The merchant advance industry is gaining widespread popularity among the small business community in Canada as an alternative to a traditional bank loan. For those of you unfamiliar with the service, a merchant advance provides a lump sum amount that is repaid on a daily basis using a small percentage of sales. Daily payments ebb and flow with sales trends of the business and repayment typically takes 7-9 months. A merchant advance is intended for short term opportunities or emergencies (inventory, renovations, taxes) and is not intended to be used as an alternative to long term debt.
Compared to a bank loan, a merchant advance is expensive. However, if you believe time is money, then a merchant advance can be a very practical option for your business.
Why a merchant advance might be right for your business
#1 Reason – Qualification criteria
The biggest advantage a merchant advance has over a traditional bank loan is that approval is based on the sales history of the business and not the personal credit history of the business owner.
In order to qualify for financing with a merchant advance, your business needs to have been open for 12 months (most banks require 5 yrs), has 12 months remaining on a lease, and you can provide proof of sales history (credit/debit card processor statements or GST submissions)
In order to qualify for a bank loan you need a lot more – and if time is money, the list below will cost you thousands of dollars.
A merchant advance is not a good long term solution for most business owners but for those looking for a short term injection of working capital to take advantage of an opportunity or to get over a short term cash flow crunch, it can be a convenient alternative to the bank.