Merchant Cash Advance or Traditional Business Loan?

Owning a business can be a very rewarding experience. As an owner, you get to make decisions to grow your business and foster future success.

Unfortunately, not all decisions you make will be easy, especially when it comes to shortage of capital. No matter the circumstances, when this happens you must be able to access the capital you need in order to remain operational.

Business owners typically use one of two avenues to ease cash shortages:

Fortunately, either option will do the job. However, it’s important to understand the differences between a merchant cash advance and a traditional bank loan, because they each have their own unique characteristics. The best option really depends on your business, industry, and financial history.

Choosing the right financing approach involves knowing your business goals, understanding your revenue and cash flow, and weighing your risk tolerance.

Before choosing a lender, ask yourself these questions:

How quickly do I need funding?

The simplified application process of a merchant cash advance will provide faster funding than a traditional loan which requires extensive paperwork. If you need funding quickly, a merchant cash advance suits your needs better than a lengthy traditional bank loan.

Is my business’s cash flow consistent?

The terms of a merchant cash advance are based on a percentage of your business’s future sales, while a traditional loan adheres to strict repayment guidelines that must be met monthly. If cash flow is NOT consistent, a merchant cash advance may be the best option because there is no fear of defaulting on payments.

How much documentation must I provide?

Traditional bank loans generally require more documentation and collateral in order to be considered for a loan. A merchant cash advance requires little documentation and a short one page application. New businesses, with little to no collateral to offer, may prefer a merchant cash advance because of its simplicity.

What is my credit score?

In some cases, even a successful business may be denied a traditional bank loan if its credit history is less than perfect. If you are concerned about your credit score, a merchant cash advance may be a better option, because they are less stringent on credit score requirements.

What type of repayment options do I need?

Traditional bank loans typically have a set monthly repayment schedule. Regardless of how well business is going, you are required to make the agreed upon payment each month. If your business tends to have fluctuating sales, a merchant cash advance may be a better option because you are only obligated to pay a percentage of actual sales made each day.

 Merchant Cash Advance vs. Traditional Loans

For more details on merchant cash advances, see our Merchant Cash Advance section.

Get Free Quotes

If you are ready to shop for a merchant cash advance provider, fill out our form and we will put you in touch with up to 5 suppliers in your area. They will offer you free price quotes and be able to answer any further questions you may have.