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Merchant Cash Advances Vs Business Bank Loans – A Different Ball Game

Henry Githinji

Henry Githinji

Henry plans to be an entrepreneur with his own financial consultancy firm, specializing in in binary options and stock trading. Henry is a day trader and plans to use the capital he makes to launch his business. He plans to build a portfolio that attracts investors through his trading performance.
Henry Githinji

Merchant Cash Advances Vs Business Bank Loans


merchant-cash-advances vs business bank loan

Merchant cash advance and business bank loans help to keep your business growing. Both of them provide a lump sum of money when your business needs capital. Merchant cash advances companies purchase future receivables of your business at a discount. Every time you make a credit sale, a portion of the sale is forwarded to the merchant cash advance company. With business bank loans, you borrow an amount you want after it has been approved. You are given a certain period of time to repay the loan. The loan is paid monthly and a failure to do so will incur a penalty. If you fail to repay the full amount of a business loan, your business assets will be auctioned off.

However, it might be difficult to determine which business borrowing option is right for you. We compare the advantages and limitations of merchant cash advances and business loans below. See this article for a comparison with factoring.

1. Access time and qualification for funds

Merchant cash advances are very easy to qualify for. All that are needed are your business bank statements and sales account history, which are usually the credit card receipts of the business. After submitting these to the merchant cash advance company, you are then required to wait for your loan, which may take as soon as two days to a maximum of four weeks to be approved. When applying for business bank loans, the bank will also ask for your business bank statements and sales account history. In addition to those, the bank will also require your credit ratings, collateral tax records, and other documents. The review process may take several weeks or months. If your business credit history is less than perfect, your business loan may be denied by the bank.

2. Interest rates and terms of repayment

With merchant cash advances, the more charge, the less your credit sales are. This is so because merchant cash advances are not loans – they are the sale of a portion of the future sales of the business. Repayment period differs for different merchant cash advances companies. Repayment periods are usually 4-18 weeks.

With business bank loans, there are monthly repayments at a given percentage of interest rate. Regardless of how well or badly the business is doing, you are required to pay the monthly amount. You will continue repaying monthly until the end of the loan repayment period.

3. Funding availability

Banks do not lend during a financial crisis. Merchant cash advances provide an alternative borrowing option for many businesses during a financial crisis. Therefore, many people prefer merchant cash advances when they are unable to access traditional funding.



4. No auctioning of business assets

Merchant cash advances companies will continue deducting credit sales from your business until the full amount is repaid and there are no heavy penalties for failure to repay. On the other hand, banks will always impose heavy penalty fees and may auction off the assets of a business for failure to repay the bank loan. Many people prefer merchant cash advances because they do not auction the business assets should it fail to pay off the cash advance amount.

In order to choose the right business borrowing option, you need to understand the revenue and cash flow of your business. This is important for the good growth of your business in the long run.


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