Merchant Cash Advance and Business Loans

Business loans are one of the most common solutions for businesses in need of additional financing. While common, they’re not the best solution for everyone. Fortunately, you have several options to obtain the funds you need, including a merchant cash advance. Here’s what you need to know about an MCA versus a business loan.

What is Merchant Cash Advance and Business Loans

A business loan is a lump sum of money that you receive for your business. Some loans require collateral while others don’t. Your rates, terms, and borrowing amounts are dependent upon factors such as your credit history and financial information.

A merchant cash advance isn’t actually a loan. It’s an advance on your future credit and debit card sales. You typically have to meet fewer qualifications than you would with a traditional loan, making an MCA easier to obtain.

How to Qualify for Merchant Cash Advance

For a business loan, lenders typically look at your overall financial health. You will need to provide such information as:

  • Business and personal tax returns.
  • Bank statements.
  • Profit and loss statements.

Every lender has different qualifications, so be sure to research different lenders to increase your likelihood of getting approved.

For a merchant cash advance, a provider generally looks at your credit and debit card statements. While your credit score may be looked at, it doesn’t play a major role in determining your eligibility. Additionally, MCAs don’t require collateral.

How You Repay Your Financing

Business loans are repaid in monthly installments. You pay the same amount (which includes principal and interest) on the same day each month for a set term until the balance is paid off. The interest you pay and how long you have to repay the balance will depend on the information you provide on your application.

MCAs work a bit differently. Instead of a monthly payment, you make payments daily or weekly. There is no set repayment term, nor is there any interest. Instead, you are charged a factor rate. The rate is applied to the amount you borrow and must be repaid in addition to the amount you borrow.  You pay a percentage of your credit and debit card sales. The more you make, the more you pay. Conversely, the less you make, the less you pay. This can be an incredibly helpful benefit for businesses who have seasonal fluctuations.

Both business loans and merchant cash advances are viable solutions for business owners in need of money. Make sure to research your options thoroughly before you decide which option is right for your business.