Applying for Merchant Cash Advance in Canada
What is merchant cash advance? A merchant cash advance is a short-term loan offered to businesses through various financial institutions such as banks, credit unions, or online processors. A merchant cash advance originally was established as a lump sum loan to a company in return for an agreed upon percentage of debit and credit card sales.
Today, most merchant cash advances are now offered as part of a merchant accounts program. Merchant cash lenders in Canada provide businesses with the ability to obtain emergency funding that may be required to mitigate financial losses related to unplanned out-of-pocket expenses.
How Canadian Businesses Benefit
The purpose of a merchant cash advance company is to provide businesses with the ability to expedite certain merchant cash advances. In order to qualify for a merchant cash advance, businesses must meet a specific number of transaction threshold requirements.
Some of the criteria that will qualify you for expedited funding are: your businesses’ gross revenue must exceed a set amount, you must not have pending merchant finance obligations, and your current banking relationships are satisfactory. If any of these conditions are present, you can typically get approved more quickly than if your business was not properly compliant.
Businesses in Canada seeking small business loans and advances should carefully examine the terms and conditions associated with the financing they are being offered. There are two primary types of merchant advances – unsecured and secured. Unsecured advances require no collateral to be raised and are often less expensive to process.
Secured advances require business owners to raise capital through some type of collateral. While this collateral can be collateralized in some cases (such as with a first lien note on property), it can also come in the form of conventional debt instruments (such as commercial real estate notes, preferred stock offerings, commercial mortgage payments, etc. ).
Taking a loan with precautions
As previously mentioned, most merchants receive a one-time processing fee for any amount of credit card or debit card transactions they make. This is where a merchant cash advance can be a very useful source of short term financing. These advances allow businesses to pay for this processing fee without having to take out a loan. This allows these businesses to continue to grow without the added financial stress of needing to generate additional credit lines. This is also a good option for businesses that have a sudden need for additional funding for unexpected future sales.
Most traditional short-term loans do not give business owners much flexibility when it comes to finding future sources of funding. Banks and other traditional financing institutions provide only so much credit money that a borrower can access.
Most often, a borrower will be required to apply and wait for their application to be approved. Even then, they are subject to a credit check. This can be extremely limiting, especially when a cash advance is needed to help pay for unexpected bills and expenses. Businesses often get around this by providing a personal guarantee to the cash advance company, which helps them avoid a need-to-know requirement.
When used correctly, a merchant cash advance can be a very cost effective way of funding a small business. The fees typically associated with such loans are much more affordable than the fees and interest charges that are charged for conventional short-term loans.
There is also no need to worry about annual repayments. The fees charged by these companies are based upon the amount of credit that the merchant has accessed. As such, businesses get the ability to get the money they need quickly and at significantly lower costs.
The convenience that is offered by merchant cash advances is another important factor to consider when thinking about a short-term funding solution. With most of these short-term funding solutions, the payment terms are generally up to six months in length. This can be a very beneficial feature for a business owner who needs extra funding for the immediate coming weeks or months.
Businesses that receive these loans are not expected to pay the money back until they have been paid by the customer. Therefore, there is no risk involved with taking out a short-term loan. A good rule of thumb when it comes to securing funding for a short-term period is to always seek longer terms instead of shorter terms.
All in all, a merchant account is a great solution to short-term cash needs in Canada. They offer fast cash advances and provide much less risk than traditional bank loans. Furthermore, they tend to have much better terms than traditional loans. Therefore, when looking to raise capital, it is best to turn to this type of funding option over traditional bank loans and credit card financing.
(Article contributed by 2M7 Financial Solutions – Alternative Funding & Cash Loan Provider in Canada)