Not all of the time can be done well during the year, giving you all the cash flow you need to succeed and grow. Sometimes, you may need money urgently, just to make your door open or even expand.
As a company, the best option is to get a merchant cash advance or corporate loan. However, before you go there to apply for one, it is best to fully understand these two conditions.
Merchants advance cash
Merchant Advance Cash [MCA] is cash paid in advance to you in exchange for a percentage of your credit card sales until full payment. This is best for businesses that want to sell a lot of credit cards every day, such as restaurants or retail stores.
Commercial loans [BL] provide you with upfront cash in exchange for fixed payments in monthly instalments over certain agreed time periods. In this case, the term is very flexible and you can choose the term that best suits your business.
Differences between merchant cash advances and commercial loans
Although both options are effective for businesses, they differ in the following ways:
Although commercial loans are legally considered loans, MCA is not. The former is usually subject to certain restrictions and needs to be reviewed by the federal authorities before being approved. You may have to study the qualifications required by the bank or lender to approve such a loan. You need at least two to three years of financial statements and a good credit report to get started. Also, if you are a BL, it may take some time to get approval. However, MCA approval is easily obtained without too many procedures.
Compared with commercial loans, the approval process for merchants' cash advances is quite lenient. What you need to prove is that you have a large number of credit card sales transactions. Even a six-month or one-year statement can solve the problem. The appearance of the credit report is not important. Approval is almost instantaneous, and you should carry the required amount with you within two to three business days.
On the other hand, commercial loans require a lot of things to approve. The lender will review your cash flow report, credit report, financial statements and industry indicators before deciding whether to repay the loan. After analyzing the risk factors, they determined the interest rate to be charged to you.
Although this may vary from loan to credit, MCA approval is usually faster than BLS. However, you may need to study this first. Briefly list a few credits and find out how long they need to approve your loan, provided you have all the documents ready. This should let you know which one is better for your business.
Compared to BL, you must pay a fixed amount [including interest] every month for a certain period of time, and MCA takes a completely different approach. When a credit card sales transaction is made at your POS, a certain percentage of the bill amount will be automatically credited to the credit card's account. This will not affect your operating expenses in any way. In addition, it doesn't matter how much you have to pay every day. It all depends on the type of business you get. Considering the convenience of payment, MCA is definitely a better choice.
Interest rates are usually determined and published in the case of commercial loans. The rate may even change after the initial time period. Compared with BL, Merchant Cash Advance Funding has higher interest rates, although it has not been announced.
Commercial loans are very transparent in terms of cost. They do not involve any additional costs other than those mentioned. However, the MCA also includes many other fees, such as setup fees, payment fees, and handling fees, and may even exceed the actual loan itself.
Both loans have their own advantages and disadvantages. Better choices depend entirely on your business and financial situation. If you think you have the ability to pay a fixed amount each month, no matter how much you make, BL is your ideal choice. However, if you are not satisfied with paying your operating expenses, you should choose MCA.
Yes, in the case of MCA, the cost and interest rate are definitely higher; but you may not feel the urgency of paying. In addition, in an emergency, the MCA can be approved and processed very quickly, so it is very useful. For companies with poor credit reporting, MCA may be the only answer.