Unlocking the Power of Short Term Working Capital Loans for Canadian Businesses

Tweet

 

You Are Looking For Merchant Cash Advance Loan Financing!

The New Wave of Financing: How Merchant Cash Advance Companies are Transforming Canadian Business

You've arrived at the right address!  Welcome to 7 Park Avenue Financial

        Financing & Cash flow are the biggest issues facing business today

               Unaware / Dissatisfied with your financing options?

Call Now! - Direct Line - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs

Email - sprokop@7parkavenuefinancial.com

 

Understanding Merchant Cash Advances Financing | 7 Park Avenue Financial

 

 

Understanding Merchant Cash Advances / Short-Term Working Capital Loans

 

For small businesses, retailers, restaurants, and similar entities in Canada, the options for achieving working capital and business financing can sometimes be limited. Enter a new solution, creatively named but referring to the same financing mechanism - The business cash advance.

 

  

What Are Merchant Cash Advances and How Does The Merchant Cash Advance Work?  

 

 

Often going by names like "merchant cash advance," "small business loan," or "credit card advance sales loan," these facilities cater to the short and intermediate-term cash flow and working capital needs of businesses.

The merchant cash advance rose to prominence as businesses, often retail-oriented, noticed the diminishing or non-existent traditional financing sources. Although this financing method is generally pricier than the conventional one, it serves its purpose, offering working capital based on future sales.

It's crucial to understand that this isn't a typical loan that burdens your balance sheet with heavy debt. Instead, it's an 'advance' against upcoming sales. Think of it as an immediate finance against the sales you make, which you repay via a percentage of your future sales.

 

  

A Practical Example  

 

To illustrate, if you're advanced, for instance, $10,000 for your working capital needs, a percentage (usually between 10-30%) of your future sales will go towards repaying that advance.

 

This method is most effective when you have a strong sales revenue model coupled with robust gross margins on your offerings.

 

 

Is It Suitable for Your Business? 

 

 

While it's a relatively new alternative financing form, it often becomes the go-to option when traditional bank financing avenues are no longer viable. Thousands of firms sell and finance their receivables. Essentially, with this method, you're selling and financing a portion of your anticipated sales, which, for many businesses, is a logical step.

 

It's worth noting that this financing is unsecured. The "collateral" here is the future sales, which, while expected, aren't guaranteed. The average monthly sales is reviewed in the context of repayment ability.

 

  

How Long Should You Rely on This Method Of Financing?  

 

 

As a rule of thumb, merchant cash advances are excellent for short and intermediate-term financial strategies. For the long haul, it would be wise to devise a longer-term financing strategy for your business.

 

 

Acquiring a Merchant Cash Advance

 

 

Securing a merchant cash advance or business credit card loan is generally straightforward and based on a short review of your business credit profile. The central requirement is to showcase your sales revenue through bank and/or credit card statements. However, it's common for small business owners to act as guarantors for this kind of unsecured loan financing.

 

  

Conclusion  

 

If you're in a small business and find yourself juggling financial needs daily, call 7 Park Avenue Financial, a trusted and experienced Canadian business financing advisor, about merchant cash flow advance / working capital financing.

 

FAQ

 

What is a Merchant Cash Advance?

 

A Merchant Cash Advance (MCA) is a form of financing where businesses receive an upfront sum of cash in exchange for a percentage of their future credit card sales. It's essentially an advance against your future revenues,  deposited into your business bank account, designed to provide immediate working capital.

 

How is a Merchant Cash Advance different from a traditional loan?

 

Unlike traditional loans, an MCA is not repaid in fixed installments or over a set period. Instead, repayment is based on a percentage of the daily credit card sales. Furthermore, short-term working Capital Loans often don't require collateral in the traditional sense, as future credit card sales serve as the "collateral." They typically have a faster approval process than conventional loans/bank loan-type financing.

 

How do businesses repay a Merchant Cash Advance?

 

 

Businesses repay the MCA through a predetermined percentage of their daily sales, including debit and credit card sales transactions. This percentage is automatically deducted daily or weekly (depending on the agreement) until the advance is fully repaid. This means that during higher sales, more is paid back, and during slower periods, less is paid back.

 

Who can benefit most from a Merchant Cash Advance?

 

Short Term Working Capital Loans are particularly beneficial for businesses with strong credit card sales, such as retailers and restaurants. They're ideal for those needing quick access to capital, especially if traditional banks have turned them down or have exhausted other financing options. It's also suitable for businesses with fluctuating revenues as the repayment aligns with their sales patterns.

 

Are there any downsides to consider with Merchant Cash Advances?

 

While Short Term Working Capital Loans offer quick access to funds, they often come with higher costs than traditional loans. Since repayments are based on a percentage of sales, businesses must maintain healthy sales to manage repayments effectively. It's also crucial to understand the terms thoroughly, as some Short Term Working Capital Loans can have steep fees or less favourable terms than other financing methods. Businesses using business advance loans typically cant qualify for bank loans.

 

 

How are the interest rates or fees determined for a Merchant Cash Advance?

 

 Interest rates or fees for Short Term Working Capital Loans are often not presented as a traditional annual percentage rate (APR) but rather as a factor rate ranging from 1.1 to 1.5 or higher. This rate is multiplied by the advance amount to determine the total amount the business owes. The factor rate is determined based on the business's sales history, the amount of advance, the anticipated repayment time, and the perceived risk associated with the advance.

 

Can a business obtain a Merchant Cash Advance if it doesn't accept credit card payments?

 

While Short Term Working Capital Loans are traditionally designed for businesses that accept credit card payments, some providers offer advances based on overall sales through Automated Clearing House (ACH) withdrawals. In this model, the lender would look at the business's bank account transactions and sales volume to determine eligibility and repayment terms.

 

 

Are there any industries for which a Merchant Cash Advance may not be suitable?

Yes, industries with low credit card transaction volumes or high ticket but low-frequency sales might not be the best fit for an MCA. Examples include B2B companies, manufacturers, or wholesalers. Businesses with slim profit margins must also be careful, as the advance repayment could significantly impact their bottom line.

 

What happens if a business is unable to repay the Merchant Cash Advance?

 

If a business struggles with repayments, the MCA provider might offer to adjust the withholding percentage, extending the repayment term. However, unlike traditional loans, Short Term Working Capital Loans don't have a set maturity date, so there can be additional fees or consequences for prolonged repayment.

 

How quickly can a business access funds through a Merchant Cash Advance?

 One of the significant advantages of Short Term Working Capital Loans via a merchant cash advance company is the speed at which businesses can access funds. Once approved, businesses can receive the advance within 24-48 hours, making it an attractive option for those needing capital. However, the exact time can vary based on the merchant cash advance provider, the specifics of the application and the final formula around merchant cash advance payments.

 

 

 

 

 

Click here for the business finance track record of 7 Park Avenue Financial