December 31, 2018

Six reasons cash advances work well for small businesses

Most businesses reach a point in their life cycle where they need funds. It’s true – even the most successful companies borrow money at some point. Merchant cash advances, also known as MCAs, have been making headlines recently as a quicker and more accessible way to secure funds, when compared to a traditional loan. But, what are they and will they work for your business? Read on for the reasons why a cash advance could be your answer to quick, easy small-business financing.

What is a merchant cash advance?

Before you can appreciate the benefits of a cash advance, it’s important to understand the basics. Put simply, MCAs are a flexible alternative to small-business loans. Typically, the funding process is easy and straightforward. Lenders give you the money you need, and you repay it over time through a small percentage of your daily credit and debit card sales.

Simple application process

The specific qualifications for obtaining an MCA, as well as the total amount you can borrow, will depend on your lender’s individual criteria. However, it’s worth noting that the application process for MCAs is notably faster than other financing options. Lenders will typically ask for recent bank statements and other business information, and most have a turnaround time of less than 48 hours. So, instead of a lengthy application buried in red tape, you can get back to business quickly. If speed is important to you, just be sure that you are speaking with a lender and not a broker.

Obtain funding quickly

Once approved, MCAs enable you to obtain your funds fast. Many lenders promise a funding time frame of less than one week. With such a quick turnaround, small businesses like yours can seamlessly deposit the money into the much-needed areas of operations, whether it be inventory, cash flow, expansion or other expenses.

How cash advance repayments align with your sales

As we mentioned, a cash advance is paid based on a percentage of your future debit and credit card sales, not a fixed amount. Your repayments will vary each month to align with your actual sales. This goes a long way toward maintaining a positive cash flow. It also helps to get by during a slow season because the collections made on the MCA will be lower. Likewise, if sales are booming, collections will be higher. Regardless of your sales, the percentage that is collected remains the same, which will keep your business’ cash flow steady.

Why poor credit and high-risk industries can get an MCA

Since MCAs are not the same as loans, they are not scrutinized in the same way by credit companies. Think of them as a type of “investment” that enables to you get capital quickly in exchange for a portion of your credit card sales. This is why business owners in industries that traditional banks consider to be high risk will be able to get an MCA quite easily. Similarly, while a history of bad credit can often prevent businesses from obtaining funds through other financing options, applicants with poor credit are often approved for MCAs.

Funding with no interest rates

With cash advances, there is no interest rate or payment due dates. A flat fee is simply added to the amount your business qualifies for. This fee is determined through several factors, including the length of time in business, type of business, whether you own or rent your space and overall business performance. This flexibility is very attractive to many business owners.

Financing with no spending restrictions

Unlike some business financing options that restrict how you spend your money, with a merchant cash advance you’re free to spend it as you wish. Split it between buying new equipment, paying salaries or restocking inventory—you’ve got the freedom to manage your money as you see fit.

There are many, many reasons why business owners opt for a merchant cash advance over other sources of financing. From fast funding and simple repayments to total flexibility with the money and low stress if sales are slow from time to time, MCAs make good business sense, which is why they’re so popular in Canada. 

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Am I eligible?

We only have four criteria:

  1. You must have annual gross sales of over $100,000 
  2. Your business has to be in operation for at least 6 months.
  3. No start-ups, construction, home businesses, online businesses, funeral homes, furniture or jewellery stores and cheque cashing businesses. You must have a storefront or professional office space.
  4. No open bankruptcies
    Bad credit isn’t a problem—many of our customers have less than perfect credit scores, but we cannot accept applicants with open bankruptcies.

For other important information about applying to iCapital, and about our products, read the FAQs below.

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