Merchant Cash Advance Or Business Loan
For those who have been turned down for a business loan in the past, they often feel that chances of them having their own businesses are over. That is simply not true, but if you have been keeping track of the business lenders over the last year or so, you would think your only unsecured business loan alternative is a merchant cash advance.
It is certainly an alternative but not always a good one to manage a sustainable business. Many companies swoop in offering a Merchant Cash Advance when a traditional bank says “no” to a business loan and they make it seem like a miracle. A merchant cash advance company makes it easy to apply and can give you an approval within 24 hours in many cases. So let’s take a closer look at this type of business loan.
For the purpose of defining a merchant cash advance, let’s say that it a creative way for a business to get capital based on sales. You basically get a predetermined loan and pay it back when you receive money on your sales. If you sell less than you plan, then you pay back less. If your sales are up, you will pay more and pay the loan off quicker. It sounds great doesn’t it? On the surface yes.
You will see many lenders say that a Merchant Cash Advance is the best way to have access to capital on an ongoing basis to run your business more effectively than other borrowing sources. But as with most instruments, the marketing is flashy and clever leaving a prudent small business owner to dig deep for all the facts. But let’s be fair, there are certainly some niches where a business loan in this form has a very strong appeal.
But let’s be as clear as we can about the difference between a traditional business loan and a merchant cash advance which is touted as the alternative.
A Merchant Cash Advance Is Different Than A Business Loan
From the perspective of a Merchant Cash Advance lender their product has many benefits. A traditional business loan comes with a lot of restrictions before any funding can take place. There has to be good business credit, a solid business plan and at least some sort of track record to justify the granting of a business loan. And this really is true because a because a business cash advance lender focuses on what may happen in the future as opposed to what has happened in the past.
A traditional business loan may require:
- 2 years of financials that show a good repayment record
- Certain types of collateral IS required
- A stringent drawn out application process
A merchant cash advance company has an answer for all of that. Namely that there is no need for years of financial paperwork, no collateral needed because the business loan will be based on future sales and a very quick approval process. In the end the Cash Advance lender will tell you they won’t turn you down and the chances of unlimited loans from them are very high.
This all may be true but at what cost. A merchant cash advance is very expensive compared to a traditional business loan because they assume a very high risk. This is fair but most businesses should look to a high cost loan as a sustainable business model. There are unsecured business loan alternatives out there and they are just as easy to get.
For example, Seed Capital offers a quick turn around program with a minimum guarantee of $50,000 in working capital all while establishing future business credit. There are no strict requirements as with a traditional business loan and the turnaround time for the application processes is quick. And did I mention the application is free?
So do not get too hypnotized by the clever marketing strategies of the merchant cash advance lenders when you are hunting for a business loan.