How to Apply for a Merchant Cash Advance in Canada

In recent years, traditional bank lending percentages have declined by 19% for small businesses. This has led many to seek alternative, faster, non-traditional lenders, and, as a result, many businesses want to apply for a merchant cash advance in Canada. 

Today, our team is here to share everything you need to know about an MCA in Canada. So if you have been turned down by banks and need funding, you may want to stick around. 

How Does a Merchant Cash Advance Work?

Given that merchant cash advance approvals are based more on revenue than credit history, they have become a popular option. This is true for restaurants, retail businesses, service companies, e-commerce stores, and others across Canada. But how does a merchant cash advance work? 

Well, with a merchant cash advance, you’ll apply to receive a lump sum of funding. This will be offered to you in exchange for a future portion of your earnings. The provider you apply with will evaluate your recent sales activity. They will then advance your capital based on their estimate of your expected incoming payments.  

Unlike traditional bank loans, merchant cash advances have repayment plans tied to a percentage of daily or weekly revenue. The amounts you pay back vary based on sales. Usually, this involves revenue acquired through credit card processing or bank deposits. For many, this structure makes funding more accessible to businesses with steady sales and to those experiencing slower sales periods. 

It’s also more accessible because instead of charging a traditional interest rate, most MCAs use a factor rate. A factor rate determines the total amount you’ll need to repay upfront. To put this into perspective, imagine you borrow $20,000 and have a factor rate of 1.20 on your MCA. At this amount and rate, you’ll repay $24,000 over the predetermined repayment period. 

Who Qualifies for a Merchant Cash Advance in Canada

As we mentioned earlier, the eligibility for a merchant cash advance depends on business revenue and operating history rather than strict credit requirements. 

However, we can tell you that most lenders will review your recent bank deposits and credit card sales. They do this to confirm that you generate an average monthly revenue of $10,000 or more. This is just a generalization, so bear in mind that some lenders might approve businesses with slightly lower sales, depending on transaction volume and the industry. 

Another important qualifying factor is time in business. Most Canadian merchant cash advance lenders prefer companies that have been operating for at least six months. This time period allows them to evaluate your revenue patterns and financial stability. 

Because of this, businesses with regular credit or debit card payments often qualify more easily, especially when they are newer. Additionally, although credit scores are usually not a determining factor, many lenders may approve applicants with credit scores starting around 550 or lower if consistent payment can again be proven. 

What Documents Do You Need?

When you’re ready to complete a merchant cash advance application, you’ll need to make sure you have the right documentation. Fortunately, most providers request the same basic business documents. These help them verify your company’s revenue and business operations and assess funding eligibility. 

So, with this in mind, here’s a look at what documentation you need to have on hand before you approach a lender: 

• Recent business statements: You’ll need to be able to present business statements from the past three to six months, depending on the age of your company. These statements should show your revenue consistency and average deposits. 
• Business registration or incorporation documents: These documents are presented to confirm the legal structure of the company you’re operating in Canada. 
• Government identification: The owner or director listed on the application must provide government identification when applying. 
• Credit card processing statements: If your company accepts payments through a payment processor, you’ll need to submit those statements to prove transaction volume. 
• Voided cheque or banking information: This is necessary because your lender will use it to deposit funds once you receive approval. 
• Basic business information: You’ll need to provide details such as your industry type, operating location, and estimated monthly sales. Luckily, many documents may list this information, like bank statements and your business plan. 

And gone are the days when you had to bundle all this information and cart it to the lender. Nowadays, you can upload the documentation digitally. This makes it much faster and easier to apply for merchant cash advances as it speeds up the review process. At Bizfund, we can give you an answer within one to two days, for example, when you apply with us.

Step-by-Step Application Process

Many businesses find applying for a merchant cash advance easier and more convenient because the process is usually straightforward. Here’s a quick look at the basic process. You might experience the following if your business is ready for financing: 

1. Step One: The first thing you need to do is check your eligibility by reviewing revenue requirements for the lender, time in business guidelines, and general funding criteria. 
2. Step Two: Next, you’ll want to gather the required documentation. You should have already done this if you were exploring what documentation is needed. However, there are sometimes documents that you don’t know you need to submit. So it’s always a good idea to check with the lender about what they need to process your application. 
3. Step Three: Once you have the documentation, you can submit it online through a funding provider like us at Bizfund. Your application should only take a few minutes to complete if you’re applying online. After you hit submit, you should receive a fairly prompt response. 
4. Step Four: If you receive approval, the lender will send you an offer. This offer outlines the approved advance amount. It will also show the repayment structure based on your expected revenue and the factor rate. 
5. Step Five: All that’s left to do is accept the agreement and receive your funding if you’re happy with the offer. This funding can hit your account within 24 to 72 hours after final approval. 

See, the process is actually easy peasy and far quicker than traditional financing, like we said. 

Common Reasons Applications Are Declined

Unfortunately, as with most things in life, there are no guarantees, and this applies to merchant cash advance applications, too. Even though MCAs are more accessible than traditional loans, not every application will meet a lender’s requirements because lenders still realistically evaluate several factors simultaneously to ensure your business can support repayment. 

With that said, one of the main reasons a lender will decline your application is if your revenue is too low or has been inconsistent in recent months. In addition, if your bank statements show consistent or significant overdrafts or unresolved financial issues, this raises concerns and may lead to denials. 

Additionally, if you do face rejection and are a new business that hasn’t got several months of verifiable revenue history, this is likely why. We know we said this earlier, but it’s an important reason for rejection to keep in mind if you’ve met every other requirement. After a few months, you can try again when you have consistent revenue. 

Is a Merchant Cash Advance Right for Your Business?

If you’re considering a merchant cash advance, it’s natural to have a niggling thought in the back of your mind asking, ‘Is an MCA truly right for my business?’ 

Usually, the answer is yes. But there are situations where a merchant cash advance isn’t the right solution for your funding needs. 

If you want to explore your options more before committing, here’s a look at a few common alternatives Canadian businesses explore: 

• Small business loans: These often offer a fixed amount of capital that you’ll need to repay over a set period through scheduled payments. You would usually apply for these with a traditional lender, but alternative lenders also offer this service. 
• Business lines of credit: With a business line of credit, you’ll be able to draw funds when you need them and only pay interest on the actual amount you use. For many, this is attractive. 
• Equipment financing: If you’re a company that needs funding specifically for equipment you could consider equipment financing. With this type of financing, you’re only securing funds for vehicles, purchasing machinery, or buying special tools. 
• Government-backed small business financing: Some businesses may qualify for programs such as the Canada Small Business Financing Program, offered by the Canadian government. However, these can be competitive. 
• Invoice factoring: Through invoice factoring, you can access capital tied to your unpaid invoices, but note that the lender offering this service usually takes a percentage. 

However, bear in mind that a merchant cash advance still may be the fastest, simplest, and most convenient option. This is especially true if you want to manage cash flow better during slower periods and want repayments tied to your revenue. 

Apply for a Merchant Cash Advance in Canada with Bizfund Today!

There can be no denying that merchant cash advances offer flexible funding solutions for many Canadian businesses. So, if you’re in need of funding and find that there isn’t any other solution you would like to explore, like the other options we shared, you can contact us at Bizfund. Our team offers fast and simple merchant cash advances of up to $300,000 for qualifying small businesses.