Merchant Cash Advance Vs. Business Loan, Which One is Right for Your Business?

Finding the right options to obtain capital for your business is complex and can depend greatly on your unique business plan and situation. Two very common ways to get financing for your business are a loan or merchant cash advance. You may need to do a little reading to understand each – and which one is right for you.

Below you’ll find easy-to-read explanations of both options, their differences, their similarities, and the benefits associated with each!

Business Loan

A lender agrees to give a business owner a set amount of capital upfront, and that capital will be paid off in monthly instalments over time. The loan will be subject to interest, which can vary in percentage, but will always make payments more expensive.

Typically, the business owner will pay a set amount based on the loan amount and interest percentage each month until the loan is paid. Should things begin to take off, the business owner can always decide to pay more or pay it off in full.

Merchant Cash Advance

A lender agrees to give a business owner a set amount of capital upfront with the promise of future repayment. This is a similarity between merchant cash advances and loans.

The main deviation is in how that capital will be paid back. 

In a merchant cash advance, the business will pay a percentage of their credit card sales per month that will go toward the repayment of the capital borrowed.

Rather than agreeing on a set payment each month, a cash advance will take an agreed-upon percentage of credit card sales made that month. Merchant cash advances can be applied easily through certain online lenders. Merchant cash advances, similar to loans, are still subject to interest. Some even have helpful blog posts like this article on exactly what you need for approval.

Which to Choose?

Both options are used frequently by businesspeople. In a merchant cash advance, you pay a percentage of what you make in sales, which can help businesses who make money in the form of consumable goods or services. Merchant cash advances can help small businesses quickly reinvest in themselves and bring in even greater revenue.

If a company is not yet making sales, it’s likely safer to choose a traditional business loan. If there are no credit card sales, the merchant cash advance will not work and may leave the company in a tough position if they are unable to repay their set percent per month. This article goes into further detail on the pros and cons of the MCA.

However, for any business that has regular credit sale transactions and an established customer base, the merchant cash advance is much more attractive as it ensures a payment you’ll be comfortable with because they are based on your sales. This can be a much better option than a traditional loan for businesses that have steady cash flow via sales!

5 Merchant Cash Advance Advantages for Online Business Owners

When you’re an online business, you have unique concerns and costs. However, you also face a lot of benefits that other businesses with a brick-and-mortar location don’t. Without the operational costs associated with having a physical location, you have extra resources to focus on improving your product, lead generations, and sales. To get your business to the next level, you may need an influx of cash that you can use to grow your current infrastructure, expand operations, or make new investments.

A merchant cash advance, or MCA, can help you do just that and can have more advantages than other business financing options. Here are the possible benefits your small online business could receive by getting an MCA.

Number 1: No Collateral (No Asset Backing or Effect on Credit)

A merchant cash advance is not a loan like you would get from a traditional bank. What you’re doing when you get an MCA is selling a portion of your future sales to the financier. They will give you a lump sum for that future credit card-based revenue. That means that getting approved for this advance relies on your credit card sales and sales history, not on the upfront collateral you provide.

Number 2: You Don’t Need Perfect Credit

Compared to traditional lending methods, the likelihood that your application to an MCA will get approved is higher than in other places, including credit cards. What makes MCAs even more convenient is that the application can be completed entirely online, and the process can be very quick if you have all the necessary paperwork on hand. Because good credit is not a requirement for approval, there is frequently no credit check done for this type of loan, making it ideal for those with bad credit.

What is vital for approval, however, is evidence that your business consistently makes sales with credit cards, which is the receivable the company will be getting a return on investment from. In many instances, MCA have almost guaranteed approval, making this perfect for those that need emergency cash.

Number 3: Receive Funding Fast

In a fast-paced market or in the face of special offers, you need a cash injection to take advantage of; you can use a merchant cash advance to get the money you need quickly. Depending on the scope of your application, the accuracy of your information, the company you work with, and the strength of your sales, you could receive funding instantly. In other cases, the application approval and funds transfer process usually does not take more than a week.

Number 4: Use the Funds However You See Fit

To reiterate, getting a MCA isn’t the same as getting a small business loan. Those loans often come with strict rules outlining how the capital you receive can be used. These rules include not being able to spend it on inventory, real estate, or covering other debts. With a merchant cash advance, you can use the funds for whatever your businesses needs currently are, like renovations, expanding operations and more.
Number 5: Flexible Payments

One of the major benefits of a merchant cash advance is that the payments are not fixed monthly or weekly payment terms. This can be great for online businesses as you will be remitting the investment, not paying back a loan based on an agreed percentage of credit card sales profits. If you have a slow month, you pay less and vice versa.

Get the Capital You Need Fast

The online world moves at a breakneck pace; you need a business loan that can get to you just as fast. An MCA can offer you the capital you need right in just a few minutes in some cases. Consider carefully how your business may use this cash injection to increase profits and grow your business.

