Calgary’s business environment moves quickly. Changes in the energy sector and seasonal retail cycles, timing of construction projects, and the general pressure on costs that are associated with operating in one of the most competitive cities in the mid-size category mean that small-sized business owners in Calgary frequently have to bridge the gap between what’s in their accounts and the needs of their businesses at the moment.
In the event that a gap appears and the gap widens, the two most commonly used choices for funding are a traditional business loan or a cash advance. These are not the exact products. They work for different scenarios, which are different and have different cost structures as well as distinct approval timeframes. Being aware of the differences before applying will save you time and money and result in an improved outcome for your company.
What Is a Merchant Cash Advance?
A cash advance for merchants is not an actual loan in the traditional sense. It’s an advance on your expected future income, specifically the debit and credit card sales that your company is expected to make. The lender will pay an upfront lump sum. In exchange, a set percentage of your daily transactions is automatically credited until the advance is paid and the costs associated with it are paid back in the full amount.
The cost of a commercial advance is expressed in terms of factor rate, not interest. The factor of 1.25 on a loan of $20,000 implies that the total amount to be paid is $25,000 regardless of how fast it’s repaid. There aren’t any monthly interest calculations, there is no penalty for late repayment, and there is no monthly fixed payment that causes pressure during the week that is slow.
For Calgary companies that handle regular card transactions (restaurants or retail stores, service businesses, etc.), reimbursement adjusts to the amount of sales. If sales are high, then the advance will clear faster. If a slow time occurs in the market, the daily collections drop with it.
How a Business Loan in Calgary Works Differently
A typical corporate loan from Calgary follows the same structure that many business owners are used to, that is, a fixed principal with a fixed interest rate and a fixed repayment schedule that is set over a specific period. The monthly payments are predictable. All costs of borrowing are clearly stated at the beginning.
The requirements for qualification are more rigorous. Conventional lenders – credit unions and banks – typically require at least two years of operating experience as well as an acceptable credit score, complete financial statements and often collateral from either business or personal sources. For established companies with clear financials and enough time to await approval, the term loan usually offers a lower-cost option over the duration of the repayment.
The issue for a large number of Calgary small-sized firms is that the bank’s schedule is not in line with the timeline of the business. A restaurant that requires $30,000 to cover the cost of kitchen equipment breakdown prior to the weekend rush will not have the luxury of waiting three to six months to complete a loan application. An Alberta contractor that requires working capital to pay for materials prior to receiving a cheque from a client can’t sit around to have a credit committee review.
When a Merchant Advance Makes More Sense Than a Loan
Speed of Funding
Merchant advance applications generally require between one and 3 business days to process from the time of submission to receiving funds. Service Capital’s procedure for Calgary companies is based on this schedule — with little documentation, quick underwriting, and the funds deposited directly into the company account. If you are a business owner who has urgent cash flow requirements, this window can be significant.
Credit Profile and Eligibility
Merchant advance lenders evaluate their creditworthiness primarily based on revenue instead of credit score. A company that has steady monthly sales on credit with a poor credit history or a brand-new company that hasn’t built over the required two years of track record that banks require — could have an opportunity to be approved via alternative business financing in Alberta. The income reveals to the lender what they should know about the capacity of repayment.
No Collateral Required
Merchant advances are not secured. There is no need to put up personal or business assets. If business owners aren’t in a position to place their assets or property in the hands of a third party, this can alter the risk calculation drastically in comparison to a secured credit product.
When a Business Loan in Calgary Is the Better Option
If the need for business does not require immediate attention, the finances are in order, and the required amount is sufficient to warrant the difference in cost between the factor rate and the traditional interest rate is significant, a conventional small-business credit in Alberta is well worth the procedure.
Businesses that finance a long-term asset like commercial equipment, leasehold improvement, or a car typically benefit from matching the repayment terms to the life span that the item is used for. A term loan with a repayment period of 3 to 5 years with a fixed interest rate does this in a clean manner. Merchant advance that are designed to have shorter repayment periods are not the best option for a capital purchase lasting five years.
The most practical advice: If you require money within the week, the volume of your credit card is the primary determinant, and your need is functional rather than capital-based; an advance to a merchant is the more efficient and practical option. If you’re in a hurry as well as having solid financials and a clear financial need, the term loan is likely to cost you less over the entire time period of repayment.
What Calgary Business Owners Should Ask Before They Apply
Before you apply for any type of application – for example, a merchant advance or a business loan – it’s best to focus on the following four points. What is the amount you require? What was the method used to get the amount? What is the primary reason for using the funds? What would your monthly credit account’s income or revenue appear to be over the last 3 to 6 months? What is the most realistic timeframe for repaying depending on your current trading?
The lenders who ask these questions and discuss the answers with you operate without a doubt. A reputable Canadian alternative lender won’t accept an advance or a loan that the company cannot effectively provide. If a loan approval is granted without taking a close look at the figures, it is an opportunity to ask further questions prior to signing.
Apply for a Merchant Advance or Business Loan Through Service Capital
Service Capital works with Calgary and Alberta small-scale enterprises across different sectors, including hospitality, retail, construction, professional services and trades. The application process is inclusive of merchant advance products as well as the term loan option, ensuring that the best structure is matched to the needs of the business instead of defaulting to one product.
Visit servicecapital.ca to start an application or contact a funding advisor directly. Bring the last 3 months’ worth of credit card processing statements. The majority of Calgary companies will receive a decision within 24-48 hours.The best financing choice starts with knowing what you’re actually making. Service Capital is built on simplifying this part.
