Merchant Cash Advance

For many Canadian businesses, accessing funds quickly and efficiently can make all the difference when it comes to staying afloat during tough times. One popular alternative to traditional small business loans is the Merchant Cash Advance (MCA). This financing option provides businesses with a quick influx of cash by leveraging their future credit card sales.

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Top Merchant Cash Advance Providers in Canada

Interest Rate
$5,000 - $500k
6 -12 months
$5,000 - $500,000
4 - 12 months
$15,000 - $1 Million
Starting at 8%
3 - 24 Months
Starting at 7.99%
Fixed, 4-18 months
$5,000 - $500,000
Starting at 7.99%
6 - 24 Months
$500 to $300,000
Starting at 8.39%
2, 3, 4, 6, 9, 12, 18 or 24 month terms
$5,000 - $50M
Starting at 7%
5 - 96 months
$5,000 - $300,000
Starting at 7.99%
3 - 12 months
Starting at 7.99%
3-24 months
$5000 - $800,000
Starting at 7.99%
6 - 24 Months
$10,000 - $250,000
3 - 12 months
$5,000 - $250,000

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What is a  Merchant Cash Advance MCA:

In the Canadian business landscape, the Merchant Cash Advance (MCA) has emerged as a compelling financing tool for businesses in need of quick capital. But what exactly is it?

An MCA is not your typical business loan. Instead, it offers a business a lump sum of money up-front, which the business then repays through a percentage of its future credit and debit card sales. Here’s a breakdown:

Initial Advance:

A merchant cash advance company provides businesses with a sum based on their average monthly credit and debit card transactions. In essence, these companies purchase a portion of the business’s upcoming sales.

Repayment Methodology:

Instead of a fixed repayment schedule like regular loan, the MCA’s repayments are seamlessly integrated into the business’s operations. A pre-determined percentage of the debit and credit card sales is automatically deducted and used to repay the advance.

Advantages Over Traditional Methods:

MCAs stand out from unlike traditional bank loans. They prioritize a business’s sales volume rather than solely its business credit profile or credit scores. This makes them especially attractive for business owners with bad credit or those seeking flexibility.

Application Process:

To apply for a merchant cash advance, businesses generally need to provide details of their merchant account, average monthly sales, and business bank account. The factor rate, which determines the total amount to be repaid, is then set based on these details.

While a merchant cash advance loan might sound similar to business loans, its structure and repayment methodology are distinct. It’s anchored to a business’s sales, ensuring that the capital repaid aligns with a company’s cash flow, making it a viable alternative for Canadian businesses seeking immediate financial support.

Importance of MCA for Canadian Businesses:

No collateral required

Unlike a traditional small business loan, an MCA does not require collateral, making it an attractive option for businesses that may not have valuable assets to offer as security.

Adaptable to cash flow

One of the key advantages of a merchant cash advance is its flexible repayment structure. As repayments are based on a percentage of future credit sales, businesses with fluctuating revenue can benefit from lower repayments during slower periods. This adaptability can be especially beneficial for seasonal businesses that experience significant variations in their flow of cash throughout the year.

Fast access to funds

Merchant advances offer a quick and efficient way for Canadian businesses to access the capital they need. Once approved, funds can be deposited into a small business merchant account within a few days, or even hours in some cases. This speed can be crucial for businesses facing sudden expenses or opportunities that require immediate action.

Increased cash flow

A merchant cash advance can provide businesses with the necessary capital to invest in growth opportunities, cover unexpected expenses, or simply improve their flow of cash. This increased financial stability can be invaluable for Canadian businesses looking to thrive in a competitive market.

Suitable for businesses with bad credit

For businesses with a less-than-stellar credit history, getting a merchant cash advance can be a viable alternative to traditional financing options. Since MCA providers focus primarily on credit card transactions and future sales, businesses with poor credit may still qualify for funding.

Discover valuable insights and step-by-step guidance on improving your business credit score and establishing a strong financial foundation.

A merchant cash advance is a lifeline for Canadian businesses in need of fast access to funds. By leveraging credit card sales that will take place in the future, an MCA offers a flexible financing solution that adapts to a business’s unique cash flow needs.

While it may not be the right choice for every small business, understanding how a merchant cash advance works and its potential benefits can help entrepreneurs make informed decisions about their options.

