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

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

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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.

 

 

 

 

 

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Funding Business Cash Flow Needs In Canada

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Working Capital Loans & Asset Based Lending & Merchant Cash Advance Solutions Do The Trick

Information on Funding Options For Business Cash Flow Needs Via Alternative Finance Solutions

How Does A Business fund it's cash flow needs ? There isn't a day these days when we don’t meet or talk to a small business client who is having 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 .

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.

Short Term Working Capital Loans

You can call it non traditional or alternative, but quite frankly its becoming more popular everyday 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, finance firms.

And the reality around this type of financing is that it is quick and easy, and , more remarkably, often unsecured , depending solely on your ability to generate sales based on historical performance and projected profits . Even though the government continues to encourage banks to pay more attention to small business financing the reality is that traditional financing is 99.9% of the time secured via collateral, personal net worth’s, strong personal credit scores of the owners, and generally stable financial performance from a historical perspective.

The above is all well and 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.

So how does this type of financing work. You may have heard of the business financing known as factoring. This, in a nutshell, 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 major 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.

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

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

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

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

If you are looking for the right way to fund short term or longer term cash flow and working capital needs speak to 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.


7 Park Acvenue Financial:
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.



Stan Prokop

Why Canadian Merchant Cash Advance And Business Credit Card Loan Facilities Are Popular forms OF Small Business Finance

There certainly aren’t countless options for small business, retailers, restaurants, etc for achieving working capital and business financing success in Canada
So let's discuss the new and up and coming kid on the block, who goes by a variety of creative names - including but not limited to : merchant cash advance , small business loan, and credit card advance sales loan.
What are these facilities, how do they work, and are they perhaps tailor made for your short and intermediate term cash flow and working capital needs.
The merchant cash advance became popular clearly as a result of businesses such as yours, probably retail in nature who have seen traditional sources of financing either disappear, and quite frankly perhaps weren’t even there in the first place!
While this form of financing is more expensive than traditional financing, as alternative financing goes, it does the trick, providing you with working capital and cash flow based on future sales.
And we can assure you that we spend a lot of time with clients carefully explaining that it’s not a loan per se that brings onerous debt on to your balance sheet. You are simply receiving an ' advance ' against future sales. Other commercial business makes sales, and then immediately finance their receivables to generate cash flow. In the case of your business, either a retail establishment or a restaurant ( basically any business that takes credit cards on a regular basis ) your are simple cash flowing those future sales, getting funds today, and repaying the advance via a percentage of future sales that you feel confident will be made .
Using a simple example, if you are advance , again just as a example here, $ 10,000.00 for your working capital needs a per cent age , typically 10 -30 per cent of future sales is used as a repayment of that advance your firm has just been provided with . Where this works best is if you have a solid credit card sales revenue model, and your have solid gross margins on your services, products, etc.
So is it a good idea for you firm? Well, certainly as we said, it’s a newer form of alternative financing. In most cases we see when discussing the options it is clear to all parties that traditional bank financing options have been fully exhausted. As we said, thousands of firms sell and finance their receivables - all you are doing is selling and financing a portion of your future sales - so for many it does make sense.

And by the way, it’s clearly a form of financing that is unsecured, because the collateral is in fact future sales that hopefully will materialize, but might not!

A good rule of thumb we use is that it’s an excellent short and intermediate finance strategy. Over the longer term you should be working on a long term strategy to probably finance your business.
A merchant cash advance business credit card loan is also very easy to achieve. The main focus is your ability to demonstrate your sales revenue via bank or credit card processing statements. Small business owners can expect of course to be a guarantor on this type of unsecured loan financing.
So, that’s the offering. If you are scrambling on a daily basis in a retail or restaurant type business environment speak to a trusted, credible an experienced Canadian business financing advisor about merchant cash flow advance financing.


Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :

http://www.7parkavenuefinancial.com/merchant_cash_advance_business_credit_card_loan.html

Get A Fast Merchant Cash Advance And Business Cash Flow Loan in Canada

A merchant cash advance for business cash flow continues to grow and become more widely used in smaller sized firms in the Canadian business environment.

