All across Canada, most every report or article you read about retail sales over the 2013 holiday season were nothing to celebrate. Our retail customers are telling us it was the weather in Ontario, cross border shopping, or the need to compete with ridiculous price slashing for Black Friday AND Boxing Day (or all of the above).
Because of this, it will be a challenge for a lot of retailers to maintain adequate cash flow during the first quarter when sales typically “bottom out.”
An innovative financial service designed to ease short term cash flow crunches for retailers across Canada is a merchant cash advance. As an alternative to a small business bank loan or a line of credit, a merchant cash advance is a short term injection of cash than is repaid in less than 12 months – in some cases less than 4 months.
A merchant cash advance is based on the sales history of the business (not credit history) and the funding amount is based on expected future sales. Repayment of the advance is made every day and is a small percentage of daily sales. Daily payments fluctuate with the sales trends of the business so during a slow period the payments decrease and, as sales pick up, the payments increase.
Many small business owners use this type of cash flow financing to pay their quarterly taxes so, instead of coming up with a lump sum tax payment, they can keep cash flow available for running the business. Buying inventory is also another popular use of this type of financing.