First and foremost, the growth of a business requires dynamic ownership. However, even the most prescient business owners find themselves at some point in need of outside funding in order to expand. Owners looking to move quickly in order to meet the financial needs of their companies can often find themselves with a poverty of riches: while more funding choices exist now than ever before, navigating these choices in order to make the best decision for one’s company can be both confusing and time-consuming. With merchant cash advances increasingly taking the place of traditional bank loans as the go-to funding for small businesses, it’s essential to understand the pros and cons of each option.
Merchant Cash Advance
Perhaps the first thing to understand about a cash advance is that it is not a loan, but a purchase of the future receivables of the business. For example, the cash advance provider might purchase $23,000 worth of the future sales of the company in exchange for an upfront payment of $20,000. Over a negotiated period of time, typically ranging from six to eighteen months, the company will then provide a percentage of those receivables back to the cash advance provider, typically through daily or weekly payments, or through a percentage of daily credit card sales.
Key features of a merchant cash advance are:
- Fast and easy application and approval process. In many cases, a business can receive cash in their bank account the same day they apply.
- Minimal paperwork.
- No collateral.
- Can get funding even with low personal credit.
- Flexible payment options.
Despite the ease with which one can obtain cash advance funding, care should be taken when choosing a provider. While many cash advance companies fully deserve their “loan shark” reputation, building a long-term relationship with an experienced cash advance company can ensure that your business avoids any pitfalls. Click here for a free merchant cash advance application.
Bank Loan
Until fairly recently, going to the bank was the primary avenue of gaining funding for one’s business. But with banks growing increasingly conservative, small business owners have found it more and more difficult to obtain financing through this traditional source.
Key features of a bank loan are:
- Relatively long repayment obligations.
- 8% interest rates.
- Lengthy application and approval process that can take weeks or months.
- High rejection rates.
- Demanding personal credit requirements.
- Time-consuming paper work, meetings, and documentation.
- Collateral requirements.
Making the Right Choice
Whichever route you decide to pursue, you can ultimately save yourself a lot of time down the road by doing your research now. Getting funding for your business doesn’t have to be stressful or intrusive: if you need money quickly and noninvasively, you may want to look into a merchant cash advance. If you need a payback term stretching over longer than two years, however, then going through the process of a bank loan might be worth it to you.