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Should I Choose a Merchant Cash Advance or Business Loan?

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The hunt for the best funding source for your business could be a long and confusing process. Two of the terms that you will get to know are merchant cash advance and business loan. Both are standard options that will be offered to you by banks and lending institutions.

Although either one could really help your business out. They are very different from each other so you would need to dive deep to determine which one’s right for your business.

What Exactly is a Merchant Cash Advance?

Banks and other financing companies that offer merchant services here in Utah will consider the future revenue of your business’ credit card as assets. This means that they will work with you by advancing you actual cash that you’ll be paying through a portion of the daily revenues from your business credit card.

Basically, your lender will be intercepting your card’s daily revenues before it reaches your bank account. While you might not be able to control how your repayments will be made, it could really give your business capital that you wouldn’t have had access to otherwise.

What Exactly is a Business Loan?

Business loans come in different types but are essentially fixed amounts that lenders offer in return for preset payments every month. They come with predetermined maturity dates indicating when borrowers should repay their loan in its entirety and could be unsecured or secured.

You will also be given a chance to choose how you can use funds from your loan. That being said, qualifying for a business can be tough, depending on the specific kind of business loan you want to be eligible for.

The Main Difference Between a Merchant Cash Advance and a Business Loan

small business loan application

For starters, you could have access to funds transferred online or deposited into your bank account within the day to 24 hours with a merchant cash advance. With a business loan, on the other hand, you would need to wait for a couple of weeks after the approval of your loan to access your funds.

Likewise, most merchant cash advances have a limit of around $250,000, while depending on your specific business loan, you could get as much as $5,000,000. Additionally, you could be approved merchant cash advance according to your credit card transactions.

However, with a business loan, your credit score should be about 700 or higher, and you might have to provide extra collateral to guarantee your loan.

Which One Should You Choose?

Although both merchant cash advances and business loans can give you the means to boost your capital, interest rates, eligibility requirements, and the application processes can vastly differ from lender to lender.

If your business processes a steady amount of transactions via credit cards and needs fast access to funds, then you might benefit more from a merchant cash advance. On the other hand, if what you’re looking for are more predictable payments and competitive rates, a business loan might make more sense.

To help you determine which one will fit your needs best, shop around. Evaluate your business’ exact requirements and make certain that you understand all the terms before signing anything.

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