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Merchant Cash Advance or Small Business Loan | Which Option is Right for You?

At some point, every business will experience a period where their cash reserves dwindle. Without sufficient capital, a business will be unable to grow, expand or take advantage of opportunities. Even after assessing cash flow and managing payables and receivables, it may still be necessary to look outside the business for solutions. This decision quickly leads to the next dilemma: which business funding solution is right for your business and its current situation?

Some business owners seek the traditional small business loan, while others seek alternative options like a merchant cash advance. If you’re unsure which option would be right for you, consider the following overview of these two options:

Small Business Loan

A small business loan can be secured through a traditional lending institution like a credit union, bank or online lender. Applying for a loan with a bank or credit union can turn into a lengthy process. After submitting extensive documentation and signing complicated contracts, you could potentially still have to wait weeks (or even months) – only to be turned down. Typically, small business loans also involve strict credit requirements.

If the business does secure the cash it needs from a bank, it will pay back the agreed-upon amount plus any interest accrued on the loan. If the loan is obtained from an online lender, the business owner could have the option of choosing the amount they need and the ideal period to pay it back. All in all, small business loans typically work best for the established business with a strong, extensive performance history.

Merchant Cash Advance

A merchant cash advance can be obtained from an online lender, like alternative lender First American Merchant. The advantage of using a merchant cash advance is that it is not a loan or a high interest advance; it is simply sale. The alternative lender purchases your future sales at a discount (both parties agree to the amount of sales and at what discounted cost). Because payment is a percentage of your daily sales, this option offers you flexibility.

Merchant cash advances can easily be secured for all business types and industries; this includes startups (limited time in business), those considered “high risk” and those struggling with a bad credit history. The application process is known for being fast and hassle-free. Depending on the lender you choose, you could receive your funds within 72 hours – if not sooner – after submitting your application.

Which Option Should You Choose?

Ultimately, choosing between a small business loan or a merchant cash advance will depend on your need for cash, time in business, credit history (or lack thereof) and your industry. If your business needs immediate working capital for expenses and growth, a merchant cash advance may be your best option. Above all, do your research and make sure your choosing the option that best suits your business’ unique needs and situation.