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Should I Get a Cash Advance?

If you own a small business, chances are you have or will seek a small business loan at some point. If you operate within the high risk industry or have bad credit, you may have a difficult time acquiring a traditional small business loan. But a 2015 Federal Reserve Bank of New York study revealed that 7% of small businesses used merchant cash advances as a source of funding last year. Businesses that decided to pursue merchant cash advances were generally smaller merchants seeking lower amounts for short term fixes. If you own a small business, you may want to consider seeking a merchant cash advance instead of a small business loan. Here is a look at the major differences between the two.

What Are Merchant Cash Advances?

Merchant cash advances are not the same as small business loans. Lenders give merchants an advance against future credit card sales, and then receive money from the business’s future credit card transactions (the holdback) until the advance is repaid. Payments are either daily or weekly, and range from 5-20 percent of sales. It may be difficult to run a cost comparison between merchant cash advances and business loans. Merchant advances charge interest on the total amount up front, while a small business loan charges interest on a smaller amount each month while the principal is paid off.

Term Length and Uses

Advances are used for short-term financing and have short term repayment schedules of 6-24 months. On the flip side, small business loans have a much longer repayment schedule and are generally used for bigger purchases like real estate. And unlike traditional loans, paying off a merchant cash advance won’t produce any savings or advantages for merchants.

Speed of Funding

Speed is an important difference between the two. Small business loans can take weeks to come through, while merchant advance funds can be deposited within 24 hours.

Borrowing Limits and Requirements

A merchant cash advance can supply amounts from a few thousand dollars up to $250,000 or more. SBA-backed loans, on the other hand, can go up to $5 million. Credit history is not important with an advance. A business can be approved based solely on their history of credit card transactions. A bank business loan, however, will typically demands that the owner have a personal credit score of around 700.

FAM provides cash advances for businesses like yours to achieve success. A fantastic loan program with a simple application process, will get you critical small business funding in less than 72 hours. Applicants need not supply any tax returns or financials. Contact us now to start your application.