Business Loan vs. Merchant Cash Advance

Every business requires extra funds from time to time. Whether you have a current challenge or foresee a future one, it’s good to know your financial options. Do you know the difference between a business loan vs. a merchant cash advance (MCA)? Which one would work best for your business? Today we take a little break from talking strictly about Point-of-Sale (POS) systems to share a financial guide that can help you make decisions about your business’s future.

Business Loan

Most business owners understand the structure of a business loan. The lender agrees to loan funds, while the borrower agrees to pay them back over a certain period of time at a fixed rate each month.

There are several types of loans like short term or long term. If the funds you are seeking are tied directly to generating revenue, you might consider a short-term loan because you will be able to pay it back quickly. If your funds will go toward expansion or growth that isn’t tied specifically to revenue generation (like remodeling, buying equipment, etc.) then you might choose a long-term loan.

Merchant Cash Advance

A business loan and a MCA are the same in that the lender agrees to loan money that will be paid back over a period of time. The difference lies in how that money is paid back. In a MCA, the business owner pays back a percentage of their credit card sales to cover the loan usually daily or weekly. The business is charged according to its sales, meaning the payment varies and the company never pay more than it can afford.

Which Is Best For Your Business?

There are pros and cons to both business loans and merchant cash advances, but which one is best for your business? Consider these questions.

  • How will you use the funds?

If your loan is for expansion or growth, or for a little extra during lean times you may want to choose a business loan. If you need some cash to purchase inventory and plan to make it back quickly, a cash advance might suit your needs better.

  • How do you want to pay back your loan?

If the idea of a fixed monthly rate sounds best to you, a business loan is your choice. If paying back according to your credit card sales on a daily or weekly schedule is appealing, a merchant cash advance is your friend.

  • How is your personal credit?

Your personal credit is key in establishing business credit. If you don’t have good scores, a MCA may be the best option.

Understanding your financial options is not always easy, but it’s good to have a general understanding so that when you are faced with a challenge, you can draw from some basic knowledge.

Lastly, consider Bepoz’s POS software by scheduling a demo today.