Difference Between Merchant Cash Advance and A Business Loan

Whether you wish to expand your business’s operations, meet up payroll costs, or invest in new equipment, having additional financing options can drive business growth with merchant cash Advance. Sadly, since there are so many financing options, many business owners struggle to determine how they differ.

Business loans & merchant cash advance are two popular types of business financing. They can both be used to meet business needs, but have some fundamental differences, which are crucial for business owners or entrepreneurs to understand. In this post, we will explore both options so that you can determine if either one is right for your business.

Merchant Cash Advance

Merchant cash advances are a favourable product to businesses that allow credit cards as payment. Normally, if a business accepts many credit card payments in small amounts, then they will be a strong candidate for a merchant cash advance.

When a business owner or entrepreneur receives a merchant cash advance, they are supplied with a lump sum. To fulfill their obligations, a percentage of their business’s future credit card sales will go towards the repayment of the advance.

Qualifications

Providers of Merchant cash advance typically focus on a business’s credit card receivables. If the business meets the lender’s credit card sales requirement, it will likely qualify.

Because of the significance that credit card payments, your personal and business credit scores will probably not be as important to the lender. Moreover, no collateral is required, which differs from other financial options. Prior to applying, ensure that the lender doesn’t have any qualifications that you are certain that you won’t meet.

Repayment

Merchant cash advances do not have pre-set repayment terms. Instead, you repay the loan based on your business’s credit card sales. If sales are slow, you’ll repay a smaller amount than you would when you’re receiving more sales with credit cards. This is helpful because the repayment process works with the flow of your business, so you won’t risk having to repay an amount you can’t afford.

Small Business Loan

When your business loan is disbursed, you’ll be given a lump sum amount, and set terms in which you need to repay the established amount. Depending on your qualifications and the lender’s preferences, you might have to secure the loan with collateral or security. If you have a decent credit score, you might be able to receive an unsecured loan.

Qualifications

Most business loan providers review the business’s overall financial health. They’ll request paperwork such as tax returns, monthly bank statements, and review of potential collateral. In addition, most lenders will have a minimum credit score requirement. To increase your chances of getting approved, research lenders’ requirements prior to applying. This way, you won’t apply to a lender who won’t approve your application.

Repayment

Business loan terms can vary based on the lender’s precondition. Many lenders may have shorter or longer terms depending on their policies. Before applying for a business loan, you should research business loan terms to ensure that they meet your requirements.

Depending on the lender, you could receive your loan in a few days, while lenders that require collateral may take several weeks. In addition, unsecured loans typically have shorter terms than collateralized loans.

Choose the Best Option for Your Business

Before applying for a business loan or a merchant cash advance, evaluate your business’s financial requirements. Although both products have their advantages, you should find out which one is best for your business.