5 Reasons Why Successful Businesses Also Borrow Money

It's a strange kind of stress to run a business that looks healthy on paper while you quietly panic about cash. The numbers say you're profitable, but the bank account tells a different story.  The gap between those two things is what you need to take into account.

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Profit is a calculation. Cash is a Reality.

Your profit and loss statement records revenue when it's earned, not when it's actually received. For example, you invoice a client for $40,000 in October and that sale shows up as October revenue. But if payment terms are net 60, the cash may not land in your account until December. In the meantime you still pay your team, your suppliers and your rent with funds you only technically have. 

Accounting recognizes income on an accrual basis, your landlord does not.

The Timing Gap That Catches Businesses Off Guard

Cash flow is essentially the space between when money goes out and when money comes in. In an ideal world, those two things line up. In practice, they almost never do.

A construction company wins a big project. Materials and labour costs start immediately. The client pays in stages, or at completion. The contractor can be running a healthy margin on paper while being perpetually short on operating funds.

A retailer loads up on inventory before a peak season. Cash leaves weeks before any sales come in. If the season underperforms, that inventory sitting on shelves represents a real cash problem.

A service business bills clients at the end of the month and chases payment for 30, 45, sometimes 90 days. Every dollar in accounts receivable is a dollar that can't cover today's expenses.

None of these businesses are failing. In fact, they might actually be growing. The thing is, growth itself creates cash pressure, because growth requires spending before earning.

Five Reasons Cash Disappears in Profitable Businesses

1. Slow-paying customers: Extended payment terms are normal in many industries, but they transfer the financing burden onto the seller. When you allow net-30 or net-60 terms, you're effectively lending money to your clients interest-free.

2. Rapid growth: This one surprises people. When a business grows quickly, it has to spend more on inventory, staff, materials, and overhead before the revenue from that growth actually arrives. Fast-growing businesses are particularly vulnerable to cash shortages precisely because demand is high.

3. Seasonal revenue patterns: Businesses that peak in certain months, retail over the holidays, landscaping in summer, hospitality in tourist season, often need to spend during slow periods to be ready when things pick up. The cash timing rarely works out cleanly.

4. Large capital purchases: Buying equipment, vehicles, or making leasehold improvements hits cash immediately but shows up as depreciation slowly on the books. The profit looks fine. The bank balance looks rough.

5. Debt repayment obligations: Loan payments, lines of credit, and lease obligations come out of cash, not profit. A business can report solid earnings while being genuinely stretched by its repayment schedule.

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The Statement Nobody Reads Closely Enough

Every business has three core financial statements: the income statement (profit and loss), the balance sheet, and the cash flow statement. Most owners pay close attention to the first one. The cash flow statement is where the real story lives.

It shows the actual movement of money through operations, investing activities, and financing. A business can show positive net income while burning through cash every month. The two statements can tell completely opposite stories at the same time.

If you're not reviewing your cash flow statement regularly, you're missing a significant part of the picture.

How to Spot a Problem Before It Becomes a Crisis

A few practical things worth tracking:

Your cash conversion cycle measures how long it takes to turn inventory or work-in-progress into collected cash. The longer that cycle runs, the more working capital you need just to sustain normal operations.

Your accounts receivable aging report shows who owes you money and how long they've owed it. Receivables piling up past 60 days are cash sitting in limbo.

A 13-week cash forecast sounds like something only larger companies bother with, but it's useful at any size. Knowing what's coming in and going out over the next quarter gives you time to act before a shortfall actually hits.

What Business Owners Actually Do About It

Some of it is operational: tighten up invoicing, follow up on receivables more consistently, negotiate better terms with suppliers, watch inventory levels. Those things help and are worth doing.

But sometimes the timing gap is structural. It's not a sign that anything is broken. It's a sign that the business operates in a model where cash collection lags behind cash spending. In those cases, external working capital is a legitimate and practical tool, not a last resort.

Lines of credit, invoice financing, and merchant cash advances exist for exactly this reason: to bridge the gap between when you earn and when you collect, so operations don't have to stall in the meantime.

Worth keeping in mind: a business that needs outside capital because it's struggling is a very different situation from one that needs it because it's growing faster than its cash cycle can keep up with. Those two things can look similar from the outside, but they're not the same problem at all.

What Actually Matters Here 

Profit tells you whether your business model works. Cash flow tells you whether the business can survive long enough to prove it.

Running a profitable business that's tight on cash isn't necessarily a sign that something's wrong. It may just be the reality of operating in the space between earned and received, which is one of the oldest tensions in commerce. The owners who handle it best tend to be the ones who understand it clearly enough to plan around it.

