Merchant Advance Capital

Merchant Advance Capital (Merchant Advance) is a Canadian owned and operated company headquartered in Vancouver, B.C. The Founder and CEO, David Gens, comes from a family of entrepreneurs, and with his background in finance, he saw the opportunity in the market to provide alternative financing to small businesses, offering short term loans that these businesses would most likely not be able to receive from the mainstream Canadian banks.

“This form of financing is more common in the U.S., and has been in this market since 1990s. When I started to research this form of financing in Canada, I spoke to small business owners, and nobody heard of it at that time, so that got me excited about the idea. I always wanted to do something entrepreneurial, so I took the leap and launched Merchant Advance Capital,” says Gens, as he took on the challenge in 2010, and started helping small Canadian business to find the capital they needed. While the market saw new players coming into this finance landscape, according to Gens, there are only about four larger players (including Merchant Advance) in this niche market in Canada today.

The Small Business

The small business often faces the challenge of financing projects, business crossroads, and needs of day-to-day operations. Merchant Advance provides alternative financing to a wide range of businesses including restaurants, pubs, clothing stores, convenience stores, coffee shops, auto repair shops, clinics, franchise operations, hotels, and many others across Canada. If these businesses have been in business for over one calendar year, they are qualified to apply for a “merchant advance” or “small business loan”, and receive cash funding of up to $125,000 per location from MAC.

“Our clients are the small ‘mom & pop’ stores that will likely never be able to receive financing from a bank. It’s very difficult for a single location business – a store, a restaurant, etc. – to get a business loan. This trend has been forming for decades with the Canadian banks reducing their small business loans.”

Merchant Advance Capital does not instill any caveats and limitations as how the business is to spend the merchant advance. Popular uses for a merchant advance include inventory purchases, allowing the business to take advantage of special deals or unexpected opportunities; covering growth capital expenditures such as renovations, equipment purchases, advertising, or even business acquisitions; and debt reduction and emergency cash requirements such as tax payments or other obligations.
In practice, the company’s merchant advance program takes future cash flows and turns them into immediate cash that the businesses can use right away, while the balance is paid off automatically through a portion of future debit and credit card sales, or through an automatic fixed daily payment (if the business does not receive many debit/credit transactions).

Gens strives to provide an easy and fast way for small businesses to acquire financing. Merchant Advance does not require collateral, and offers both variable and fixed payment options (payments are made automatically).  Financing is clear and simple with no hidden fees, fast (the company can provide funding in as little as five business days), and a portion of payments to the company are also tax deductible.

“We finance businesses that have been in business for at least one year, so we understand their cash flow, the seasonality of the business, and we are very diligent in our underwriting. We currently serve some 250 business, and our model is designed to retrieve the full return within one year’s time, but that’s subject to each business’ cash flow, and we are looking to realize investor returns between 10 and 20 per cent,” says Gens.

In its short existence, the company has supported many Canadian businesses and the reception of the service has been tremendous. Besides financing, Merchant Advance provides its clients a window to the larger view, educating clients on how the service can benefit their business, whether the money is earmarked for renovation, expansion, or to increase sales.

Needless to say, it is a risky business supporting small businesses through unsecured loans. That is why Merchant Advance’s research and diligence towards each applicant are paramount to protect the investment. The Merchant Advance team thoroughly analyzes the profitability of each business, and determines the potential of the loan, the amount and the withholding percentage or daily payment that will be profitable for Merchant Advance, but will not infringe on the cash flow and the operation of the business in question.

“We have to remain disciplined in our underwriting, and shore the temptation of taking on more risk when things go well. Of course if there is bad debt, we need to do our best to ensure we recover funds for our investors. There are also challenges affiliated with business growth, finding more clients, processing more deals and positioning the staff efficiently to do so. So there are many exciting challenges to be concerned about,” concluded Gens.