular credit card transactions.

Retail stores, restaurants, and service-based businesses are among the most common users of merchant cash advances, as they often have steady sales and need quick access to cash to manage inventory, payroll, or unexpected expenses. Canadian businesses, in particular, can find merchant cash advances to be a valuable alternative when traditional financing options are limited or slow to process.

By providing fast funding based on future sales, merchant cash advances help businesses maintain healthy cash flow, invest in growth opportunities, and navigate periods of uncertainty. Whether your business is looking to expand, renovate, or simply cover day-to-day expenses, a merchant cash advance can offer the flexibility and speed needed to achieve your goals.

IS A MERCHANT CASH ADVANCE RIGHT FOR YOUR BUSINESS?

However, in talking to clients, they are concerned about two key issues around this innovative financing method.

TWO IMPORTANT ISSUES ON MERCHANT LOANS/SHORT-TERM WORKING CAPITAL LOANS  

Those two key issues are:

1. How does the merchant cash advance company work?

2. What are the costs?

To understand how merchant cash advance work, it's important to know that you receive a lump sum of funds upfront, and repayment is made automatically through a fixed percentage of your future sales, rather than fixed monthly payments. This structure sets merchant cash advances apart from traditional loans.

We firmly believe that if you understand those two critical points, then your firm is in a position to benefit from merchant cash loans and Canadian B-to-B loan solutions.

Those benefits are significant and quite clear.

They include your peace of mind as it relates to business financing, since cash flow loans grow with your business, and merchant cash advance payments and facilities are unlike pre-set bank credit lines. Also, many business owners confuse a business cash advance with other types of debt financing.

Time is money, as the Canadian business owner well knows. Merchant cash advance loans in Canada work quickly and efficiently (when you have chosen the right partner and the right type of facility).

Once the initial setup process is completed—usually in a week or two—the facility runs itself at your discretion. You have, in effect, taken complete control of your cash flow. Future sales are now turned into valuable cash flow today via merchant cash advance providers.

KEY BENEFITS

Our final key benefit that we should focus on before getting back to our two critical points is simply that this financing tool, if used properly, allows you to generate more sales and increase profits via key turnover of receivables, inventory, etc.

Not to get too technical, but there is a great tool for analyzing your business called the DuPont Model.

That calculation model allows you to calculate how the actual turnover of receivables and inventory leads to greater profits and returns on assets and equity.

We encourage you to investigate that tool for some real analysis of how a business-to-business cash flow solution might be the solution to your business financing problems.

IS THIS TYPE OF FINANCING AND CASH FLOW SOLUTION RIGHT FOR YOUR FIRM?

Okay. You now know many of the key benefits of this type of financing. Is it right for your firm? Critical point #1: How does it work?

Cash flow loans against future sales or credit card sales are simply best described as the short-term sale, or “discounting,” of your future sales or monthly credit card sales.

You generate cash, at your option, on the same day that you generate an invoice for a sale and delivery of products and services to your client base. The loan amount available through a merchant cash advance is typically based on your business's average monthly credit card sales, determining how much funding you can access. In some cases, the financing can be arranged via an online small business loan solution.

COST  

Critical Point #2: What does this type of financing cost? Actually, it's zero percent financing. Don't believe us? We are being a bit facetious, but the reality is that the business-to-business cash flow financing industry in Canada does not express or calculate financing costs via an annual percentage rate.

The problem lies in the fact that customers do, in fact, look at it that way. We have actually demonstrated to many customers that the true cost of merchant cash advance financing is actually zero or less than bank financing in many cases.

For retailers that sell primarily on a cash basis, the approval formula weighs heavily on future credit card sales and credit card transactions by the merchant cash advance provider.

Why is that? We hate to do it, but let's go back to our DuPont Model financial analysis.

If you factor your receivables, get cash the same day, buy more inventory with that cash, negotiate a better price with suppliers with that cash, and then repeat the process over and over, we can almost guarantee you—depending on your industry and A/R turnover—that receivable financing can become a profit mechanism for your firm.

That certainly clears up a lot of the "negative" things you have heard about cash flow loans and the business credit profile of borrowers. Also, MCA lenders will report loan payment credit history to business credit bureaus, which improves the small business credit profile.

CONCLUSION: A SMALL BUSINESS LOAN SOLUTION

Speak to 7 Park Avenue Financial, a trusted, credible, and experienced business financing advisor, about your business funding needs and the benefits of merchant cash advance loans and merchant cash advance companies—how they work and how financing costs can be controlled and reduced. That's true cash flow and working capital financing for Canadian businesses and their business bank accounts!

FAQ: FREQUENTLY ASKED QUESTIONS/PEOPLE ALSO ASK/MORE INFORMATION

Is a merchant cash advance a loan?

Merchant cash advances are often seen as short-term loans that provide businesses with access to the funds they need in order to manage their daily operations. With this type of financing, MCA providers purchase future sales at a discount and offer financing based on certain formulas around years in business, sales revenues, and owner credit history.

1. Canadian Alternative Finance Association. (2024). "Alternative Lending Market Report 2024." CAFA Research Division. https://www.cafaonline.ca
2. Statistics Canada. (2024). "Small Business Financing in Canada: Trends and Challenges." Government of Canada Publications. https://www.statcan.gc.ca
3. Bank of Canada. (2024). "Business Credit Conditions Survey Results." Monetary Policy Report. https://www.bankofcanada.ca
4. Federation of Canadian Independent Business. (2024). "Small Business Finance Report." FCIB Research Publications. https://www.cfib-fcei.ca
5. Business Development Bank of Canada. (2024). "Alternative Financing Options for Canadian SMEs." BDC Research Reports. https://www.bdc.ca
6. 7 Park Avenue Financial . Merchant Cash Advances vs. Traditional Loans: What's the Difference? . https://www.7parkavenuefinancial.com/small_business_merchant_loan_cash_advances.html