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If your business trades across the border, or buys parts and inventory that eventually cross it, you are probably feeling the pressure already. Costs are changing, suppliers are sending revised quotes, and customers are taking longer to place orders. None of it necessarily looks like a crisis on its own, but together, these changes can put a serious strain on cash flow.

That is the part of the tariff dispute that matters most to a small business owner. It is not just about the percentage attached to a tariff or what happens in the next round of trade negotiations. It is about what you have to pay today and when you can expect to get that money back.

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The Trade Situation in Plain Terms

Canada and the U.S. have been dealing with an escalating tariff dispute through the second half of 2026. The U.S. imposed a 50 per cent tariff on $27.6 billion of Canadian goods effective August 22. Canada responded with counter-tariffs on U.S. goods effective September 8, with rates of 15, 25 and 50 per cent depending on the product. According to QualiVests, Canada suspending talks, the U.S. tariff hike, and Canada's reciprocal response, has left small business owners on both sides of the supply chain absorbing higher input costs with very little warning. 

Not every Canadian business is directly affected by these measures. The impact can still spread through supply chains, supplier pricing, inventory costs and customer demand.

For businesses that are directly exposed, the financial effect can arrive before the revenue does. An importer may face higher costs when bringing goods into Canada, while the business may not collect payment from its customer until weeks later. A contractor may have already priced a project when the cost of materials changes. A retailer may have to pay more for inventory that will not generate revenue until it reaches the shelf and sells.

That gap between paying more and getting paid later is where cash flow can become a problem.

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Why This Hits Working Capital

Business owners often notice tariff pressure first through their margins. The cost of goods goes up, but the price charged to customers may not be easy to change overnight.

Working capital can take an even bigger hit.

A restaurant sourcing specialty ingredients or equipment from the U.S. may have to absorb a higher landed cost before those purchases generate any revenue. A retailer bringing in seasonal inventory has to fund that inventory before a single unit is sold. A construction company working under a fixed-price contract can find itself facing higher material costs on a job that was quoted before the tariff was introduced.

The business may still be profitable. The problem is the timing.

If more cash is tied up in inventory, materials or other operating costs, there is less available for payroll, rent, supplier invoices and other expenses that continue to come due.

A business does not have to be losing money to have a cash-flow problem.

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The Numbers Back This Up

The impact is showing up in the numbers as well as in individual businesses.

According to the Canadian Federation of Independent Business, a September 2026 survey of 1,545 independent business owners found that 46 percent of Canadian exporters selling to the U.S. are affected by the new U.S. tariffs. Among Canadian importers sourcing from the U.S., 49 per cent reported being affected by Canada's retaliatory tariffs.

Among businesses reporting an impact, the median added monthly cost was $65,000.

For a small or mid-sized business, that kind of additional monthly expense can put substantial pressure on working capital. Even businesses with healthy sales can find themselves needing more cash simply to maintain the same level of operations.

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Where Private Financing Fits

A tariff-related cost increase does not necessarily mean the underlying business is in trouble. Sometimes the business simply needs enough working capital to get through the period between a higher expense and the revenue that follows.

A merchant cash advance can be one option for businesses in that position. Rather than waiting for a traditional financing process, a business can use its future sales to access working capital now.

This can be useful for businesses dealing with higher inventory costs, increased material expenses or other short-term pressure created by changing trade conditions.

Restaurants, construction companies, retailers and trucking businesses can all face this kind of timing issue, although the specific costs will vary from one business to another.

The goal is not to use financing to cover a business that cannot support itself. It is to give an otherwise viable business more room to manage a temporary cash-flow gap.

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Bad Credit Does Not Mean You Are Out of Options

Some business owners dealing with higher costs are also carrying credit challenges from previous years. Pandemic-era debt, higher borrowing costs and uneven receivables can all affect a business owner's credit profile.

Traditional lenders may put significant weight on credit history when assessing an application. Alternative financing can take a broader view of the business.

At 2M7, factors such as business revenue, time in business and overall performance can be considered alongside credit history. That means a lower credit score does not automatically mean there are no financing options available.

Every application is different, and approval is not guaranteed. The important point is that credit history does not necessarily tell the whole story of how a business is performing today.

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The Bigger Picture for Owners

Tariff disputes are usually discussed as a matter of international trade, government policy and economic forecasts. For a small business owner, the immediate concern is often much simpler.

It is the supplier invoice that has gone up. It is the material order that now costs more than expected. It is the inventory that has to be paid for before it can be sold. It is payroll at the end of the week.

Government programs can provide valuable support, and businesses affected by the current trade measures should explore what they may qualify for. But it is also important to look at the cash-flow problem itself and understand what options are available before the pressure becomes critical.

