Business Cash Advance – How Does it Compare to a Bank Loan and is it Better For You?
The current economic crisis is bringing about a great change in the preferences for business financing sources. Merchant cash advance cash advance providers have risen to the occasion in the economic crunch to help struggling businesses while traditional banks are either closing themselves down or refusing loans.
However, the economic slowdown is not the only reason merchant cash advance providers are thriving today. They are offering services that are much more business-friendly than regular banks with stringent loan regulations.
Immediate cash availability
The approval cycle for getting an advance from a merchant cash advance provider is quite short. It takes 24-48 hours for the advance to be approved. If the borrowing party has done business with the provider before, the cash is transferred into the business account within 2 days.
If the business goes to a bank, the loan approval cycle itself takes months. This is an impossible wait for a business that is already crippled with low finances. A merchant advance provides the immediate boost needed for the business to recover and resume operations. Bank loans are too archaic to be useful, especially if you need the cash within a short period.
Flexible repayment terms
As opposed to loans, cash advances are not paid back in monthly instalments or on fixed dates. Merchant cash advance providers get their money back by getting a cut of the credit card sales of the business. A percentage of the credit card sales is paid to the provider till all the debt is paid off.
The amount paid to the provider will vary with the amount of credit sales made during a time period. This is acceptable to the cash advance providers and there is no penalty for a slump in sales. Some providers are so flexible that they do not ask for payments during slow months.
There is no such flexibility with a bank loan. Even if the bank understands the predicament of the business, penalties will still be levied for late payments.
Only business guarantees
Merchant cash advance is approved for a business and is not directly linked with the business owner. The business owner does not have to provide information on personal collaterals or give personal guarantees for repayment of the cash advance. The merchant cash advance provider has a direct stake in the business, and repayment is only dependent on the credit card sales.
Business owners may have to provide personal guarantees when obtaining a business loan from a bank. If the business suffers and is unable to generate revenue to repay the loan, the business owner is also in a soup.