All businesses need access to cash to thrive.
They need a healthy cash flow to invest in their future growth, to pay off high interest debt, to handle slow months, or to finance hiring or training. Whatever the industry, small business owners know that sometimes they’ll need to improve their business cash flow by borrowing.
Business owners can go the traditional route of applying for a bank loan. Depending on the nature of their business, they can also choose to get financing in the form of a merchant cash advance. Among the many small business financing options available, Canadian businesses have shown that they trust merchant cash advances to get them the money they need, given that they are extremely convenient ways to access funding quickly and easily.
What is a merchant cash advance?
A merchant cash advance is essentially a form of business loan from a lender – although technically it is not a loan, as the merchant cash advances are provided to businesses in exchange for a percentage of their future credit card sales or debit sales. It’s almost like a traditional loan from a bank, but faster and easier to acquire, and with less red tape involved.
What is the difference between merchant cash advances and business loans?
When it comes to a cash advance vs a business loan, the major difference is related to the terms and nature of the repayment.
Merchant cash advances
With a merchant cash advance, you’ll pay the loan back through credit card sales, and the amount you pay (and the frequency of your repayment) will often depend on the volume of your daily or weekly transactions, and your expected future sales.
You might hear the term “holdback” here. If your business does $1,000 worth of transactions per day with a daily “holdback” of 10%, then you’d essentially be paying back $100 per day. Similarly, a weekly holdback of 10% on the same $1,000 per day average would average about $700 per week in repayments
A merchant cash advance has the advantage of allowing a business owner a flexibility they can’t find elsewhere as online lenders will offer a merchant cash advance with either weekly or monthly payments.
Traditional business loans, on the other hand, operate with a more conservative approach baked-in. Banks are risk-averse, and will often require more paperwork, more collateral, more detailed financial statements, and better personal credit scores. The loans they provide are also often structured with more rigid repayment terms in place, and those payments are required over a fixed period of time, locked-in in advance.
That said, while a traditional business loan from a bank leaves small businesses with less flexibility in many cases. However in certain circumstances, long-term loans can be a better fit and make more sense for some businesses. Merchant cash advance providers will often seek shorter-term repayment periods of between six and 18 months. If your business needs a large loan for a significant investment, the bank might offer you better options that are structured over a longer period of time.
Additionally, in some cases a bank can offer small business owners a slightly better interest rate on the lump sum they’ve lent out. Another advantage of using a small business loan from a bank is that the interest paid on the principal will shrink as the loan is paid back. In comparison, a merchant cash advance often will charge all of the interest on the loan upfront.
How do I choose which is right for me?
Think of merchant cash advances as short term financing, sources of working capital for elements in your business like payroll, inventory, marketing expenses. In contrast, think of a business loan as something drastically more substantive, something structured over the longer-term, such as with larger expansion plans, purchasing other businesses, etc.
Very often you’ll find that the best way to figure out what the best choice is for your small or medium sized business is to talk to a professional after doing some of your own research. To learn more about the details and answer the question: “How does a merchant cash advance for small businesses work?,” you can read our blog on the subject. But ideally, you’ll reach out to us, fill out the extremely simple application form, and we’ll get back to you within a day or so.
At Merchant Growth, we tailor our financing solutions so that they benefit both parties. That’s why we’ve prioritized our quick turn-around times on applications, and can often get cash into the hands of business owners within 24 hours of approval. We worry less about your credit score as a sole deciding factor, and more about the overall health of your business.
A merchant cash advance is a great alternative to traditional bank loans, and can secure you from $5,000 all the way up to $500,000, with no hidden fees included, and no collateral required. Our value-added is funding your bank account quickly so you can focus your attention where it is needed most: in the day-to-day operation of your business.