How Does A Merchant Cash Advance Work?

Navigating the world of business financing can be challenging, but understanding the how the Merchant Cash Advance work can provide clarity and options for many small business owners. Here’s a more detailed look:

The Basics:

At its core, an MCA offers a lifeline of access to a small business loan, especially for companies with low credit scores, allowing them to access working capital swiftly. It functions differently from a traditional loan. Instead of borrowing a fixed amount and having to pay back with interest, a business effectively ‘sells’ a part of its future credit card sales to a merchant cash advance company.

Getting Started:

To get this business cash advance, a business owner agrees on a factor rate, which determines the total repayment amount. This includes the advanced sum plus a fixed fee. This rate, often confused with annual percentage rates in regular loans, is unique to MCAs.

Repayment Mechanics:

Merchant cash advance repayments don’t follow a conventional monthly plan. Instead, they are dynamic. A set percentage of your daily (or sometimes weekly) credit card and debit card payments are deducted until the advance is paid in full. It syncs with the business’s flow of cash, making it suitable for enterprises with variable revenues or high volumes of debit sales.

Why Choose an MCA?:

Several reasons make an MCA appealing. Firstly, the unsecured nature of this cash advance means business owners aren’t required to put up collateral. Secondly, the approval process tends to be faster than traditional banks and traditional lenders, making it ideal for short term expenses or quick cash flow needs. Moreover, the repayment plan adjusts according to sales, offering flexibility not seen in models like invoice factoring.

Who Benefits the Most?:

Businesses that lean heavily on card transactions, those experiencing rapid merchant growth, or those overlooked by traditional banks due to stringent criteria often find MCAs a viable solution. It’s a bridge, especially when immediate funding is necessary.

Understanding how a merchant cash advance works can be the key to unlocking growth and managing unforeseen expenses, providing an avenue different from the rigidity of regular loans. As with all financial tools, it’s crucial for businesses to review terms closely and ensure it aligns with their financial strategy.

Eligibility Criteria for Businesses in Canada

To be eligible for a merchant cash advance in Canada, businesses must meet the following criteria:

  • Minimum Monthly Sales: Most merchant cash advance companies set a minimum threshold for monthly credit card sales, which can vary depending on the provider.
  • Established Small Business: Merchant cash advance providers typically require businesses to have been operating for a certain period of time, often ranging from 6 months to a year.
  • Consistent Revenue: MCA providers will assess bank statements and credit card processing history to ensure the business has a steady flow of revenue.
  • Accepts Credit Card Payments: The small business must accept credit card payments, as the MCA is based on future credit sales.
  • Canadian-based Business: The business must be registered and operating within Canada.

How MCA Providers Evaluate Applicants

Merchant cash advance providers evaluate applicants based on several factors to determine the amount and terms of the advance. Here are some of the key factors considered:

Credit Card Sales History

The primary factor in determining eligibility for an MCA is the business’s credit card sales history. Providers will analyze the volume and consistency of these sales to estimate future revenues and calculate the advance amount.

Business Owner’s Credit Score

Although an MCA is an unsecured loan, some providers may still check the business owner’s credit score. While a lower score may not necessarily disqualify an applicant, a higher score can result in more favorable terms and rates.

Bank Statements

MCA sources will review business bank account statements to gain insight into the business’s financial health and stability. Consistent flow of cash and a positive balance can increase the likelihood of approval.

Industry and Business Model

The merchant cash advance company will consider the type of industry and business model when evaluating an applicant. Some industries may be considered higher risk, potentially affecting the terms of the advance.

Outstanding Debts and Liabilities

Providers may review any existing debts or financial obligations, as these could impact the business’s ability to repay the advance.

Advantages of Merchant Cash Advance

There are numerous advantages that come when you apply for a merchant advance compared to a traditional bank loan. Some of these advantages include:

  • Speed:

    The primary reason for obtaining a MCA is most often cited as the speed at which funds are advanced, which enables prompt payment to the business’s creditors

  • No Collateral Requirement

    Securing a conventional business loan often requires collateral, such as real estate or equipment, to protect the lender in case of default. However, a merchant cash advance is an unsecured form of business financing, meaning that no collateral is required.

