Together with the surge of mushrooming small businesses was the rise in the need for funding. To answer this need, financial services have been offered by various lending companies and financial institutions. The best thing about the huge competition on the side of these lenders is that they are continually devising ways to make things better and better for the entrepreneurs, coming up with innovative solutions. Two financial services that this article tries to look into are the small business loan versus the merchant cash advance.
In the past, traditional small business loans were the answer to the need for funds of an entrepreneur. Today, many forms of funding have evolved into more sophisticated models that have integrated ease and speed in acquisition. A merchant cash advance is one of these innovations in financial services. Let us take a look into the features of each to be able to distinguish which money source is right for our entrepreneurial and financial needs.
Among the common requirements posed when applying for a small business loan is that the possible borrower must have a good credit history and that the business should have been operating for a certain number of years. With most banks, you may have to put up your physical assets as security in order to receive the needed small business loan. The majority of application for such traditional means of funding has a higher probability to get declined. In the application process, the submission of paperwork alone could take from 1-4 weeks. If you have a good credit standing and are approved of a small business loan, it could take somewhere from 4-8 weeks before your money is released. Repayment terms are done on a fixed monthly basis and failure to comply with this may result to default of the small business loan.
Merchant cash advance, on the other hand, boasts of an incredible 90% and higher rate of approval as the lending company evaluates not the credit history of the borrower but ability of the business to procure future credit card sales. With lesser requirements to meet, the application process is a lot faster than that with getting a small business loan and within an average of 24 to 72 hours the applicant will already know the response of the lending company. Once approved, funds can be made available in less than seven days. Unlike small business loans, repayment for merchant cash advance is taken by percentage of future credit card sales until the borrowed amount is fully paid.
By comparison, the merchant cash advance obviously outshines the small business cash advance in both ease and speed in acquisition.