Obtaining a Merchant Cash Advance: Learning the Process

In an ever-changing economic environment that has left many small businesses behind, understanding the financing options available is vital. A merchant cash advance (MCA) can give a small business an injection of cash necessary to boost your business to the next level. If you’ve been curious about getting a capital infusion from an MCA, you may be wondering how you can apply for one.

The process is simpler than you might think.

What Do You Need to Be Approved?

First, you have to understand how a merchant cash advance works. An MCA is a type of business loan that offers a business a lump sum of cash. This investment can be paid back to the lender based on future profits your business makes through credit card payments. A major part of getting approved for an MCA is through proving that your business has consistent credit card sales. Usually, this means that your business must take credit cards.
An MCA is very flexible and a fast financing option. Loans can vary from $5,000 to $500,000 at some companies, and you can use the capital in the way your business needs to, and payments are also very accommodating. Plus, the application process is very quick and requires few documents and depending on the lending company, no credit check.

This leads us to:

How To Apply

Applying for a merchant cash advance is incredibly straightforward.

1- Gather the Information You Need

First, you need to get your hands on all the information you’ll need to submit alongside an application. This will include a form of valid identification, like a government-issued ID or passport. Then a few months of bank statements and a bank account and routing number will be necessary to make the deposit.

Some companies may require a credit check on the business or business owner or ask for other documentation like previous credit card processing statements. Look to the lender’s website to see what pieces of information they need from you.

2- Apply Online

Next, you have to apply for the loan online. Have those documents you gathered on hand during this process and follow the instructions. Nearly all MCA applications can be filled out solely online and take a handful of minutes to complete.

3- Application Review Process

After your application is submitted, an algorithm and/or the human members of the team at the lender’s office will review the application. If more information is needed to decide the outcome of your application, you may be contacted during this phase.

4- Receive The Funds

Finally, if your application is approved, you’ll get the funding you’ve asked for. Depending on the accuracy of your information and other factors, this process could take anywhere from a few minutes to about a week. In some instances, you could receive the funding for your business almost instantly.

Making the Most of Your Cash Advance

When it comes to getting the funding your small business needs fast, a good option can be an MCA. This kind of loan is extremely flexible and can offer you the cash injection you need while offering a fast but adaptable payment schedule that works on percentages rather than fixed dates.

Pros and Cons to a Merchant Cash Advance

If you’re running a small business and you need a boost of capital, you may be looking for alternative lending options. As traditional banks become stricter with how they lend, many small businesses have turned to private lending for the financing they need.

Like with all things in life, MCAs have advantages and disadvantages that should be considered before you commit to using this business loan.

Understanding the Benefits of MCAs

There are many benefits from financing through an MCA. First of all, getting an infusion of cash can happen very quickly. In many cases, merchant cash advances require no credit approval and can come in in less than a week or even in a few minutes. This makes it great when you need to take quick advantage of a sale, when you are moving in on a deal quickly and suddenly require funds or if your business needs an emergency loan.

You do not need to have outstanding credit to qualify for an MCA. Those who have limited credit history can still possibly meet a lender’s requirements. On top of that, it’s also easy to get this business loan. Amongst other specifically outlined pieces of information that will be unique to a lender, all you need is to submit an application, a photo of your government-issued ID, and a few months of bank statements that reflect the state of your business.

To round out the benefits of getting a cash infusion through a merchant cash advance, you don’t need to put any collateral up when seeking this loan. Meaning there is no upfront collateral required to get funded. Instead, a MCA lender is looking for is evidence of strong sales numbers and to see if your future sales numbers will be steady as well.

Considering the Cons

One reason why an MCA may not be right for your business is also one of its benefits. These cash infusions are short-term. You may have anywhere from 3 to 15 months to pay off your balance. Coupled with a high-interest rate (ranging from 9% to 50%), if you’re not certain this cash infusion will boost sales and generate enough profit to cover the loan balance, then it may not be a suitable lending option for you.

This leads to another potential issue. Financing, in this case, is based on future sales, which can be a problem if sales don’t reach projected levels. While this risk is a factor in all kinds of loans, it is increased by the short repayment period and the high cost of an MCA.

Finding the Best Financing for You

Consider these pros and cons carefully, and always review the terms and conditions of any lending agreements you receive. A merchant cash advance can be a great financing option for your business under the right circumstances. If you get a high influx of your payments through credit cards, then this option is primed for you to take advantage of. However, in other cases, it may be best to look for different lending options if you need a cash infusion.

Top 5 Lending Alternatives to Consider

Alternative lenders are private companies that perform similarly to the lending arm of a bank. Because these lenders usually operate an online-only business front, they can focus on providing streamlined, quick, and flexible financing services. While they often have higher interest rates than traditional loans, there are a variety of payment options and loan requirements, making it an accessible solution for small businesses that need a quick loan for a capital boost.

1- Working Capital Loans

If you run a seasonal business with stark differences in profits at different times, you may need help covering operational costs. A working capital loan helps fund short-term day-to-day costs.