    This can be particularly appealing for businesses that lack substantial assets or those hesitant to put personal guarantees on the line.

  • Benefits for Businesses with Fluctuating Sales

    Businesses with seasonal or inconsistent revenue streams can benefit greatly from the flexibility offered by a merchant cash advance. Since repayments are based on a percentage of daily sales, businesses with fluctuating income can avoid the stress of meeting fixed monthly payments associated with regular loans. Furthermore, the entire advance can be repaid faster during high-sales periods, potentially reducing the overall cost of the advance.

  • Flexible Repayment Terms

    Merchant cash advances offer flexible repayment terms, with the amount owed typically based on a factor rate rather than a traditional interest rate. Since repayments are made as a percentage of daily sales, the repayment amount will fluctuate with the business’s revenue.

    This means that during slow periods, repayments will be lower, providing relief for businesses with fluctuating sales. Additionally, there is no set repayment term, allowing business owners to repay the entire advance at their own pace.

  • High Approval Rates

    Merchant cash providers tend to have higher approval rates compared to traditional business loans. Because the advance is based on future card sales rather than credit history, businesses with less-than-perfect credit can still qualify for funding.

    This makes merchant cash advances an attractive option for small businesses that may struggle to secure financing through conventional loans.

Potential Disadvantages of Merchant Cash Advance

A merchant account advance is an excellent choice for a business owner, however they do come with some disadvantages as well. The biggest drawbacks to get a merchant cash loan include:

  • Higher Cost Compared to Traditional Loans

    While merchant cash advances offer several benefits, they often come at a higher cost compared to a traditional small business loan. The payback amount is determined by a factor rate, which can translate to higher rates when compared to conventional financing options.

    It is essential for business owners to weigh the convenience and minimal documentation required for an MCA against the potentially higher costs associated with this type of business funding.

  • Impact on Cash Flow

    A merchant cash advance requires daily transactions to be used for repayment, with the agreed-upon percentage being deducted from credit card receipts. This holdback percentage can put a strain on a business’s flow of cash, as a fixed percentage is being withheld from day-to-day sales.

    For some businesses, this can create challenges in covering operational expenses or investing in growth opportunities. Company owners should carefully consider the impact of the advance amount and holdback percentage on their flow of cash before committing to an MCA.

  • Potential for Over-Reliance on MCA

    The ease and speed of the application for a merchant cash advance can lead to a potential pitfall: over-reliance on this type of financing. With many MCA providers offering streamlined approval processes and access to funds within a matter of days, company owners may be tempted to repeatedly rely on business merchant cash advances instead of seeking alternative financing options or addressing underlying financial issues.

    Overusing MCAs can result in a cycle of debt, as businesses are constantly repaying advances with future receivables, limiting their ability to invest in growth or address long-term financial challenges.

Merchant Cash Advance Alternatives in Canada

Canadian small businesses have several financing alternatives to consider when looking for a funding solution that best suits their needs. A traditional bank business loan, lines of credit, a government-backed business loan and grants, and online lenders each offer unique advantages and drawbacks.

By evaluating these options and understanding their requirements, business owners can make informed decisions to secure the right financing solution that will support their business’s growth and success.

Government-Backed Loans and Grants

A Canadian business can also explore government-backed loans and grants as an alternative to merchant cash advances. Various federal and provincial programs offer financial assistance specifically tailored to a smaller business, with favorable terms and lower rates.

These programs may also provide grants, which do not require pay back, making them an attractive option for a business that meets the eligibility criteria. However, the application for government-backed loans and grants can be more complex and time-consuming than other financing options.

Online Lenders

Online lenders have emerged as a popular alternative to regular loans and merchant cash advances for a Canadian business. These lenders often have a more streamlined application process, allowing a business to apply for financing and receive approval within a matter of days. Online lenders may offer a variety of financing options, including term loans, lines of credit, and invoice financing. While interest rates can be higher than regular loans, they may still be more competitive than the factor rates associated with merchant cash advances.

Traditional Bank Loans

For a small business seeking financing alternatives to a merchant cash advance, traditional bank loans can be a viable option. These loans typically offer a lower interest factor rate compared to merchant cash advance rates and often provide a lump sum or a revolving line of credit.

