A Great Alternative to Traditional Business Loans

In today’s economic environment it is very challenging for a small business to obtain a bank loan. This is especially true for store-fronts, such as retail stores, restaurants, pubs, clothing stores, convenience stores, coffee shops, auto repair shops, clinics, and franchise operations, to name a few. For these businesses applying for a bank loan is challenging and approval is seldom given without substantial personal collateral from the owner.

Merchant Advance Capital was born from a simple idea. Even though store-front businesses lack collateral for bank loans, they make sales each day and so a finance company, such as Merchant Advance Capital, can bank on those sales. If a business has steady sales and has a viable business, then Merchant Advance Capital can provide working capital in exchange for a percentage of those sales.

A merchant advance is a purchase of a portion of future debit & credit card sales at a discount today. For example, Merchant Advance Capital provides $75,000-$80,000 to a retail store for inventory financing. The retail store enters into an agreement whereby 8% of its debit & credit card sales are forwarded back to the financing company, until a total of $100,000 is repaid. Let’s assume in this example that the entire deal takes 9 – 10 months, which is a typical turnaround time for a merchant advance.

While the cost of a merchant advance exceeds that of a typical business loan, its distinct features make it an attractive option to many Canadian small businesses. Specifically, the ease of acquiring the financing (no collateral required) and the variable repayment structure (as the financing company only gets paid when the business makes sales) can be very beneficial.

When evaluating a merchant advance as a financing option, you have to compare the cost of funds to the opportunity that’s being capitalized, and if that opportunity has great money making potential, then using our service makes great sense. We are willing to take a risk when the banks are not so that your business can get a critical growth capital injection to increase sales. Raising this type of growth capital is typically only possible by selling equity to private investors, in which case a substantial portion of the business gets sold forever. Clearly, a merchant advance is a much better option than selling a part of your business.

The most common use of funds in Merchant Advance Capital’s deals is to acquire inventory. Additional inventory allows a retailer to increase sales during their high season. The key variables that must be carefully analyzed are the gross margin on the inventory and the pace at which the inventory can be turned over. If the inventory turns fast enough and at a high enough gross margin, then using a merchant advance to finance its acquisition is a no brainer.

Within the restaurant sector, merchant advances are typically used for capital improvements – whether that be in the form of a new patio, renovations, buying equipment, or even building a new location altogether. Additionally, catching up on bills (such as paying a tax bill, a supplier payment, or emergency payments if something needs to be fixed), consolidating debt, advertising & marketing, and business acquisitions are also common scenarios.

Other popular sectors include auto repair shops, veterinarians, doctors, pet food stores, furniture stores, and many others.

The basic preliminary requirements for funding is that a business has been in business for at least 1 year and has at least 1 year left on their lease. Debit & credit card sales are preferred and allows the merchant advance to take place, but in the absence of debit & credit card sales (for example, if a business’s transactions are entirely cheque-based or electronic funds transfer), Merchant Advance Capital will provide a short-term traditional business loan. As of right now we believe we are the only Canadian merchant advance company to provide a traditional business loan in the event that the debit & credit card sales are not there to support a merchant advance. This greatly increases the number of sectors that we can be involved in and includes B2B scenarios as well as professional corporations.

Our short-term business loans work very similarly to our merchant advances. Cash is provided up-front and a daily payment is made automatically to repay the balance. The only real difference is that the daily payment is fixed as opposed to being variable and dependent on your sales. Having a payment that fluctuates is nice in that you only make payments when you make sales. However, by offering this traditional business loan product we make our financing solutions available to a much larger audience.

To summarize, it is difficult to acquire traditional business loans in Canada. Canada is very unique in that five major banks hold most of country’s market share. This makes it that much more important for alternative financing industries to flourish. Our banks reward large corporations with extremely low borrowing costs while small businesses are left behind, with no options at all. We are here to create new options for the people that have been getting left out.