If tariffs or higher cross-border costs are putting pressure on your working capital, 2M7 can help you explore your financing options. We fund merchant cash advances directly, with no broker in the middle, giving Canadian business owners an alternative to traditional small business financing when they need access to working capital quickly.

Contact 2M7 today to find out what you may qualify for.

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If you’re an entrepreneur seeking affordable funding options for your business without giving up equity or being burdened by debt, Revenue-Based Financing (RBF) might be just what you’re looking for! RBF has been steadily rising in popularity among growth-stage companies, and for good reason; the flexibility and unique blend of equity and debt financing is changing the game as it keeps you in control every step of the way.But that’s not all. A whole world of revenue-based avenues, such as Merchant Cash Advances and Factoring are entering the scene too!In this article, we will dive into the world of RBF, its alternatives, and provide you with valuable resources to help you make an informed decision about financing your business.

What is Revenue Based Financing?

Revenue Based Financing is a new type of funding that combines the convenience of a business loan with the peace of mind of flexible repayment options. Instead of a set monthly repayment, RBF allows your company to trade a percentage of sales for start-up capital. This allows you and the investor, as it provides the funds you need without tying up valuable equity or incurring debt. Your investor can rest easy knowing that they will receive regular payments (though the amounts may vary) under a legally binding contract.

HOW IT WORKS:

1. Find an Investor

Venture capital firms, dedicated RBF investors, or angel investors are a good place to start.

2. Pitch Your Business

Present your business plan, financials and growth projections to the investor. Show them your intended use of the funds and your company’s potential for generating consistent revenue.

3. Negotiate Terms

If the investor is interested, this is where you will negotiate the investment amount, percentage of revenue shared, repayment cap, and anything else that is pertinent to the deal.

4. Sign on the Dotted Line

Once the terms are agreed upon, both you and the investor sign a legally binding document that outlines the specifics of the deal.

5. Put the Funds to Use

Receive your funds (usually in a lump sum), and put them to work in marketing, product development, hiring, or other areas that will propel your company’s growth forward.

6. Monthly Payments

As your business starts generating revenue, repay your investor based on the agreed-upon monthly percentage.

7. The Repayment Cap

Once you have hit the predetermined repayment cap, your obligation to the investor is fulfilled, and you retain full control of your business.

RBF Alternative: Merchant Cash Advances

If your business is retail based or receives a high volume of revenue from credit card transactions (such as a restaurant), Merchant Cash Advances may be a more suitable financing option. With MCA, you exchange a percentage of future credit card sales for the lump sum investment.

HOW IT WORKS:

1. Apply for MCA

Once you find a reputable Merchant Cash Advance provider, apply for funding using the above-mentioned information for your business, as well as your credit card transaction history.

2. Receive the Funds

Again, usually a lump sum.

3. Repay Via Sales

MCA offers a big advantage in that you have quick access to the funds, and the flexibility of repayments being tied to sales, which eliminates the need for collateral. However, MCA’s can be more expensive than a traditional loan, and the deduction from your daily sales may impact your cash flow for a time.

RBT Alternative: Factoring

Factoring is also known as accounts receivable financing or invoice financing. It may work best for you if your business is facing cash flow issues due to slow-paying clients. With factoring, you sell your unpaid invoices to a factoring company at a discount, and they take care of collecting the funds.

HOW IT WORKS:

1. Find a Reputable Factoring Company

Preferably one that specializes in your industry.

2. Sell Your Unpaid Invoices to the Factoring Company at a Discounted Rate

Usually 70-90% of the invoice amount.

3. Get Paid Upfront

The Factoring company will subtract their fees and pay you the agreed upon amount right away.

4. Invoice Collection

Now it’s out of your hands, and the factoring company takes care of collecting the overdue amount from your clients!

5. Receive the Remaining Balance

Once the client pays, the Factoring Company will send you the remaining balance, minus their fees. Factoring eliminates the need for you to waste time chasing after clients to pay their invoices, and gives you quick access to the funds, relieving your financial stress. However, like merchant cash advances, factoring can be more expensive than a traditional loan.

Choosing the Right Financing Option

After reading this article and looking into the different financing options for your business, you hopefully have an idea of which option is best for your business. Ultimately though, the biggest factors to consider are:

• Your Business Industry
• Your Revenue Model
• Company Growth Stage
• Repayment Flexibility

Once you determine those, you can make the choice that works best to propel your business forward! Revenue Based Financing is getting more creative and attainable as the structure of our economy evolves. It really is becoming the financing option of the future. For a closer look at how an MCA may support expansion, read how a merchant cash advance can support expansion.