Business Loan vs Merchant Cash Advance: What’s the Difference?

Choosing the right financing solution for your business is undoubtedly important. Nearly all businesses need some type of financing. While you can always get a business loan, though, another financing solution to consider is a merchant cash advance. Business loans are more common, but merchant cash advances offer their own benefits. To determine which financing solution is right for your business, you should learn the differences between business loans and merchant cash advances.

Business Loan vs Merchant Cash Advance: What’s the Difference?

What Is a Business Loan?

A business loan is a financing solution that involves borrowing a fixed sum of money from a bank or alternative lender. There are secured and unsecured business loans. The former requires collateral, whereas the latter does not. With all business loans, you’ll borrow money from a lender.

What Is a Merchant Cash Advance?

A merchant cash advance, on the other hand, is a financing solution that involves the sale of some of your business’s future credit card and debit card sales. Merchant cash advances are offered by banks and alternative lenders — just like business loans. With a merchant cash advance, the bank or alternative lender will “advance” you a fixed sum of money based on your business’s expected credit card and debit card sales.

Differences Between Business Loans and Merchant Cash Advances

Business loans and merchant cash advances aren’t the same. They both involve borrowing money, and they are both offered by banks and alternative lenders. With that said, business loans typically have a stricter repayment schedule. If you get a business loan, you’ll typically have to make regular payments. Most banks and alternative lenders require monthly payments on loans. Merchant cash advances, conversely, have a more flexible repayment schedule.

You don’t need collateral for a merchant cash advance. While secured business loans require collateral, merchant cash advances do not. You can obtain a merchant cash advance without any collateral. You just need to have historical credit card and debit card sales.

When seeking a merchant cash advance, the bank or alternative lender will look at your business’s past credit card and debit card sales. The amount of money they’ll advance will depend on your business’s historical sales. The bank or alternative lender will analyze your business’s past credit card and debit card sales. And with this information, they will determine an appropriate amount for the merchant cash advance.

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