Smaller Canadian firms who do not have major investments in receivables and inventory do not have the financing alternatives enjoyed by their larger company counterparts. Larger corporations use the concept of securitization as a method of financing working capital and enhancing balance sheets. This type of sophisticated financing allows firms to improve liquidity and satisfy lender loan covenants.
Smaller firms, usually do to cost, lack of financial sophistication, and size are unable to utilize such alternative financing. Additionally, in the current 2009/2010 financial environment many firms are struggling with their ability to maintain bank credit facilities, let alone increase them!

The discounting of future sales, for cash today , allows firms to convert working capital into immediate cash. This comes with a cost which we will also discuss.

It is critical to note that when a firm sells, or factors, or discounts (they all mean the same thing) they retain no ownership or interest in the future sale .

Depending on how the merchant advance facility is structured they may or may not have responsibility for the ultimate non- collectibility of the account. Lenders address that issue in a variety of manners.

Smaller companies in Canada aren't able to enter to large multi year arrangements, with lower costs, that would allow them to achieve the benefits of a true securitization.
But ... ! .. you can sell sell future sales under a discounting agreement. This can be done with a minimum of cost and deals can be structured uniquely to the customers situation, and their is a lower cost and no reliance on lawyers, advisors, etc.
If used on a regular basis the merchant cash advance discounting process continually generates new working capital, allows the customer to generate better rates as time goes on, and, most importantly, relieves the financial stress of managing working capital.
It is very important to note that smaller companies have some distinct choices that on occasion the larger firms don't have. They can on a one time basis, or periodically choose to utilize this alternate financing method.
Ultimately the business owner does have to pay back the lender or generate sales that will allow the repayment .
Typically the costs in business cash flow financing vary greatly. Rates range from 1.5 - 3% on a monthly basis. Most customers view this as an ' interest rate ', while the lender tends to view it as discount rate.
Generally the facility can be set up in a couple of weeks! We have seen our clients set up a facility in a matter of days !
As we can imagine it takes the larger corporations many months (and many thousands of dollars) to set up their large dollar securitization facilities.



In summary, more and more firms are turning towards a merchant cash advance business cash flow loan to manage their working capital and liquidity challenges.
Firms are strongly advised to search out experts in this area who know the Canadian marketplace, as it differs substantially from the U.S. environment in this unique method of alternative financing.

--

Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/business_cash_flow_merchant_cash_advance.html

How To Get Approved For Cash Flow Funding Via A Merchant Cash Advance In Canada

There isn't a day these days when we don’t meet or talk to a small business client who is having cash flow funding challenges. One solution becoming increasing popular in Canada is a merchant cash advance.

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.

You can call it non traditional or alternative, but quite frankly its becoming more popular everyday and thousands of businesses are taking advantage of this type of business cash flow funding . The success of merchant cash advance financing 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, finance firms.

And the reality around this type of financing is that it is quick and easy, and , more remarkably, often unsecured , depending solely on your ability to generate sales based on historical performance and projected profits . Even though the government continues to encourage banks to pay more attention to small business financing the reality is that traditional financing is 99.9% of the time secured via collateral, personal net worth’s, strong personal credit scores of the owners, and generally stable financial performance from a historical perspective.

The above is all well and 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.

So how does this type of financing work. You may have heard of the business financing known as factoring. This, in a nutshell, 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 major 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.

That’s where the merchant cash advance comes in - in essence you receive cash today for future credit and cash sales. Isn’t this risky for the lender, asks our clients? That may or may not be... but the reality is that if your firm, as an example , can demonstrate via bank statements or credit card sale stats that you have solid sales then the merchant advance lender is prepared to advance you funds today for a percentage of those future sales . 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.

Speak to a trusted, credible, and experienced Canadian business financing advisor as to how your firm can benefit today from this innovative and valuable cash flow financing.

--

Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 6 years - has completed in excess of 50 Million $$ of financing for Canadian corporations .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/merchant_cash_advance_cash_flow_funding.html