Comparing the Merchant Cash Advance and the Bank Loan When a small business owner finds themselves in need of extra funding, they will need to look at their financial options. Those options could often mean the difference between keeping a company open and having to close the doors. It is a tough world out there, and this means that every entrepreneur must always work to make the right decisions with each choice they make. Financing is not something you will want to take lightly. Two of your main options would be to choose between the bank loan for businesses and the merchant cash advance. How are the two different? How do they compare? Here is what you need to know about the two so that you can make your right decision. The Bank Loan Often, because a bank loan is a long term financing option, it will allow a company to borrow a larger amount of money. This is the appeal that many people turn to because they need a large amount of funding for one business situation or the other. Of course, because you will be borrowing more money, you will need a longer amount of time to pay it back. Here are a few of the parameters of the bank loan that you will need to know about before you choose it for your financing option.
These loans generally require collateral, such as a home or other type of property. This is the way that the bank can protect itself from defaulted loans. Strict rules for approval and use. Most often, a bank loan will require that you state how it will be used for your business and you must stay in this stated use. Additionally, the loan will require a strict set of parameters for approval. For many people, this is a positive because it means better rates and fees. Fixed payback. A bank business loan will definitely be on a payback schedule. You will have a certain payment each month for a set amount of time.
These would all be things that you need to think about for the bank business loan. Now, compare it to the merchant cash advance to see how the two stand up against each other. The Merchant Cash Advance A merchant cash advance works on a similar style as a personal cash advance – it is a shortterm method of getting an advance on cash you will have available later down the road. This can be an ideal option if you do not need extensive amounts of money and it can provide funds for repairs, inventory restocking, renovations, and even seasonal planning. Here are the parameters of the merchant cash advance that you will need to consider.
No need for collateral. When a small business applies for a cash advance, they will not need to provide any assets. Unlimited use. For some company owners, this is important. The merchant cash advance does not put stipulations on how the money can be used or who can be approved. This could be ideal for business owners who may be considered too high risk for traditional loans. User set parameters. For those who want to be able to decide how they pay back the loan and when, the merchant cash advance means that they will have this freedom. Some people prefer the strict parameters of a bank loan but many would like the space to pay back their loan as they can.
This is how the two methods of financing compare. In most ways, the merchant cash advance offers more freedom than a bank loan, but it generally offers a lower amount of money that can be loaned.
Published on Jan 20, 2013
Published on Jan 20, 2013
When a small business owner finds themselves in need of extra funding, they will need to look at their financial options. Those options coul...