Every small-scale business needs capital at some point in time. One of the reasons that businesses need loans is because they are comparatively small-scale and don’t have enough spare funds to be able to put in different sectors. This is when they might need quick small business loans.
A Merchant Cash Advance is entirely different from other types of quick small business loans even though both of these provide small businesses with working capital. For us to know which one is better between the two, we will have to compare both of them.
Quick small business loans
In a nutshell, quick small business loans are where an amount is allotted to a business in return for fixed monthly payments. It works just like a car loan or mortgage. Once the loan is approved, you have to pay a pre-agreed amount daily, weekly, or monthly. There are multiple options from short-term to long-term options.
Although quick small business loans are high, MCAs don’t require you to have an excellent credit rating or history, which is the issue that stops many business owners from even applying for a loan. Most of the traditional small loans are taken from banks as they have been around for hundreds of years and are most reliable in this area. People tend to trust them more but, that is all changing now.
Merchant Cash Advance
Merchant Cash Advance is a relatively new way to get quick working capital fast for small business owners. It has come into existence in the past couple of years only. So, it is still relatively new, which makes a lot of people skeptical of it.
Merchant Cash Advance or MCA is a convenient option if you need a cash flow quickly for a short amount of time. A Merchant Cash Advance is an advance payment that is paid in exchange for a share in the future credit or debit card sales that the company would make.
Traditional loans vs. Merchant Cash Advance
Merchant Cash Advance may seem like it is very complicated, but once you understand it, it is pretty straightforward. A Merchant Cash Advance provider gives you a lump sum amount just like a traditional bank would. However, when you go to apply for a loan in a traditional bank, they take weeks to get back to you with an answer about whether you would be eligible or not.
The holdback or retrieval rate for Merchant Cash Advance is close to 1%. Many times, banks look at your account statements and credit card score before they even consider you for getting loan approval. This might hold a lot of businesses back. Unlike with quick small business loans, Merchant Cash Advance does not have a good credit score as criteria to approve the loan.
Depending on how big or small the quick small business loans are, your payment period is decided. It may be as short as 90 days or as long as 18 months. On the other hand, Merchant Cash Advance providers get back to you quicker than a bank does. Sometimes, they even get back to you on the same day once you upload all your required documents.
How does Merchant Cash Advance work?
Merchant Cash Advance works on a business structure where most of the revenue comes from the debit or credit card sales. The lump sum of cash can be repaid in daily, weekly, or monthly installments. More and more people are choosing this option over quick small business loans.
The payment that you have to make depends on the business’s capability. The higher the factor rate is, the more fees you have to pay. The amount is cut from your pay every day, week, or month until the whole payment is cleared.
The best part about Merchant Cash Advance is that the pay can vary depending upon how well your business did that month. So, if your business is slow one month, then you would have to pay accordingly. Similarly, if you had a good month’s business, then you can pay more.
Why is Merchant Cash Advance better than loans from a traditional bank?
Here are some of the reasons why Merchant Cash Advance is a better option than traditional banks for quick small business loans.
There is no office that you will have to physically visit when you want to apply for Merchant Cash Advance. You could do all of it online. All you have to do is submit all the required documents, and the Merchant Cash Advance providers would get back to you within a week’s time or maybe even less.
One of the main advantages of choosing Merchant Cash Advance over other quick small business loans is that it is much quicker than a traditional bank. Banks take up several weeks, maybe even months, whereas Merchant Cash Advance does the work within a week.
A bank looks at the business as well as the personal account details and statements of the person taking the loan. However, to get a Merchant Cash Advance approved, good credit card scores are not necessarily required. What might help or improve the chances of getting the advance payment is how consistent your credit card sales might be.
When you go to a bank to get a loan, it is common to be asked for some collateral so that the bank doesn’t have to suffer, in case you are not able to pay the amount back. On the other hand, Merchant Cash Advance is unsecured, so you don’t have to put up any collateral, be it a personal asset of a business.
If you compare a Merchant Cash Advance with other types of quick small business loans, then the former will certainly come out as the clear winner owing to its many benefits, such as quick approval, immediate funding, simple application, easy eligibility requirements, no collateral, etc.