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Merchant cash advance loans are popular for funding businesses that prefer repaying the loan on a daily basis as a percentage of sales.
If you are a small business looking for the top merchant cash advance lenders in Canada, you are in the right place!
Below you will find a list of top lenders, as well as important information on their financing options, approval process and clients reviews that can help you make a decision as quickly and accurately as possible.
Apply for a merchant cash advance loan online in just a few clicks.
We can help connect you with the top merchant cash advance lenders in Canada.
If you are a small business owner that sells via card sales and/or has accounts receivables outstanding from customers, then a merchant cash advance is a quick potential option to obtain short-term financing based on future revenues.
A merchant cash advance enables a business owner to unlock the value of their credit sales and/or other receivables on an accelerated timeline. Using these receivables streams, the business approaches a provider who then advances the money in cash to the business. It is an effective short-term financing and/or working capital solution for businesses for whom a bank loan is not a feasible option.
The merchant cash advance (MCA) financing option is typically used by businesses that have a majority of their revenues originating from card sales (debit or card). By definition, the MCA is not technically a loan as it doesn’t charge interest on the principal that you are advanced. The providers of merchant cash advances are instead paid through the future sales made by the business, wherein they take a cut of future revenues until the MCA is paid out in full.
These financing tools are often found in a couple different types of structures:
The question now arises as to how the provider makes a profit if there is no interest charged on the actual merchant cash advance?
To answer this, it is pertinent to get familiar with a term called the factoring rate.
The factoring rate is essentially a multiplier on the principal, which details the total amount of fees to be paid. For example, on a cash advance of $10,000 with a factoring rate of 1.25, the customer would pay $10,000 x 1.25 = $12,500 in total principal and fees. Therefore, the provider would ultimately receive $2,500 after the principal is paid back for the risk they take in advancing the money to the borrower.
Consider a pizza shop business that needs $50,000 in cash. The shop generates approximately $1,000 every day in card sales. If the owner now chooses to obtain the cash via a merchant cash advance, the MCA provider might quote him/her a holdback rate of 20% and a factoring rate of 30%. This means that 20% of the $1,000 in daily sales is remitted to the provider and $65,000 in total has to be paid back to the provider inclusive of principal and fees ($50,000 x 1.3 = $65,000).
With a total amount of $65,000 to be repaid and $200 paid back every day, it would take the customer 325 days in total to pay back the merchant cash advance.
In the above explanation, two main rates were identified as the key drivers in a merchant cash advance transaction: the holdback rate and the factoring rate. Depending on the type of business, these two rates can vary significantly between different customers.
The holdback rate is typically a function of:
On the other hand, the factoring rate is based on:
While these are the two key drivers to look for when obtaining a merchant cash advance transaction, it is important to remember that the factoring rate is not the same as an interest rate or an annual percentage rate (APR). While interest rates directly impact the business’s cost of capital, the factoring rate is excluded from the cost of capital as it doesn’t represent debt to the company (and is obviously not counted as equity either).
Just as with any conventional interest-bearing loan, there are a multitude of factors that have to be considered when choosing between different types of merchant cash advances. Some of these include:
The application process for a merchant cash advance can be relatively simple if the business already has the existing card infrastructure.
The initial step of the process consists of an application where the provider requests information such as the owner’s social security number, business HST number and/or other such information about the business.
Once the application is complete, key documents such as the business’s card processing statements and bank statements (3-6 months) have to be provided for the provider to make a decision.
Once the provider receives the requisite information and documents, approval can be received in as little as 24-48 hours.
Since the provider is paid out directly from future sales, the card processor will have to be configured to remit a fixed percentage of each card transaction’s sales directly to the provider.
Understand the terms of the documentation and ensure that you are aware of when payments to the provider will be initiated to avoid cash flow problems at a later stage.
Receive the funds!
A merchant cash advance is typically used for emergency expenditures that a business encounters. If a business generates a stable level of cash via card transactions but does not have access to a small business loan or revolver facility, then the MCA is a viable option to gain short-term financing quickly. The MCA can then be used for any business purposes including payments to suppliers for raw materials, salaries and wages, overhead costs, unforeseen expenses, etc.
There are two ways merchant cash advance replacement can be structured. The most common way is through Automated Clearing House (ACH) withdrawals. ACH withdrawals are fixed daily or weekly charges to your bank account.
With ACH withdrawals, you get an upfront advance from a merchant cash advance company, then pay it back through fixed rate ACH withdrawals, plus fees, until the advance is paid back.
The other way merchant cash advances are paid back is through a portion of future debit and credit card sales. This option works a lot better for businesses that don’t get many payments in cash.
With this option, you pay your merchant cash advance back through a portion of debit and credit card sales. These portions of your sales will be transferred to the merchant cash advance broker until you’ve paid them back in full.
While different providers have different caps, typically MCAs are obtained for between $5,000 and $50,000. They are intended to be a short-term financing source.
This would vary from provider to provider, but holdback rates can be as low as 8% to as high as 30%. Factoring rates range from 1.2x to 1.5x.
As long as the funds are channelled into the business, they can be used for any business expenses without restriction at the owner’s discretion.
The MCA has no fixed term. It is designed to be repaid as per the volume of business revenues. It’s re-paid as a percentage of daily sales. The repayment amount is different every day.
Some simple methods to increase cash flow within the business are to: negotiate longer repayment terms with suppliers, shorten the accounts receivable collection cycles, enforce better inventory control to ensure cash is not tied up in inventory etc.
Yes, you can get a merchant cash advance with bad credit. Merchant cash advances are seen as less risky by brokers. This is because unlike loans with interest payments, merchant cash advance repayments are automated. They are also guaranteed as long as your business continues making money.
Overall, merchant cash advances are one of the easiest financing options to access. Even when you have a low credit score, getting a merchant cash advance won’t be too hard.
There are plenty of fast business loans that you can use instead of a merchant cash advance. The most similar option would be invoice factoring. Invoice factoring is also different from traditional loans. Invoice factors are also upfront, although they are not repaid in the same way. Term loans are one of the most popular options.
Yes, merchant cash advances are usually available to startups. The merchant cash advance broker will assess your business and decide whether to give you an advance. If your business is transactional and you accept credit and debit sales, you should have no trouble finding an MCA provider.