Why Businesses Should Choose Merchant Cash and Working Capital Loan

Many businesses today are facing a cash crunch. In this environment, it’s important to understand the options you have as a business owner. There may be more avenues available than you think.One of those could be a merchant cash advance. What is a merchant cash advance, and how does it work? This guide answers these questions and more.

What Is a Merchant Cash Advance?

A merchant cash advance, or MCA, is a financing option available to many retailers, restauranteurs, and other business people. With this option, you receive cash in advance of actually earning it. The lender assesses you against your anticipated future credit card sales. They’ll then offer you a percentage of those sales as cash.You pay the advance back as you make those credit card sales. The lender takes a set percentage of each sale and puts it towards paying back the advance.

How Are MCAs Different from Business Loans?

A merchant cash advance is different from a business loan in a few ways. First, a business loan is assessed against your history. To decide if you’re eligible for a loan, the lender will look at your credit score. That includes information about payment history, how you’ve handled other debts, and more. They’ll also look at your business’s past income.They’re less interested in information about projected futures. You may show a potential lender your projections for the rest of the year, but they prefer more concrete evidence.The MCA is leveraged against your future sales. Instead of looking at your credit history and past earnings, the lender is interested in predicting future sales.That’s why this option is known as an advance, not a loan. The lender is advancing anticipated funds to you. They believe you’ll earn those funds in the future, so all that changes is when you get the money.Another difference between a business loan and a merchant cash advance is the repayment terms. A business loan is usually an installment loan. That means you’ll make a set payment at regular intervals. Those can be monthly, weekly, or even biweekly.With a merchant cash advance, the lender takes a percentage of daily credit card sales and applies that to your repayment. If your sales are down one day, you don’t need to worry about “making up” the difference or ensuring you’re meeting a minimum payment amount. Similarly, if your sales are high on another day, you’ll be able to repay more of your advance.There are also differences in how the lender earns on the money they’ve given you. A business loan will have an interest rate. Merchant cash advances usually come with holdback rates and repayment rates. Repayment rates are sometimes called factors.The holdback rate is the daily percentage you pay to the lender on your sales. The repayment or factor rate is the amount typically charged. You may, for example, pay a factor rate of 1.20 or 1.40, which means you’ll pay the lender another 20 to 40 percent of the original advance.

Benefits of Merchant Cash Advances for Business Owners

Now that you understand how the MCA works, you’re probably wondering if there are any benefits to using one. There are quite a few, actually.First, merchant cash advances are often more accessible than business loans. This is especially true for startups or small businesses without lengthy operational histories. You may not be able to prove to a loan lender that you can repay a loan. If you have steady credit card sales or other revenue moving through your business account, then you should be able to qualify for an MCA.Another benefit is the speed with which funds can be delivered. Loan applications could take time to process. That’s because the lender wants to check in on your history and make credit inquiries. By contrast, a merchant cash advance lender is more interested in your future. They want to see you have funds moving through your account regularly, and they can use those numbers to anticipate future sales.This process takes much less time, which leads to faster approvals and deposits. If you need cash in a hurry, an MCA is a much faster option than a business loan.Flexibility is another major benefit of MCAs. Since the lender recoups a percentage from sales, the repayment goes up and down with your sales volume. You don’t need to worry if your sales fall, and you can repay the advance faster if your sales are high.

Drawbacks of MCAs

Like everything, merchant cash advances do have a couple of downsides. One is that MCAs don’t help you build credit.  That’s because they’re not loans. If you’re looking to build a better credit history for your business, you may want to investigate other options.Also, you have to consider that the annualized interest rate can be much higher than a business loan. MCAs could end up costing your business more than a loan might, especially over the long term.

How to Apply for a Merchant Cash Advance

MCAs are good options for business owners who need cash quickly and will pay it back relatively fast. They’re also an option for businesses that don’t have long operational histories or may not otherwise be approved for a loan.If that sounds like you, you might wonder how you can go about getting a merchant cash advance.

• Your first step should be to research providers in your area. Compare offers. Be sure you understand the holdback rate and factor rates for each offer.
• Fill out the application form provided by a lender. These are typically one to two pages. You’ll have to provide basic details about your business, such as your business tax ID.
• You’ll also need to provide documentation. This is usually a combination of bank statements and payment processing data. The lender will likely ask for several months’ worth of information, so they can accurately assess trends and the amount you qualify for.
• Once you’re approved, you can set up processing as required. Finalize the details on the advance, and make sure you understand the terms. Repayment sometimes starts as early as the next day.

Fund A Better Tomorrow for Your Business

If you’re worried about financing, you have plenty of options out there, and the merchant cash advance is just one of many.If you think a merchant cash advance might be right for you, get in touch with our experts. With their help, you can get access to the funds you need when you need them.

What is a business line of credit?

A business line of credit (LOC) is designed to meet the short-term financing needs of businesses. Basically, it is a revolving sum of money lent to a business owner. The borrower pays interest on the borrowed amount while the interest rate may be at a fixed or variable rate, depending on the borrower’s financial state. LOC is a type of debt financing, which is offered by traditional financial institutions in Canada. A business line of credit is often referred to as a “corporate line of credit”. As a debt instrument, they are both the same.LOC is very much like a credit card for your business. The business owner will be given a pre-approved credit amount from which he can draw capital as needed. Once the funds are used, the borrower will need to repay the amount including the interest over the repayment term as agreed. A business line of credit is one of the many options to fund your business or to get funds for a new business. It gives access to affordable credit if the borrower qualifies. The LOC provides ready cash flow, that could help solve the liquidity problems that small businesses tend to suffer the most.

