Merchant Cash Advance
A merchant cash advance is a lump-sum amount given to a business in exchange for a daily percentage of credit card and/or debit card sales. It is common for merchant cash advance companies to work with your payment processor to withhold a percentage of your sales.
What are the differences between a Merchant Cash Advance and Small Business Loan?
Historically, merchant cash advances have had higher approval rates, less paperwork, and faster funding. This holds true when comparing them to traditional business loans; however, online business loans (such as those offered by Lendified) serve as a fast and easy option with high approval rates.
Today, the two key differences between a merchant cash advance and small business loan are the payments and interest rate. With a merchant cash advance your payment is automatically subtracted from your daily credit/debit card sales until the advance is repaid. Two common ways this is done are:
Split withholding: A credit card processing company will split your credit/debit card sales between you and the merchant cash advance company.
Trust bank account withholding: Your credit/debit card sales are deposited into a bank account controlled by the merchant cash advance company. An agreed upon amount is then electronically forwarded back to you. A downside to this method is a delay in getting your revenue.
On the other hand, a small business loan spreads bi-weekly or monthly payments over a fixed term and allows you to pay with funds from multiple accounts. Also, your interest rate will likely be much lower since a merchant cash advance APR can run upwards of 40-50%. With both options, you should be careful to understand the total cost before committing.
Is a Merchant Cash Advance a good fit for my business?
Merchant cash advances provide some advantages to small businesses, including a payment schedule that revolves around sales. If your business has a strong history of sales, but cannot qualify for a business loan, a merchant cash advance is a possible alternative for funding. This option is popular with small web-based retailers who use payment services such as PayPal and Square (these companies are starting to offer cash advances themselves).
If you have pretty good credit (over 600) and want to better manage your cash flow then a small business loan is likely a better option for you. If you have been in business for more than a year and have over $100,000 in annual revenue then Lendified could be a great way for you to obtain fast, easy, and more affordable financing. We allow you to apply online in minutes, get an instant decision with no obligation, and receive funding in as fast as 48 hours. Your rate will be based on the big picture of your business, not just your credit score or credit card sales, and be much cheaper than a merchant cash advance.
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About the Author
Lendified is Canada's premier online lender for small businesses. The company was founded by former bank executives dedicated to provide businesses with fast, easy, and affordable financing. The Lendified team regularly produces blogs and guides to help small business owners succeed.