Should I Choose a Merchant Cash Advance Or a Business Loan?
From the ezine article by Gaston Castro.
If you are struggling with the decision of choosing a merchant cash advance or a business loan, you may need to ask yourself a few questions. Once you assess yourself, your business and your business's needs, you should be able to determine which type of business financing best suits you.
What type of business do you own?
If you operate a merchant business (one that sales products and/or services) you will most likely be able to receive a merchant cash advance. However, if you do not operate a retail business or your retail business does not process credit card sales, you will not be able to receive a merchant cash advance. This is because merchant cash advance payments are made via a small percentage that is automatically deducted from your business's daily credit card sales.
If you own a small business that is not a retail business, you may want to consider getting a business loan, since there are virtually no restrictions on the type of businesses that can receive them.
How much time do you have?
Business owners need money for different reasons. Some may need money to finance a special project, and others may need money to keep their business on its feet or for financial emergencies within their businesses. If you need money for a financial emergency, then the speed in which you can acquire that money is obviously very important. Merchant cash advances can be funded in as little as 10 business days, while it can take up to several months to receive a business loan after it has been approved by a bank.
If you have the time to wait for your funds, a business loan may be an acceptable form of financing, but if you need your money ASAP, a merchant cash advance will most likely be your best bet.
How do you plan to use the money?
If you choose a merchant cash advance, there will be no restrictions on how you can use your money. However, most banks require applicants to explain how they plan to use their loan. A bank can refuse to fund a business loan if they do not believe in your plans for your loan.
How is your credit? Collateral?
Having an excellent credit score and personal financial history is one of the main requirements for receiving a business loan. Banks also usually require you to put up collateral in order to secure the loan. Therefore, if your credit score is less than perfect, and you have no collateral, chances are you will not be able to receive a business loan through a bank.
Contrarily, your credit score has a much smaller effect on your merchant cash advance eligibility. Merchant cash advance lenders also require no collateral.
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