Facts You Should Be Aware Of When Applying For A Merchant Cash Advance in Canada

In Canada, Merchant cash advances are a popular type of loan that is used for funding businesses. Businesses get to repay this type of loan on a daily basis. If you are a small business looking for a short term loan, then the merchant cash lenders can help you out. In the following section of this article, we have talked in detail about this unique loan system so that you know more about it and make knowledgeable decisions for your business.

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What Is The Merchant Cash Advance?

The merchant cash advance enables the businesses to unlock the value of the credit card sales or receivables on an accelerated timeline. A business shows this receivable stream to the cash lenders who advance the money to the business. It is one of the most effective short-term financings that solves the problems of a small business that is not eligible for a bank loan yet.

How Does It work?

By the definition of it, the cash advance provided by the merchant cash lenders is not technically a loan. The lenders do not technically charge any interest on the principal amount. The businesses pay cash lenders through future sales.

There are different types of structures of merchant cash advance loans. The primary structure is where the customer gets the advance upfront from the lenders with an agreement of providing a fixed percentage of future sales.

The second type of loan is different from the first in its payment process. In this case, the businesses pay a daily or weekly fixed amount to the lenders to repay the loan. This process is known as the Automated Clearing House withdrawal.

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Things To Consider While Taking a Merchant Cash Advance

Just as you think different aspects through before taking a loan from the banks, you have to consider various aspects of taking the cash advance from the merchant cash lenders as well. Some of the factors are explained below.

  • The Cash Advance: You have to understand that such cash advances are a potentially expensive form of financing. That’s why you should only borrow the amount that you need right now instead of going for the amount that the cash provider is willing to pay.
  • Holdback: As the holdback rates depend on future sales, you have to consider the potential cash flow hurdles. You have to spend money to satisfy multiple operational issues including wages, supplier payments, overhead costs etc. The higher the holdback rates are, the lower revenue you will be making for those months. Understand this thoroughly before sealing the deal.
  • Factoring Rate: You should shop around to ask the rates of different lenders before you make a deal. The different merchant cash lenders have different risk parameters, and so they perceive the businesses differently. Shopping around a little would help you to get the lowest possible factoring rate.
  • Additional Fees: Make sure to look out for possible hidden fees including the late payment fees, administrative fees and other penalties. Review the documents properly, and if possible, take legal advice before signing anything.

So, this is some basic information you need to be aware of while applying for a cash advance from the various merchant cash lenders in Canada. While taking the cash advance, make sure to double-check everything and try to negotiate about the rates as much as possible. It would help you to get the best possible deal.