When looking for business loans, you have encountered many options, such as merchant cash advance and business loans. All these loans have a sole purpose: to push your business towards monetary strength and success. Whether you want a smooth cash flow or a robust expenditure power, understanding these two funding options will allow you to make a wise decision.
An MCAs is not a loan but an advance on future sales, typically based on credit or debit card sales. Repayment is made through a certain percentage of daily sales until the advance is repaid, which fluctuates depending on the business’s daily earnings.
A business loan is a traditional loan in which an amount is borrowed and repaid in fixed installments over a specified period. The amount must be repaid regardless of the business operations and sales conditions.
Business loans come in three prominent types. You can select the funding according to your needs and budget. Let’s first understand the types of business loans.
- Term Loans: These are traditional loans from banks or other financial institutions. The amount is a lump sum and must be repaid over a certain period at a fixed or variable interest rate. Term loans can be used for business growth, equipment purchases, or covering operating expenses.
- SBA Loans: SBA loans are backed by government institutions. These Business Finance Solutions have reasonable terms and lower interest rates, so small businesses often prefer them.
- Business Lines of Credit: This is the most feasible business loan for entrepreneurs. You get a lump sum in this loan, but interest is charged on the amount used. It is ideal for managing cash flow and meeting short-term financial needs.
What Are The Common Differences Between Business Loans & Merchant Cash Advance?
There are numerous differences between funding options. Whether you opt for Merchant Cash Advances or business loans, you must choose according to your requirements and ease of repayment. The funds must boost your business operations so they do not become a debt burden. Despite the same objective of promoting your business, both options have multiple differences. Prominent ones are as follows.
Repayment Strategy
When you opt for a Small Business loan (SBL), you often pay a fixed amount to repay your loan. It will give you a clear idea of how much money you must set aside, irrespective of sales and business performance. On the other hand, MCAs have a flat rate that is different depending on your business’s daily credit sales. If you earn more, you will pay more, and vice versa. MCAs offer flexibility, but you cannot forecast the amount you can pay daily for your loan repayments.
Impact on Cash Flow
Business Loans (SLBs) have a fixed cash flow, which helps you set aside a fixed monthly amount for repayment. However, MCAs are followed by different or variable interest rates. This fluctuating amount offers flexibility while making it harder to predict cash flow.
Interest vs. Factor Rates
Almost all small business cash advance (SBLs) have a fixed interest rate. It is calculated on the total amount you have borrowed with a minor additional fee. On the other hand, MCA has a factor or flat rate. The amount depends on the performance of the business day, and it can vary from day to day.
Application Process and Speed of Funding
Typically, small business cash advances (SBLs) require extensive documentation and can take weeks to months for approval. You need to fulfill a series of requirements to get approval for your loan. On the contrary, MCAs do not require lengthy paperwork. You can get quick approval with minimal paperwork, often providing funds within a few days.
Impact on Credit and Collateral
Most small business loans require good credit ratings for approval. Moreover, they ask for collateral (e.g., property or equipment) for favorable rates and instant payments. On the other hand, MCAs leave no impact on your credit score. Therefore, no collateral is needed for loan approval. Approval is based on sales performance and revenue projections.
Suitability for Different Business Needs
SLBs are ideal for businesses with steady incomes and long-term funding needs, such as expansion or equipment purchases. Meanwhile, MCAs are best suited for businesses with fluctuating sales that need quick access to funds and can manage variable repayment terms. Most businesses opt for reliable merchant cash advance company for their flexibility and convenience.
What is best for you? The best choice depends on your business’s needs, financial situation, and risk tolerance. If you need quick funding for urgent expenses and are comfortable with higher costs and flexible repayments, a Merchant cash advance may be suitable. However, a business loan might be a better option if you prefer lower interest rates and predictable repayments and are willing to wait for the approval process.
If you have opted for MCAs and are looking for a trusted company with the least requirements and an instant payment system, contact Purple Tree Funding now! We admire new business ventures, so we offer up to $500k to get a head start or invest in your business to achieve success. For more information and consultations, visit our expert now!
