Difference Between Small Business Loans and Merchant Cash Advances

Most small business owners I talk to have expressed to me that from time to time that need cash (a loan) for the operations of their company. Its things like purchasing inventory, meeting payroll, upgrading or purchasing equipment or software space expansion or even the need to hire more employees. Really there are all kinds of reasons why a business would need a loan or working capital. When funds are used correctly this usually results in growth and profit later.

When it comes time to getting some sort of financing it may seem like there are a few options out there. The more common options are merchant cash advances or small business loans. Every business has a different need and reasons on why they need to get capital. Before deciding which one is the right choice, it may be best to talk to a small business loan broker and have them illustrate the difference between the two. Simple tell them your needs and how much capital you need. They should be able to explain both products and loan scenarios that will suit your business best.

Traditional Business Loans

If your company is looking for low interest rate loans then a traditional local bank has those. (Hard to get approved though). However these can be good when you need to apply for a large loan and can be repaid over a long period of time. On a side note a we at Commvestor Funding offer business terms loans of 5 – 7 years at a reasonable interest rate which make these affordable.

As long as a business has and maintains good credit and has collateral, this would be the lowest priced option, meaning the bank loan or our term loan. But as we all know not every business out there are able to get approved for this type of small business loan. Not everybody’s credit is good and that’s OK. It can be fixed but it takes time, so there are other options to get money.

Merchant Cash Advance Funding

What I am about to show you is probably one of the most widely use funding product today on the market (United States). It is commonly called a merchant cash advance or a ACH loan (Automated Clearing House), perhaps you heard of it but did not quite understand it. It certainly is a great way to get capital quickly and less than a week in almost all cases. But don’t confuse these with them having an interest rate, they don’t and I’ll explain.

Instead they have a factor rate and these are higher than your tradition business loan that means these are best suited for any need or project that offers and immediate return on investment (ROI). This type of working capital is repaid by the funder pulling the payment directly from your business checking account and there is no need to postal mail your payments. If you happen to have other loans and you want to consolidate those you can with a merchant cash advance. They can also be used to get additional working capital.

These are different from traditional loans that you may be familiar with. Instead of traditional loan underwriting where the borrowers credit is very important, instead these review your predictable income based that is on past credit card receipts. Your credit card transaction history is what is one of the primary criteria that is considered. This works well if you have many small transactions, daily. This can also be a good alternative for seasonal businesses.

The funding term for these MCE’s are usually 6 to 9 month and it needs to be paid back in that time frame.

We have some amazing resources if you feel that one of these funding or loan resources are for you. Call the phone number you see below or fill out the email form to find out more information with no hard sales pitch. (I hate pushy sales people too!)

call for equipment lease quote image

We just want to kelp you with small business loans and merchant cash advances.

Why Do Small Businesses Take Out Loans
Touch to Call!