Cash advances and loans both provide a business with capital that required for immediate growth. The main difference between the two however is the way that it is paid back.
Almost all start-ups or small businesses require that extra push or funding during difficult times. If you’re planning on scaling or taking a new challenge this will be almost 100% true. To be financially stable the key is to identify the right loan or cash advance.
If you’re confused as to whether you should get a cash advance or a loan, this quick read might help alleviate your problem.
The two options are very similar in principle but vary quite a bit in practice.
A standard cash loan is usually paid back in instalments or terms over a set period of time. However,payment for cash advances on the other hand depend on credit card sales and transactions. The monthly payments are not fixed and can vary. This eliminates the stress of large, unexpected payments.
Once you understand this primary difference you can start making a financing plan for your business that will not be a burden but instead take your business to higher places.
Business Cash Loans
This type of loan is the most common loan among business owners. Most people will be already familiar with how a standard bank loan works but let’s quickly go over the process.
A cash loan is a straightforward process, most of the time. You approach a lender with the amount of capital you require and depending on certain criteria your loan will either get approved or rejected. The capital amount plus an interest will have to be paid out over a set period with fixed monthly payments.
Usually this monthly payment cannot be reduced but if the business is doing well you can pay more and reduce the payment period.
Under business loans there are further classifications like no collateral loan or SBA loans.
Merchant Cash Advance
Things like advance loans are a type of loan where you approach a lender with a required capital amount and a promise to pay it at a future date. This step is similar to a business cash loan. The difference between the two is how this borrowed sum is paid back.
In a cash advance loan, the business has to pay back a set percentage of their total credit card sales. This payment can be made every day or at the end of a week. So rather than paying a lump sum every month you will pay back the borrowed amount daily or weekly based on your credit card sales.
The main advantage of this is that the business only pays back depending on what they make. So if you have a bad day of business you don’t have to pay big amounts while a good day or week will have a higher due amount.
This is the basic idea behind these two types of loans. If your business is an online store or relies on credit card transactions, then taking a cash advance makes sense and is also an easy way to alleviate financial stress. However, if you are looking for a bid expansion or challenge a standard bank loan might be required.