Every business, big or small, experiences the need for additional funding at least once in a while. Small-time traders, in particular, often feel compelled to seek capital to cater for causes like paying bills and debts, taking advantage of a limited-time opportunity, or recovering from financial turmoil.
SME owners approach the issue of limited funds in different ways. To some, especially those whose businesses are yet to get off the ground, solutions like investors, partnerships, and crowdfunding campaigns would be a good way to meet their budget needs.
However, if your enterprise has been afloat for some time, you’ll be better off with a more direct funding alternative. With that in mind, the two most common options for SMEs to get operational capital are a merchant cash Advance and a small business loan.
Business loans vs. cash advances. Which is which?
Cash advances and loans are similar in that a borrower requests for money, which is to be paid back in the future. How they work, however, is very different.
For starters, getting a cash advance is often easier than acquiring a small business loan. A loan request demands extensive paperwork, including credit history, a business plan, and bank statements. In most cases, a borrower will also be required to give collateral, meant to cushion the lender in the event of default.
On the other hand, a cash advance application typically requires basic business information and a comprehensive log of recent credit card sales. As long as sales are pleasant, the provider has virtually no reason to reject the merchant’s request.
Additionally, like any other loan, a small business loan will require the borrower to make consecutive fixed payments at each end of a specified period, usually a month. Cash advances are repaid through small defined percentages of everyday credit card sales, which cumulatively clear off the debt.
Why should you choose a cash advance?
For SMEs, cash advances have a significant advantage over business loans.
The many requirements that accompany a loan application make it a lengthy and time-consuming process. Therefore, if you need money to offset immediate expenses, the loan will likely not be granted on time. A merchant cash advance is simpler to apply for and much quicker to get. Firms like First American Merchant are known to process applications in just a day or two.
Servicing an advance is also easier on an SME. Because you’ll be paying through individual transactions, you won’t have to remit large sums to a financier at the end of the month. You can, instead, concentrate on improving your sales and the advance will eventually take care of itself.
Business loans may work better for large enterprises that require millions to fund their operations. But when it comes to SMEs, cash advances offer a better alternative.