In previous posts I wrote about the qualification criteria and the application process of a merchant cash advance compared to a traditional small business loan. To qualify for a merchant advance all a business really needs is proof of 12 months sales history and have 12 months remaining on a lease. The application process is also very simple and quick. A one page application form is all that is required to get the process moving.
We require banks statements, credit/debit card processor statements, a copy of a lease, business license and photo id and a couple references. No credit check and no lengthy review process. Funding is usually provided in 2 days compared to a few months at the bank.
In addition to being quick and simple, the approval rate of a merchant cash advance is significantly higher than a traditional small business loan.
Because Merchant Cash Advance financing is based on the sales history of the business rather than the personal credit history of the business owner the approval rates are very high. Banks typically turn down 8 of 10 applications for small business loans whereas almost 9 of 10 applications for a merchant advance are approved.
In the past few years, specific retail categories like foodservice, clothing, or grocery have found it increasingly difficult to get financing from traditional sources – they are “profiled” by industry. A merchant advance is based on sales history – regardless of industry.
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.