Why Businesses Should Choose Merchant Cash and Working Capital Loan

A merchant cash advance (MCA) is a popular alternative to the more traditional business loan, but these cash advances are not a perfect fit for every business owner. If you are looking for different financing options, consider some of the main reasons small business owners decide to choose an MCA.

MCA Repayments Are Within Sight

The repayment of a merchant cash advance is generated through a percentage of future credit and debit card revenue. If you believe that you will have the funds to repay the MCA in a reasonable time period, an MCA is a great option for a temporary cash infusion.

You Need Funding Fast

The approval process for an MCA compared to a business loan is considerably faster. Most MCA providers can approve applications and provide funding within 24-48 hours. If you know you have money coming in, but need a little extra to cover over a cash flow gap, to buy equipment, or to invest in business growth, an MCA is a great option.

No Restrictions

Some traditional lending options may put restrictions or dictate how you can spend any money you have borrowed. With a merchant cash advance, business owners are free to do what they need to do, and the approval is based on future revenue projections of the business, not its current value.Not having a constant supply of capital on hand shouldn’t stop you from growing your business. We can help you determine whether an MCA is right for you. Speak to an expert today.

If you’re an entrepreneur seeking affordable funding options for your business without giving up equity or being burdened by debt, Revenue-Based Financing (RBF) might be just what you’re looking for! RBF has been steadily rising in popularity among growth-stage companies, and for good reason; the flexibility and unique blend of equity and debt financing is changing the game as it keeps you in control every step of the way.But that’s not all. A whole world of revenue-based avenues, such as Merchant Cash Advances and Factoring are entering the scene too!In this article, we will dive into the world of RBF, its alternatives, and provide you with valuable resources to help you make an informed decision about financing your business.

What is Revenue Based Financing?

Revenue Based Financing is a new type of funding that combines the convenience of a business loan with the peace of mind of flexible repayment options.Instead of a set monthly repayment, RBF allows your company to trade a percentage of sales for start-up capital. This allows you and the investor, as it provides the funds you need without tying up valuable equity or incurring debt. Your investor can rest easy knowing that they will receive regular payments (though the amounts may vary) under a legally binding contract.

HOW IT WORKS:

1. Find an Investor

Venture capital firms, dedicated RBF investors, or angel investors are a good place to start.

2. Pitch Your Business

Present your business plan, financials and growth projections to the investor. Show them your intended use of the funds and your company’s potential for generating consistent revenue.

3. Negotiate Terms

If the investor is interested, this is where you will negotiate the investment amount, percentage of revenue shared, repayment cap, and anything else that is pertinent to the deal.

4. Sign on the Dotted Line

Once the terms are agreed upon, both you and the investor sign a legally binding document that outlines the specifics of the deal.

5. Put the Funds to Use

Receive your funds (usually in a lump sum), and put them to work in marketing, product development, hiring, or other areas that will propel your company’s growth forward.

6. Monthly Payments

As your business starts generating revenue, repay your investor based on the agreed-upon monthly percentage.

7. The Repayment Cap

Once you have hit the predetermined repayment cap, your obligation to the investor is fulfilled, and you retain full control of your business.

RBF Alternative: Merchant Cash Advances

If your business is retail based or receives a high volume of revenue from credit card transactions (such as a restaurant), Merchant Cash Advances may be a more suitable financing option. With MCA, you exchange a percentage of future credit card sales for the lump sum investment.

HOW IT WORKS:

1. Apply for MCA

Once you find a reputable Merchant Cash Advance provider, apply for funding using the above-mentioned information for your business, as well as your credit card transaction history.

2. Receive the Funds

Again, usually a lump sum.

3. Repay Via Sales

MCA offers a big advantage in that you have quick access to the funds, and the flexibility of repayments being tied to sales, which eliminates the need for collateral. However, MCA’s can be more expensive than a traditional loan, and the deduction from your daily sales may impact your cash flow for a time. Learn more about Merchant Cash Advances here.

RBT Alternative: Factoring

Factoring is also known as accounts receivable financing or invoice financing. It may work best for you if your business is facing cash flow issues due to slow-paying clients. With factoring, you sell your unpaid invoices to a factoring company at a discount, and they take care of collecting the funds.

HOW IT WORKS:

1. Find a Reputable Factoring Company

Preferably one that specializes in your industry.

2. Sell Your Unpaid Invoices to the Factoring Company at a Discounted Rate

Usually 70-90% of the invoice amount.

3. Get Paid Upfront

The Factoring company will subtract their fees and pay you the agreed upon amount right away.

4. Invoice Collection

Now it’s out of your hands, and the factoring company takes care of collecting the overdue amount from your clients!

5. Receive the Remaining Balance

Once the client pays, the Factoring Company will send you the remaining balance, minus their fees. Factoring eliminates the need for you to waste time chasing after clients to pay their invoices, and gives you quick access to the funds, relieving your financial stress. However, like merchant cash advances, factoring can be more expensive than a traditional loan.

Choosing the Right Financing Option

After reading this article and looking into the different financing options for your business, you hopefully have an idea of which option is best for your business. Ultimately though, the biggest factors to consider are:

• Your Business Industry
• Your Revenue Model
• Company Growth Stage
• Repayment Flexibility

Once you determine those, you can make the choice that works best to propel your business forward! Revenue Based Financing is getting more creative and attainable as the structure of our economy evolves. It really is becoming the financing option of the future.

2M7 Financial Solutions is honoured to be featured in this month’s CanadianSME Small Business Magazine, with an interview highlighting small business financing advice from 2M7’s CEO, Avi Bernstein. From his insights on the state of the lending landscape, to his expertise on the challenges facing small businesses today – Avi provides insider advice on alternative lending options that can help small businesses secure the funding they need to operate and grow their business.

In the interview, CEO Avi Bernstein discusses the many factors that traditional lenders use to evaluate whether a business qualifies for a loan, and why this digital credit score algorithm method of evaluating businesses, is increasingly resulting in small businesses being denied funding from lenders such as banks and credit unions.“

Rapid shifts in new technologies, increased competition, and the state of the economy have led to an increased need for financing, but it is becoming increasingly more difficult from small businesses to access funding from traditional lenders,” said Avi, when asked about the challenges that small businesses face when it comes to securing funding. “Most small businesses need loans to bridge the gaps during uncertain times such as these, but small business owners continuously struggle to secure working capital.”

For over a decade, 2M7 has been dedicated to leveraging its expertise in the Canadian lending landscape to help as many small businesses as possible to get access to the working capital they need. This dedication has led to the development of a proprietary algorithm which uses a unique approach to evaluate risk and determine credit worthiness – enabling 2M7 to fund businesses that might not otherwise qualify for a traditional loan.

Furthermore, the 2M7 team strives to provide an alternative lending solution that better meets the needs of small Canadian businesses than traditional loans. With minimal requirements and simple terms, 2M7 has designed a straight-forward borrowing option that essentially provides small business owners with a cash advance that is deposited directly into their bank account within 24-48 hours, to use immediately within their business as they see fit.2M7 Financial Solutions continues to be at the forefront of the innovative technologies and processes that are transforming the Canadian financial industry in order to help grow the small businesses that are the backbone of our economy. As the industry continues to evolve, the 2M7 team is committed to continuously improving its flexible funding solutions and working closely with small business owners to better meet their changing needs.

To read the full interview, click here to open page 37 of this month’s digital edition of CanadianSME Small Business Magazine.