When to use merchant cash advance instead of a business loan?

Merchant cash advance (MCA) gives an up-front loan to your business by taking a percentage of your future credit or debit card sales. Whereas a business loan works like a mortgage, you will get a sum, and you need to pay back in monthly installments. 

When is it better to use merchant cash advance than a regular business loan? when you:

Have low or poor credit history

If you have no credit card history or low fico score, you might not qualify for a business loan.  Business loans have stricter eligibility requirements than merchant cash advance. Merchant cash advances don’t focus on the borrowers credit history, just the  credit card revenues of the business, so a good credit is not necessary. 

Don’t want debt on your credit

The good thing about merchant cash advance is that it doesn’t show on your credit report. If you don’t want to have a lot of debt on your balance sheet, then a merchant cash advance is ideal. A business loan does show up on your credit, limiting you from getting loans/credit cards in the future.

Have revenue mostly through credit card

If your revenue model is mostly through credit card transactions, then the rates and costs of MCA will be more negotiable since their primary qualification is future credit card sales. 

Have a business that is online based 

Online businesses normally don’t have high value assets and traditional business lenders typically require assets to qualify for a loan. Merchant cash advance lenders specialize in loaning to online businesses partly because of this. 

Only need a small loan amount 

Traditional business lenders like to lend larger loan amounts so the money earned from interest is high enough to cover their expenses. Also the approval time takes longer as there are verification checks with a business loan.

Merchant cash advances fund in less time since processing is simpler and minimum amounts is typically lower than business loans. 

It is important to note that merchant cash advance fees are much higher than business loans, and this is because the risk for the lender. If you are able to get a business loan but like the flexibility and convenience of an MCA, the higher rates might justify the new cash infusion, especially if you are able to speak to several merchant cash advance  lenders and negotiate the lowest rate possible.


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