Merchant Cash Advances vs. Loans: Pros and Cons | Behalf

merchant cash advance vs. loans

Merchant Cash Advances Vs. Loans: Weighing the Pros and Cons

As merchant cash advances grow in popularity, they continue to give traditional bank loans a run for their money. Though merchant cash advances aren’t new to the scene, they serve a growing population of frustrated small business owners who are overlooked by banks. Many merchant cash advance lenders finance small businesses because they see the potential for their demographic to grow the U.S. economy.

That being said, there is a lot of confusion surrounding merchant cash advances, particularly how they differ from traditional loans. If you Google merchant cash advances, you might come across the popular search term “merchant cash advance loans.” For the record, there are no such things as merchant cash advance loans. By definition, a merchant cash advance is different than a loan, but many are confused as to how. Loans are more heavily regulated and for this reason, loans have a more exhaustive application process and a higher rejection rate. Merchant cash advances are easier to attain but can also be costly.

So how do you decide which financing method is better for your business? It comes down to your business needs. Both financing options offer a short term solution for the occasional gap in your business’ cash flow. This article reviews the pros and cons of merchant cash advances and loans so you can make an informed business decision.

The Pros and Cons of Loans

Pros

  • Reliable

    Bank loans are regulated to protect you, the borrower, as well as the lender. This works to your benefit because a bank cannot take advantage of your business by charging exorbitant rates and fees. You get the peace of mind that your business is not getting ripped off with bank loans.

  • Affordable

    Another benefit of bank loans is that they tend to be more affordable than merchant cash advances. Merchant cash advance lenders set higher prices for their services because they can, giving merchant cash advances a bad reputation. Thus, on average bank loans tend to be cheaper than merchant cash advances of the same size. However, there are reputable merchant cash advance lenders that offer fair, transparent terms and affordable fees. There are also numerous alternative loan providers that charge higher fees than any merchant cash advance.

Cons

  • Slow

    The bank’s loan approval process is notoriously slow. It involves comprehensive credit checks to ensure that your business is creditworthy by their standards. However, time is not something your fast growing business can afford if it is in a pinch for cash.

  • Exclusive

    Loans have a high rejection rate: ~80%. Even if you do decide to go with bank loans, there is no guarantee that the bank will go with you. If you are looking to finance a young or small business, you may not have enough credit history to satisfy the bank’s requirements. Even healthy small businesses are turned away from banks’ highly selective application process. That’s where alternative lending comes in.

The Pros and Cons of Merchant Cash Advances

Pros

  • Flexible

    The terms on merchant cash advances are more negotiable than that of a traditional bank loan. You can tailor your merchant cash advance to meet your business needs. With the right merchant cash advance, business financing does not feel like a burden; it works with your business to free up its working capital.

  • Convenient

    Most merchant cash advance applications are online and offer instant decisions. They are quick, giving you fast relief in the event of an emergency. On average, you can get an advance in less than a week. Often your financial woes are time sensitive, so you do not have the time to wait around for a loan and if you do, there is no guarantee you will get the loan. A merchant cash advance is the faster and easier solution.

  • Lots of Options

    You can find merchant cash advances in storefronts or online. They are not only readily available, but also vary from lender to lender. Loans tend to follow the same basic structure because they are regulated. In contrast, merchant cash advances can look and and feel different, depending on the lender. Some may act like a credit card and others look like a loan, or both. The fees and terms differ greatly, making it possible for you to find the merchant cash advance that works best for your business.

Con

  • Predatory Lenders

    Unfortunately, predatory lenders give merchant cash advances a bad name. They take advantage of the lack of regulations, charging insanely high prices in order to make your business dependent on financing. Instead of assisting your business financially, they cripple it by convincing you that no one else would ever lend to your business. They offer the same things reputable merchant cash advance lenders do, making it harder to differentiate them from their counterparts. That being said, it is not impossible to see through their charade. There are many cues you should pay attention to, if you are considering a merchant cash advance, but don’t want to get stuck with the wrong one.

After reading this article, you may want to go the traditional route and apply for bank loans or the faster, easier route and apply for merchant cash advances. It is important to note, faster and easier does not have to come at a price. Just do your research and check out this article for 4 signs of a predatory cash advance and how to avoid them. There are plenty of merchant cash advance options. You want a transparent merchant cash advance that guarantees low prices.

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