Kudos to Pivotal Payments for this awesome feature in their Industry News section! As a pioneer of the Merchant Advance industry in Canada, we’re always pleased to be acknowledged by fellow businesses who work in the Canadian finance arena. Read their insightful profile of our business after the break.
Merchant cash advances offer added flexibility for Canada’s businesses
04/03/2013 – Not every Canadian merchant has deep coffers of money at its disposal year-round, and it’s not uncommon these days for businesses in need to ask for a little help. Temporary help, that is. The new, trendy form of loan for Canadians these days is the merchant cash advance – lenders give money to businesses as an advance on their future debit and credit card sales. Business owners receive cash up front, and then a percentage of their electronic transactions are automatically withheld until their debts are repaid with interest.
The money borrowed through merchant cash advances can be funneled toward a lot of different purposes, according to DailyMarkets.com – merchants can buy supplies, accrue capital, meet payroll, fund marketing initiatives and make tax payments.
While doling out merchant cash advances can be profitable for financial institutions who rake in the interest money, it also involves a small gamble on the lender’s part, according to the Globe and Mail.
“The funder takes the sales risk,” said David Gens, CEO of Merchant Advance Capital. “If the business ends up processing a lower volume of transactions, the funder must wait longer to receive their funds.”
A scoop of the funds
Merchant cash advances have become especially popular with businesses that are only seasonally profitable – if a store is expecting a slow winter, for example, it can take out a loan in December to tide itself over, then starting repaying it in May. For instance, consider an ice cream vendor.
“They offer a very flexible solution to our financing needs,” Victoria Ice Cream and Fudge Factory owner John Gidden said of his merchant cash advance provider, according to the Globe and Mail. “We pay down the advance during our busy season.”
The risk for a lender depends on the company – for a less stable enterprise, there’s a chance of giving cash to someone who might go out of business. But for Gidden’s ice cream shops, which do very well with passengers from the Alaska cruise ships that run between April and October, there’s a well-defined season when loan providers can expect to be repaid.
In the meantime, Gidden can use the money he borrows over the winter to maintain his equipment and restock his inventory at offseason sale prices. Everyone wins.
A large number of merchant cash advance lenders have sprung up in recent years – Swift Financial, Rapid Capital Funding and BankCard Central were the top three for February, according to TopCreditCardProcessors.com. But the market for advance loans is growing every day, as more and more lenders look to get in on the latest business craze.