Merchant Cash Advance vs. Business Loan: What's the Difference?

Merchant cash advance loans and business loans are both financing options available for small business owners. There are several key differences between the two, each with its own benefits. At Texas Funding Solutions, we work to help business owners secure the finances they need to succeed. We can help you determine which type of loan would work best for your business.

Merchant Cash Advance

Merchant cash advance loans are lump sums of cash that a business receives in exchange for a percentage of its daily credit card sales. As Texas Funding Solutions provides the advance, we will assess the creditworthiness of the business and its potential for future sales. We use this information to determine the amount of the cash advance. These factors also determine the percentage of credit card sales that will be deducted until the advance is paid off.

The repayment process is automatic and based on daily credit card sales. This means that the repayment amount varies from day to day. With our easy, 1-page application and 24-hour approval period, a merchant cash advance may be the right option for you.

Business Loan

A business loan is a lump sum of cash that a business borrows. The business repays the amount, with interest, over a set period of time. We'll work with you to agree upon the terms of the loan in advance. This includes discussing terms such as the interest rate and repayment period.

Business loans are typically secured by collateral or a personal guarantee. We consider your business's credit score, cash flow, and financial history when deciding whether to approve the loan. Texas Funding Solutions has flexible terms, whatever your circumstance may be. There are no industry restrictions, and we can give you up to 18 months to repay the loan depending on your situation.

Which Is Better? 

A merchant cash advance may be a better option for a business that has inconsistent or unpredictable cash flow, but still needs quick access to funds. Business loans may be a better option for a business that needs a large amount of capital and has a stable and predictable cash flow. 

Merchant Cash Advance: Example

Seasonal businesses, such as beachside restaurants, often experience a surge in sales during the summer months. They may need to quickly obtain funds for inventory, equipment upgrades, or marketing initiatives before the start of the busy season.

Because the business's revenue fluctuates throughout the year, it may not qualify for a traditional business loan. A merchant cash advance can be obtained more quickly and with less paperwork than a traditional business loan. It can be a beneficial option for businesses that need to act quickly to take advantage of opportunities or mitigate risks.

Business Loan: Example

A manufacturing company that needs to purchase new equipment to expand its operations may require a large amount of capital. This may not be a feasible amount to obtain through a merchant cash advance. 

Traditional business loans can provide the necessary funding at a lower net cost. The interest rate for business loans is fixed and the repayment period is longer. The business can then manage its cash flow and credit history more effectively. Regular on-time payments can positively impact the business's credit score, securing future financing opportunities.

Business Loans vs Merchant Cash Advance Loans

A merchant cash advance is a short-term, high-cost financing option that is repaid through a percentage of daily credit card sales. A business loan is a longer-term, lower-cost financing option that is repaid over a set period of time with interest. Our team at Texas Funding Solutions will be happy to help you find the best financial option for your business situation. Contact us today, and we can answer your questions or help you get started!