With the continuously changing market behavior and the flourishing advancements in technology, many startup entrepreneurs are reaping the benefits from a lot of opportunities in the field of business. Many seasoned businessmen are taking advantage of the potentials for expansion. Businesses are spoilt with technology based tools, a diverse workforce because of accessible communication, and funding options that are flexible and reliable with any kind of need. Hence, the growth in business is truly exploding today.
Funding is one of the foundations that makes up a robust business venture. It is also one of the limiting factors for growth, but in abundance, can also be a source of limitless opportunities. In one way or another, every business will come to that point that it will need an additional source of funding. Whether it is for a replacement equipment, another branch to open, additional workforce for seasonal trends, or for emergency situations, the need for an easily accessible funding solution will be always prevalent somehow.
The good thing here is that, the market has now been penetrated with a number of lending companies that offer non traditional funding products and services to varied types of business needs. The more popular ones are the small business loans, and the merchant cash advance services. These two are the go-to solutions for immediate and smaller funding needs, which are easier to gain access and be processed compared with the traditional bank loans.
The Reasons Why the Small Business Lending Industry Is at Boom
The popularity of non traditional lending and funding options is being led by its attractive processing speed and convenience. The small business lending industry, for example, hit its record high in 2015, according to Businessinsider.com.
The advantages and features that abound in a small business lending serviceis driving the industry in its full bloom, which include the following:
- Its lending structure suits the needs of small businesses.
Getting a complicated and tedious traditional business loan doesn’t match a much simpler and basic funding needs of a small business. Mostly, small businesses only require a smaller amount, to be repaid in the short term. These are the strengths of the merchant cash advance industry, or the small business lending industry in general.
- It is easily obtainable despite of bruised credit histories.
Traditional business loan providers have stricter procedural and compliance standards to follow than small business lending companies. A merchant cash advance company usually compensates this by imposing higher interest charges, but can also vary if a business will make diligent payments during a certain period, or after the “probational repayment period” has already lapsed.
- The application and approval process is more convenient and faster to execute.
Since most small businesses have smaller and simpler needs, which also arises from certain immediate circumstances, it is understandable that it will find that a merchant cash advance service is a better option most of the time. Apart from the easy application process, repayment is much more convenient because the merchant company will just automatically deducts repayments from the business’ daily credit and debit card sales. The good thing here also is the repayment structure is quite fluid and flexible, which is mostly given in percentages rather than a fixed amount in regular terms.
What Are the Differences Between a Merchant Cash Advance and Small Business Loan?
Before the term “loan” branched to another like a “small business loan”, it used to connote a general reference to a borrowed capital given by a bank that is usually paid in instalment terms within a specific period of time. Today, a small business loan is defined by the same principles as a traditional loan, only that its sources are more diversified and the process is faster and simpler. There are many small business loan providers like banks, online funding agencies and other third party short term cash lenders.
On the other hand, a merchant cash advance is a newer funding concept, where it is emphasized rather as a “financial product” and not a loan.It gives upfront cash to the borrower, and takes up payments regularly out of a certain fixed or variable percentage out of credit or debit card sales, usually on a daily basis, until the full amount plus interest charges have been fully repaid.
So how to know, which one will best work for your needs? Here are some of the considerations in order to choose the best funding option for your needs at the moment:
- Business lending platform
A small business loan is a financial obligation of the borrower to the lender, and is legally bounded by the rules and regulations indicated by the government or a financial governing body. On the other hand, a merchant cash advance service isn’t technically a loan, but a financial product, which is the reason why it is considered as an unsecured loan, and has a varying lending structure which is based on the capacity to pay and the eligibility of the borrower. But fair enough, merchant cash advance services aren’t illegal at all, one should be wary about the terms and conditions stipulated in the contract and understand it well before accepting any fund from them.
- Approval process
The merchant cash advance approval process is more lenient when it comes to required documents and credit histories than small business loans. This makes it more attractive to small businesses that have bruised histories, which means they will have the opportunity to get back on their feet again. Although most of the time, a higher interest rate will be given in exchange of such high risk, nevertheless one can make it lower by earning it through diligent payments.
- Speed of Approval and Funding
Basically, both merchant cash advance companies and small business lending agencies can offer a fast and efficient approval process when it comes to funding. A typical process may require a day, but still varies upon certain factors. Yet both have speedier process systems than traditional bank business loans.
- Interest Rates
These vary for both, but in general, a merchant cash advance loan provider imposes higher interest rates that justifies the risk they are taking with faster and easier approval. But diligent and updated payments can greatly improve future funding transactions, and a business may be offered a lower rate the next time they avail. Small business loans do also have varying interest rates, which may be subject to prevailing rates, economic stability, or risk rates too. Otherwise, it offers lower rates than a usual merchant cash advance loan.
- Extra Costs
This depends, but basically a merchant cash advance service will give you a contract that has a fine print included, so it is best to understand and digest everything before you agree. Aside from the top up fee over the lump sum amount, there are other charges that they may put on you because of other cases like not being able to meet the agreed upon daily credit and debit card sales, processing fees and other charges that is not asked upfront. On the other hand, for small business loans, mostly everything is laid out, and the borrower will have to deal with monthly payments only.
In choosing the best lending option for you, it is appropriate to evaluate your needs first. These two options are basically built for different business case scenarios, so there is actually no better comparison between the two except for what will best fit for your business needs. To help jumpstart your quest for the best merchant cash advance loan provider, check out CrowdReviews.com’s merchant cash advance reviews.
Things to Consider Before Availing From a Merchant Cash Advance Company
Like many businesses which have found themselves in a sudden and unforeseen crisis, will tend to resort to immediate solutions instead of being calm and taking time to properly digest everything before jumping into crucial decisions. When it comes to financial dilemmas, it is best that one will have a clear evaluation of all available options, and to think long term instead of short term solutions.
A merchant cash advance service is very attractive enough to lead one, and the fast process it entails, will spare you from that “thinking” part. While it might save your business instantly, you might have started a long term negative impact for your business in the future.
Make a merchant cash advance service your last resort. Convenience and speed wise, merchant cash advance companies are definitely at the top of its class. But in terms of cost, it is the priciest option. But this argument is still subjective upon the need itself, nonetheless it is wise to preserve your relationship with a merchant cash advance company by calling on them only when they are the best and only option. This way, there will still be mutually benefits among you, where it can give you the best solution and you can give back what is due them in a timely and efficient manner. You can even earn good credit points from it.
Conclusion
Financial funding is one of the most important aspects in a business. It takes experience and a series of good decision making before you achieve that point wherein you can make your funds work for you, instead of you working for it. It is a good thing that the current business funding system offers a lot of options, to suit every kind of need or situation that a business will somehow have in its journey. Small business loan and merchant cash advance loan providers can be reliable partners for your business by being an informed and disciplined borrower first.
Stay updated with the latest client feedbacks and ratings for the best merchant cash advance services by reading on CrowdReviews.com’s merchant cash advance service reviews.
John Tovar
Latest posts by John Tovar (see all)
- What Is Catalog Management Software and How It Helps Your Business - January 5, 2017
- What Are the Top Features of the Best Medical Billing Software? - January 4, 2017
- How the Best Hotel Management Software Will Improve Your Business - January 3, 2017