Vancity Entrepreneurs: Merchant Advance Capital

Dec 19 2017, 5:50 am

It can be difficult for a business to acquire loans from banks. Like startups, a regular restaurant or clinic may have big plans to grow and expand but unfortunately, they do not fulfill steep bank asset requirements – even though a peak period of profits may be coming up and repayment is a safer bet. UBC Sauder School of Business alumni, David Gens, noticed this problem right after he graduated and decided to abandon working in banking and instead, help the guys on the other side of the table by founding Merchant Advance Capital.

Who are you? Tell us about your Business/ Core idea and what kinds of clients you work with.

Born & raised in Vancouver – parents are from Poland & Russia. I’m 24 years old and started Merchant Advance Capital when I was 22. The core idea is that small businesses are generally under-served by the major banks in Canada. It’s very hard for small businesses to get loans to grow their business. It takes money to make money and the banks simply are not there for them. If a major bank is willing to lend to a small business, it’s only if the individual running the business has assets they are willing to put up as collateral that the bank could sell if the individual doesn’t pay the loan back – i.e. real estate holdings. The idea we work with, which was originally developed in the U.S.A., is that we can bank on a business’s future debit/credit card sales. We can give them funding up-front and then take a percentage of their debit/credit card sales to get paid back. The process is automatic so the business owner doesn’t need to write any cheques, and we only get paid when the business actually makes sales. This new technologically enabled method of funding is what has opened up the possibility of getting financing for many small businesses. The kinds of clients we work with are restaurants, retail stores, auto repair shops, spas, clinics, dentists etc. – any business that has a physical store-front and accepts debit/credit cards as a form of payment from their customers. These businesses use our funds for growth, such as expanding their business, renovations, purchasing inventory, buying or building an additional location, buying out a partner, or any number of similar reasons. For more information about our services, there is a youtube video that offers an explanation.

Where did the idea come from?

My former business partner, Kevin Ainsworth, read about it in a financial magazine. He showed it to me and I thought it was neat. It talked about the U.S. merchant advance industry, how it had grown over the years and how it solves a problem in the financial markets for small business. I started doing research on the industry in Canada and found that it was very new and most people hadn’t heard of it. Most still don’t know what it is! I thought this may be an interesting idea that we should try out so I put a structure together, wrote an over 40-page business plan, and started talking to everyone and anyone that might invest in this concept. I landed my first client through word of mouth – my best friend’s landlord owned a furniture store and was looking to bring in an extra container of goods ahead of his high season – so we struck a deal and my business partner provided the funds for our initial deal.

What have been the greatest challenges?

This is a business idea that requires a lot of capital to start, so I needed to find investors. This was the greatest challenge in the early days, because all I had was a business plan, a website, an idea, and one client. Hardly any track record at all. But I talked to all of my friends and family and put together some initial capital – enough to do a handful of deals – and we were in business. I am extremely grateful for those first few that made the initial leap of faith. Today we have several years of track record and a solid base of investors – so today’s challenge is on building the awareness of the service to increase our volume of business, as well as refining our own processes to ensure we are funding the right businesses that are poised for success. We want our clients to succeed, because if they do well, we do well, and there is a long-term relationship that we develop. 

What is your long-term vision?

My long-term vision is for every small business owner in Canada to be aware of this option as a potential source of funding. Most people don’t know that this is a tool in their toolbox, and it can be a very handy tool to capitalize on growth opportunities. And with that awareness, I hope that they consider Merchant Advance Capital as a company they would want to work with.

How does this improve the city of Vancouver? What is the real world problem you’re solving?

It improves the city of Vancouver because it gives ambitious small business owners in the city a chance to expand when a lack of capital is what is holding them back. Big businesses have big balance sheets and bankers that are willing to give them money that they can invest to continue to grow – small businesses don’t always have that. In a world where big business has the means but small business doesn’t, it is hard for local entrepreneurs with a vision to execute and scale their business up. One example is a restaurant chain in Vancouver that Merchant Advance Capital recently helped expand from one location to six in BC, using merchant advances on four of their locations to fund this expansion. The real world problem we are solving is that major financial institutions are unwilling to finance small businesses.

Advice for other entrepreneurs?

My advice for other entrepreneurs is to focus intensely and keep going, even when the times are tough. Starting a business is hard work and it’s a risky endeavor – to succeed you need the dedication to just keep going – it won’t always be a smooth ride, but that’s why you get compensated as the owner when things work out. It always comes back to risk and reward. And you have to have fun, you won’t enjoy each task that you have to do but overall you have to enjoy what you do. 

If you think about it, it makes sense. If you know you are about to make sufficient money to pay back a loan but do not have the right assets now to cover a bank for that worst case scenario, there has to be someone to take a chance on you. David was part of the prestigious Portfolio Management Fund (PMF) at UBC and handled funds in the seven-figures, so he knows the finance world pretty well and still sees great value in this sort of financing model. Entrepreneurship designed to help other self-employed people is truly an amazing thing, which I am confident will do great things for the city.

You can follow Merchant Advance Capital on their Twitter, Facebook, and LinkedIn accounts.

Stay in touch @pauldavidescu

*Vancity Entrepreneurs is a weekly feature on the city’s most notable entrepreneurs or startups that are making Vancouver a better place. If you think your venture deserves to be on the series, send [email protected] an email explaining why*

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