What is a small business line of credit?

Lending providers offer a small business line of credits to small-sized businesses with different combinations of rates and qualifications. These may include the following:  

• An unsecured line of credit (up to $50,000)
• Secured credit (up to $1,250,000)
• Floating interest rates
• Business insurance
• Shorter approval/processing times
• Low monthly fees

A small line of credit under $300,000 can be approved online. For small business owners, a line of credit is one of the easiest ways to secure cash flow for their business operations. The application for a small business line of credit is typically short, and approval can be granted within one business day.

How to get a line of credit for your business?

Banks in Canada have a variety of LOC products for small and mid-sized businesses. You should consider applying for a business line of credit at a bank you’re already registered to. Make sure to apply for a line of credit ahead of time as, unlike loans, it can take up to a month to get approved. In order to apply for a line of credit, you should open a business bank account. Below is a list of documents that you would need to provide for your LOC application:

• Two pieces of government-issued IDs
• Proof of income
• Business financial statements, including income, expenses, assets, and liabilities
• Other personal- and business-specific information such as an address, license number (if applicable), and how long you’ve been in business

How to get approved for a business line of credit?

Whether or not your line of credit is approved depends on your credit score and your business qualifications. The higher your credit score and the more stable your business income, the more likely it is that you will be approved for a line of credit, and the larger it will be. It is very important to have a good credit score and to keep your business financial documents in order. If a bank is unable to adequately assess your business potential, it will lower the chance of receiving a line of credit. With a private lender, things are a bit easier as the lender may adopt different criteria and qualifications to advance the line of credit. Also, private lenders are more open to lending to businesses with lower credit scores. Remember, when looking for a small business loan line of credit, make sure to evaluate several options. The majority of small businesses prefer to choose private lenders as they are able to receive more flexible offers. Check out how merchant cash advance works to see if your business qualifies.

Why is a business line of credit better than a loan?

A business loan is typically obtained and disbursed only for a specific purpose. It is meant to provide access to capital for a one-time, major financial expenditure. Therefore, to manage your operating cash flow, you will have to apply for multiple business loans – each of which will negatively affect your credit score.However, a business line of credit allows you to improve your credit score. You only borrow the money you need and pay interest based on that amount. A business LOC allows for greater financial planning and resolves cash flow problems that small businesses often experience.

Why you may be denied a line of credit?

There are a number of reasons why you may be denied a business LOC. Most likely, your bad credit score will lead to a refusal, but that is not the only reason. The line of credit may be refused for a number of reasons, including:

• Purpose of LOC does not meet the required criteria
• Your industry is too risky
• The commercial bureau reports negative performance
• Business revenues indicate insufficient ability to handle monthly payments

Having a low credit score doesn't mean you can't take any type of loan. Check out some ways to get a business loan with a bad credit score.

Approaching a private lender for a small line of credit

If you require a moderate-sized line of credit, it is worth approaching a private lender. A small lender will not require as many documents as the bank, and the approval process will be faster as well. Also, private lenders accept applications for LOCs online and you can get request a quote online. Private lenders will help you understand why your line of credit has been denied by the bank and can provide the necessary funding in a shorter time with less hassle and stress and treated as bad credit debt help. If you are interested in an alternative solution made for small businesses, talk to one of our experts today for the best business cash advance loans.

2M7 Financial Solutions is proud to announce the recipient of the 2022 “Forward Thinkers” scholarship – the annual scholarship that recognizes distinguished and entrepreneurial students who encompass 2M7’s values and demonstrate a genuine desire to make progressive strides that help drive their desired industries forward.“We’re pleased to award this year’s Forward Thinkers scholarship to Beiya Xie, a Business student majoring in Entrepreneurship and Innovation, who challenges the status quo and thinks outside the box to find innovative solutions to improve her family’s small business,” said Avi Bernstein, CEO of 2M7 Financial Solutions. “Since its inception, 2M7 has been driven to support forward-thinking small businesses in their journey, and Beiya demonstrates a level of dedication and innovation that is at the core of our business values.”As a proudly Canadian owned company, 2M7 strives to stay at the forefront of its industry and offer an alternative lending solution that better fits the needs of small businesses in Canada – giving them quick access to the funding they need to expand and accelerate their growth in order to succeed in today’s competitive landscape.“Canadian entrepreneurs and small businesses are the backbone of our economy, and 2M7 has an unwavering commitment to helping them grow. Just as with our small business clients, we believe it’s important to give students the opportunity to excel in their fields,” said Avi Bernstein. “Beiya demonstrates a deep passion for improving the products her family business offers, a vision for expanding the services they provide, and a dedication to customer service excellence that 2M7 is proud to support.”Founded in 2008, 2M7 Financial Solutions has grown into one of Canada’s largest merchant cash advance providers – providing over $250 million in small business funding to date. With extensive expertise in Canada’s lending landscape, and a deep understanding of the challenges that small businesses face in getting approved for loans, 2M7 helps business owners get the financing they need.

About the “forward thinkers scholarship” by 2M7

The ”Forward Thinkers” scholarship is an annual scholarship program, established by 2M7 Financial Solutions to recognize outstanding students who are pursuing or entering full-time studies in Business, Finance, or an equivalent program. The scholarship is awarded to students that encompass 2M7’s core values and demonstrate a genuine desire to make innovative stride that drive their industries forward. For those interested in applying for the 2023 scholarship, please follow 2M7 on Facebook for updates on next year’s scholarship.