How Merchant Advance Capital Works in Canada And Why Retail Merchant Financing Produces Cash Flow Today

Numerous small businesses in Canada are investigating merchant advance capital and want to know how this type of retail merchant financing can help solve their cash flow challenges.
We have come to think of it as another version of cash flow financing, also called factoring. Under that type of financing you receive cash immediately for sales as you generate them, less a discount fee. In the case of merchant advance capital financing it’s somewhat similar in that you receive cash flow and working capital financing immediately, but you are pledging a portion of your future credit sales and revenue.
One of the key advantages of this type of financing is that there is no additional debt on your balance sheet - as we noted, there is no fixed payment by our firm - instead a portion or percentage of future sales is used to pay down the loan you receive. You continue paying down the merchant advance capital loan until the loan is totally retired.
In actuality though you are also in a position to renew or increase the loan even during the duration of the initial repayment - in effect it becomes a ' top up ' to your loan. Clients often ask how long the loan can be for - and typically the answer is one year or less.

So why is this type of financing attractive to many Canadian businesses? The reality that most business owners and managers realize is that cash flow fluctuates, as of course do sales. On occasion there are what we can call ' bulges' of activity that require you to purchase more inventory, and, conversely, there are always periods of slowness due to seasonality, etc. So business owners can take solace in the fact that as sales slow down so does the payments on their retail merchant financing loan, since, as we stated, you only pay back the financing from future sales.
Are there alternatives to this type of financing? Of course there are, and typically many clients we speak to have attempted to obtain cash flow financing from their Canadian chartered bank. If your firm is viewed by the bank as retail, or cash business, and you have an inventory component to your business you have of course discovered the general reluctance of banks to participate in this type of financing. Certainly that is the case without you providing additional personal collateral and equity in your business, which many business owners simply cant or don’t want to do.

Speak to a trusted, credible and experienced Canadian business financing advisor as to how merchant advance capital can grow your business and smooth out those cash flow challenges.
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