Business loan vs merchant cash advance: Which is better? | finder.com

Compare business loans vs. merchant cash advances

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How to compare two common business financing options.

If you’re a business owner and looking for access to capital, you may have come across business loans and merchant cash advances. While each can help your business, they vary widely in which businesses qualify, the interest rate charged and how they’re repaid.

LoanBuilder, A PayPal Service Business Loans

Our top pick: LoanBuilder, A PayPal Service

Customizable business loans with no hidden fees.

  • Min. Amount: $5,000
  • Max. Amount: $500,000
  • One-time fixed fee charged over the life of the loan
  • Acclaimed customer service
  • Requirements: $100,000+ annual revenue, 1+ years in business, 600+ personal credit score

    Quick snapshot: Business loan vs. merchant cash advance

    Business loanMerchant cash advance
    Maximum amountUp to $5 millionUp to $2.5 million
    Interest rateAs low as 6%As low as 20%
    Repayment termsMonthly payments, though exact terms vary by lenderDaily holdback of credit card receipts until advance is paid in full
    Collateral requiredDepends on the loanNone

    How do business loans differ from merchant cash advances?

    Business loans

    A business loan is a fixed amount of capital offered by a lender in return for predictable, fixed monthly payments. Business loans come with fixed maturity dates that indicate when your loan must be repaid in full. They can be secured or unsecured, and you have multiple options when it comes to how you use your loan funds.

    Merchant cash advances

    A merchant cash advance is a lump-sum advance of a business’s credit card receipts. Capital is provided upfront by the provider in exchange for a percentage of daily credit card receipts — called the holdback. There is no fixed due date for repaying the advance, but interest for merchant cash advances can be high.

    Compare business loans from top online lenders

    Rates last updated November 15th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    $5,000
    $500,000
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    Credibly Business Loans
    Funding to cover business expenses with daily or weekly repayments.
    $5,000
    $250,000
    500+ personal credit score, 6+ months in business, $15,000+ average monthly deposits
    Lendio Business Loan Marketplace
    Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
    $500
    $5,000,000
    Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    $5,000
    $300,000
    12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    $5,000
    $500,000
    500+ personal credit score, 1+ years in business, $100,000+ annual revenue
    Lending Express Business Loan Marketplace
    $5,000
    $500,000
    3+ months in business and $10,000+ monthly revenue or 6+ months in business and $2,000+ monthly revenue
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    $5,000
    $500,000
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.

    Compare up to 4 providers

    What are the benefits of business loans and merchant cash advances?

      .

      Business loans

      • Multiple loan options. Several types of business loans are available, such as SBA loans and balloon payment loans.
      • Competitive interest rates. Depending on the lender and size of your loan, interest rates can be as low as 6%.
      • Flexible payment options. A wide range of loan terms can results in more flexible repayment options.

      Merchant cash advances

      • No collateral required. Lenders use your business’s credit card sales history to assess your financial viability.
      • Easy application process. Fewer documents are typically required to apply. Lenders are primarily interested in financial statements and business tax returns.
      • Fast access to capital. Funding is often available within a week after submitting your application.

      What are the drawbacks of business loans and merchant cash advances?

      Business loans

      • Lengthy application process. The required documentation for a term loan is extensive, and your application could take several days or weeks to process.
      • Collateral required. Secured business loans require you to identify an asset to back the loan against default, such as business inventory or real estate.
      • Good to excellent credit required. To qualify for the best rates, you’ll typically need a personal credit score of 700 or higher and a business credit score of 75 or greater.

      Merchant cash advances

      • Expensive rates. Factor rates — the interest you agree to pay on the advance — can be quite expensive, with some rates as high as 40% of the amount advanced.
      • Unregulated lenders. Merchant cash advances aren’t loans, which means they’re not regulated by the lending laws that govern business loans. This can lead to predatory lending practices.
      • Forced commitment to credit card processor. Many merchant cash advances prohibit you from changing credit card processors after your advance is made.

      Which borrowing option is better suited for me?

      Business loans

      Merchant cash advances

      • You need access to fast capital.
      • You have poor credit history but consistently process a large volume of credit card transactions.
      • You want to take advantage of a time-sensitive business opportunity, such as the purchase of discounted inventory.

      Bottom line

      Both business loans and merchant cash advances offer opportunities to increase your business capital, but application processes and interest rates can vary widely by lender.

      If it’s more important that you get a competitive rate and predictable payments, look into a business loan. If you need quick access to capital and process a lot of credit card transactions, a merchant cash advance could get you over a financial hurdle.

      Carefully assess your business’s needs before deciding on a financing option, and make sure that you understand the terms of your loan or advance before you sign any agreement.

      Compare business loans to more financing options

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