With these loans, you retain all business equity. Also, these business loans generally do not require you to put up any collateral.
If you cannot pay this loan on time, that may negatively impact your business’s credit score. Plus, sometimes collateral is required putting assets at risk.

2- Merchant Cash Advances

Merchant cash advances are simple. You reach out to a merchant cash advance lender. They offer you a lump sum of capital in exchange for a percentage of profits you receive from credit card payments.

There are no fixed payments when you get a merchant cash advance. You agree to pay a percentage of your credit card-based payments to the lender, meaning what you pay fluctuates with what you earn. This option is a solution to those who need quick cash, and payments are taken from your account, which helps to reduce the risk of costly late fees. These business loans are often credit check free, making it an ideal option for those with bad credit.
The rates may be too high for your business, and if you don’t consistently receive a decent volume of credit card payments, this option likely isn’t the right fit for you.

3- Professional Practice Loans

If you are a doctor, legal practitioner, or accountant and own a business, then you have a professional practice and can get a special professional practice loan. These kinds of loans are best used in the medical sector as they have higher equipment overhead costs. However, these loans can be used to cover real estate and some insurance coverage.

The rates are lower than other business loans, and the lenders tend to understand the benefits and risks of lending to a professional business.
Equipment may become obsolete too quickly, and practitioners may improperly distribute funds to non-core functions. Both of these issues may mean you will need to seek more financing faster than would usually be necessary.

4- Equipment Loans

If you need to fix or get new equipment fast, an equipment loan can get you the working capital you need to cover those costs.

These loans are secured and easier to obtain than other kinds of financing. While low-interest rates are common, always carefully review loan terms and conditions.
This loan often needs a considerable down payment, and the equipment may become obsolete before you’ve finished paying off the loan.

5- Business Line of Credit

A business’s line of credit, or LOC, is an amount of cash that a business can use in times of need. It can be secured or unsecured. The secured credit has collateral backing it, while the unsecured options do not. Once a lending limit has been reached, businesses must pay off the balance to receive more funds.

This is a highly flexible financing option that can help give you a boost right when your company needs it. It can also help the business owner understand and predict lows in the operation cycle. Then you can account for times when cash flow is low.
However, the interest rates may be too high for small businesses. And overusing the LOC can result in overextending your credit, resulting in further financial issues.

Finding the Best Funding Alternative for Your Small Business

Traditional lenders often have stricter lending parameters than alternative lenders, making alternative lending options a great solution for small businesses that need some quick, working capital, as well as those needing bad credit loans. Consider the options outlined above for financing options that sound right for your situation.

3 Reasons Small Businesses Deserve to Reinvest in Themselves in 2022

The benefits of receiving a cash advance in 2022 amplify your abilities to grow and sustain your business as communities navigate the steadily arriving post-pandemic business world.

The reality is that cash advances for small to medium-sized businesses can determine whether or not a business continues to move forward. No matter how small, every business contributes to the Canadian economy and deserves a seat at the table.

Here are three reasons Canadian small businesses deserve to reinvest in themselves in 2022:

1. Returning from the digital landscape:

The great return, otherwise known as the physical return to the workspace from existing in a virtual world, requires cash advances for businesses to stabilize the next steps to creating their new normal.

The hardships of the Covid-19 pandemic reinforced the appeal of brand identity and business presence on digital platforms. Digital marketing and social media presence have made a significant difference in small businesses; however, re-opening the physical doors of the business comes with notable expenses. Ensuring a successful return from a digital landscape means investing in physical spaces to engage in person with potential clients and partners. If you need to secure a new space to open shop, or if your existing space needs PPE and a fresh look- cash advances can speed up the process of opening your door and closing your laptop.

Without a doubt, the necessity for digital business offered solutions during the most crucial moments of the Covid-19 crisis. Many businesses are considering cash advances to pay for a professional to upkeep the digital side of the business.

2. A secure payroll leads to better business:

Securing a stable payroll is a means for better business. Opening the physical doors of your small business again does not just mean welcoming patrons. This means opening the doors for new and reliable employees as well. Growing your business means being able to afford long-term employees, the ones that create the company culture you envision. These employees will deliver the results you need, offer the teamwork you’ve been missing, and serve as a true investment in your business.

After a year or more of running their businesses on their own, owners are transitioning back to hiring employees or expanding their current staff. Payroll is an important piece of a business’s functionality.

3. Your vision requires belief in your business:

Securing a cash advance for your business signifies a re-commitment to your company’s future. It’s a power move that says, “I believe in my business.” Cash advances promote creativity as businesses revive their best qualities and services. Cash advances help facilitate even bigger returns for your business, in addition to adding the needed cushion to pursue your best ideas.

Advocating for the future of your business is both noble and responsible. Reemerging from digital platforms, navigating a post-pandemic landscape, and securing a bright future calls for businesses to reinvest in themselves with the right cash advances. Securing a cash advance means ensuring that the foot put forward in the world is the strongest.