When things are
going great, businesses have the cash flow they need for success and growth.
During lean times or tight transitions, though, your company may need to find a
cash advance loan to keep the doors open or to successfully expand. Though a
myriad of funding options exists, merchant cash advances and platform lending
like that offered here are two of the most popular and advantageous options.
The trick is
understanding the difference between the two. Each has its own unique
characteristics, and is more or less appropriate for a specific business need.
Let’s start with
definitions.
What is a Merchant Cash Advance?
A merchant cash advance
gives business up-front cash, and takes payments from the credit card receipts
on a regular (often daily) basis according to an agreed-upon amount. If you’ve
been in business for more than a year, you’ve almost certainly received at
least one phone call offering you merchant advance funding.
What is a Business Loan?
A business loan
also provides up-front cash, but is paid back in monthly installments. These
are usually withdrawn directly from your operations account, but terms are
flexible if another method works better for your business.
For example, let’s
say your company needed $1,000 for an advertising blitz in the month prior to
your peak season. With that advertising in place, you would be positioned to
lead the pack in your region for your industry. Without it, your competition
would get the lion’s share of the business and the lost business would amount
to far more than the $1,000 you would invest. But it’s been a year since the
last peak season, and you don’t have the cash on hand. You need the cash, and
like any smart business person you look at the two cash advance options for
your business in detail.
Merchant Cash Advance vs Business Loan
Lending
Structure
Though it comes from
the newer platform lending model, a business loan is still legally a loan. This
means it’s scrutinized by federal authorities and subject to limitations and
enforcement. Merchant cash advances aren’t technically a loan because of how
the payments are structured. This means they aren’t as regulated or carefully
watched. This doesn’t automatically mean that merchant advance funding comes
with abusive interest rates and contracts, but it does mean you should read and
understand that contract as completely as possible.
Approval
Process
Merchant cash
advance loans approve any business that shows a history of credit card receipts
sufficient to pay the money back. This makes them attractive to companies with
new or bruised credit histories. Business loans look at data from a variety of
sources, including social sharing indicators, your cash flow reports, and
traditional credit reporting and industry metrics.
Speed of
Funding
In this category,
both means of lending are about equivalent. We deliver funds within 24 hours of
approval. Most merchant cash advances work at the same speed – but not always.
Ask about this if you go with merchant advance funding and need the money
quickly.
Payment
Process
Merchant cash
advances take a percentage of credit card sales until the loan is paid. If your
company needs flexibility that matches performance, a merchant advance might be
the better option. If you want reliable, predictable costs for the borrowed
money, Our loans serve those goals more effectively.
Other Costs
Merchant cash
advances often include set-up fees, processing fees and even payment fees that
can as much as double the actual cost of the loan. Our loans include no extra
fees. They cost as much as the “price tag” says.
If you
have experience with merchant cash advances versus business loans, tell us a
bit about it in the comments below.
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