Merchant Funding 101

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Could a business cash advance help your firm? The dramatic rise of small business financing in merchant funding via a cash flow loan is simply a factor of companies such as yours wanting to capitalize on the working capital and cash flow that is, in effect, locked up in your future sales and growth potential.

It doesn’t take rocket science for any business owner or financial manager to figure out that if his or her firm has investments in receivables and inventory then those assets, typically called ‘current assets’ require financing in some form.

Of course, you can 'self-finance' - meaning simply wait for your inventory to turn into receivables, and then wait probably even longer for your inventory and perhaps receivables to turn into cash. But, doing that forces you to give up on sales opportunities and challenges the very core of your financial health, given that we all agree cash flow is king.

If you are fortunate enough to be financing via a Canadian chartered bank you are of course familiar with 'collateral' - our banks do a great job of explaining that to you! Why don’t you use your own firm’s collateral, its assets, mainly accounts receivable, and monetize that asset into cash?

Clients are often fairly clear on the benefits of a business cash advance and cash flow loan, which is also called 'merchant funding‘. What they don’t seem to have the best handle on is how it works.

Once you have such a facility set up it quite frankly is one of the easiest and quickest ways to unlock cash flow and working capital on a daily, weekly, or monthly basis. And by the way, you only pay for the financing you are using. Let’s get back though, to how it works.

Funds via the cash flow loan are advanced immediately on the approval of your facility. There is no direct collateral for the transaction - the collateral is your future sales.

Didn’t you just feel your cash flow being totally unlocked and flowing?! Approximately 15% of future sales are used to reduce your cash flow loan via the merchant funding facility. In general rates on the transaction are in the 2% range.

2% you say! Isn’t that expensive for small business financing? Absolutely, positively maybe, but we actually don’t think it is. That is because all-in rates from your bank when you total up all the fees, services, standby fees etc. often total in the 11-12% range, not the 6% or 7% you think you are getting. And furthermore, if you take the huge amount of cash you just receive and use it to purchase more efficiently, or takes discounts on supplier invoice payments you make your total cost of capital goes down. And, another point, if you are in a competitive environment, (who isn't) does your ability to have unlimited cash flow put you steps ahead of your competition? We think it does.

There are a number of ways to finance your business. If your firm has sales potential, and you are challenged by the timing in which money flows through your business then consider the benefits of account a business cash advance via a cash flow loan for under a merchant funding program. Speak to a trusted, credible, and experienced business advisor on this popular financing tool for small business financing in Canada.

' Canadian Business Financing With The Intelligent Use Of Experience '

Stan Prokop is the founder of 7 Park Avenue Financial and a recognized expert on Canadian Business Financing. Since 2004 Stan has helped hundreds of small, medium and large organizations achieve the financing they need to survive and grow. He has decades of credit and lending experience working for firms such as Hewlett Packard / Cable & Wireless / Ashland Oil

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