Merchant Cash Advance or Business Loans?Published on 13th March 2017 - Last update on 27th February 2018
What is a Merchant Cash Advance?
Often mistaken for a loan, this particular product is best suited to sectors such as retail. The reason being is that a merchant cash advance relies on your monthly receivables or revenue generated by your credit and debit card paying customers. After reviewing 3 or more of your business’s consecutive monthly sales reports a potential finance lender may offer to purchase your potential earnings for one particular month, at a discount. The decision on whether to lend to your business is based solely on your sales, so no need to worry about credit scores or unearthing business histories.
However, what makes this product stand apart from a business loan is how the product is repaid. A lender may offer you the lump sum at a rate in the region of 20%, for example. What this means is that 20p of every £1 your card customers spend is removed to pay back the lender until the product has been fully repaid. So, if you make fewer sales in a particular month you pay less. But should you experience more then you’ll pay more.
- Lump sum
- Fast (usually delivered in around 48 hours of applying)
- High acceptance rate
- No credit history checks
- Flexible repayments
- Short-term (usually repaid with 6 to 12 months.)
- Isn’t regulated by usury regulations, unlike a loan
- Reduces cash flow
- Harder to budget for
What is a Business Loan?
Business loans tend to come bundled as either secured or unsecured finance packages. With an unsecured loan, you can acquire £5,000 to £250,000. However, with a secured loan your business could benefit from £5,000 to as much as £1,000,000.
Plus, whilst secured products require you to lay down assets as security, unsecured products do not. However, not providing security can reduce the lender’s confidence and result in a smaller lump sum. In order to acquire the exact sum you require, you could offer the lender a Personal Guarantee. Also, business loans require you to comply with a fixed monthly repayment scheme.
- Lump sum
- Easy to budget
- Can be used to fund any business project
- Rigid repayment scheme
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