The pay back terms for a traditional business loan are usually more predictable, with fixed repayments over a set period. However, securing a traditional business loan may require a personal guarantee, more extensive financial records, and a longer application process compared to a cash advance.

Lines of Credit

Lines of credit offer a business access to a predetermined amount of funds, which can be drawn upon as needed. Similar to a credit card, a business only pay back interest on the amount they use, and the credit line can be replenished once the borrowed amount is paid back. Lines of credit can be a more flexible option than a lump sum loan, allowing a business to manage cash flow more efficiently. Keep in mind that lines of credit may still require a personal guarantee and good credit history.

Explore the possibilities of your borrowing potential and calculate your estimated payment using the business loan calculator.

Frequently Asked Questions About Merchant Cash Advance

How quickly can I receive funds from an MCA in Canada?

The speed at which your merchant account will receive funds from a merchant cash advance provider in Canada can vary, but it is generally much faster than a traditional business loan. Once your application is approved, you may receive the advance amount within as little as one business day.

The streamlined approval process and quick access to funds make merchant cash advances an attractive option for a smaller business in need of immediate financing.

Are there any restrictions on how I can use the funds?

Merchant cash advances are typically quite flexible when it comes to how you can use the funds. A business can use the cash advance for a variety of purposes, such as purchasing inventory, covering payroll, investing in equipment, or addressing unexpected expenses. However, it is essential to discuss any potential restrictions with your merchant cash advance provider when applying.

What are the average fees and interest rates for MCA in Canada?

Fees and interest rates for merchant cash advances in Canada can vary depending on the provider and the specific terms of the loan agreement. Instead of a traditional interest rate, MCAs use a factor rate, which is multiplied by the advance amount to determine the total pay back amount. Factor rates typically range from 1.1 to 1.5, which can translate to higher costs compared to regular loans. It’s essential to carefully review any hidden fees and factor rate associated with your MCA before agreeing to the terms to ensure you are fully aware of the payback amount.

How does the repayment process work?

The process to repay the advance is based on a future percentage of your business’s daily credit card transactions. Your credit card processor will automatically deduct the agreed-upon percentage from your credit card receipts and forward it to the merchant cash advance provider until the advance is fully repaid. This means that your repayments will fluctuate depending on your day-to-day sales, providing flexibility for a business with inconsistent revenue streams.

Can I apply for an MCA if I have bad credit?

Yes, you can still use a merchant cash advance if you have poor credit. Since the advance is based on your future credit sales rather than your credit history, MCA sources often have more lenient credit requirements compared to traditional loans. However, having bad credit may impact the terms of your MCA, such as the factor rate and the maximum advance amount. It’s essential to discuss your specific situation with the merchant cash advance provider when applying.

Who is eligible to apply for a merchant cash advance?

A merchant cash advance (MCA) is a unique financial product that caters to businesses needing quick access to capital. Rather than acting like a traditional loan, it advances funds based on a company’s predicted credit card sales. Here’s a detailed breakdown of the eligibility criteria:

Business Nature and Sales Volume:

Businesses that have a significant volume of credit and debit sales are primary candidates. This is because the core idea behind an MCA is the repayment through a percentage of your daily credit card and debit payments.

Duration of Business Operations:

Merchant cash advance companies typically prefer businesses that have been operational for a certain period, ensuring they have a track record of consistent sales.

Credit Score:

Unlike regular lenders and banks, many MCA providers are more lenient with low scores. They prioritize the business’s performance and future credit card sales over the business owner’s credit history.

Monthly Card Sales Volume:

A business should have a consistent volume of card transactions, ensuring they can handle the merchant cash advance repayments effectively.

Use of Recognized Payment Processors:

Having a recognized payment processor is often a requirement, as the MCA providers will access your card transactions directly from them for repayment.

Absence of Other Debt Obligations:

If a business owner already has several business loans or cash advances, some MCA companies might be hesitant to provide another. However, this varies among providers.

Predictable Business Growth and Sales:

Merchants showing signs of steady or increasing merchant growth are often viewed more favorably, as this indicates a better capacity to repay.

Understanding of MCA Terms:

It’s vital for the business owner to comprehend how a merchant cash advance works, including factor rates, fixed fees, and the total repayment expected.

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