A loan and a business cash advance are not the same thing, but to the untrained eye, they might seem so. If you have a business and you’re currently looking at financing options, you might have stumbled across both of these and may be wondering what the differences are and which one you should get. First, check out our article detailing all about the differences you should know about – Business Cash Advance: How Does it Differ From a Bank Loan? So, which one is better for your business? Let’s find out.
Loan Vs Business Cash Advance: How Much Do You Want To Borrow?
- Before you decide on any kind of financing, the first thing you need to establish is how much money you need to borrow. Look into what the borrowing limit is for various providers and whether you meet the requirements. That will help you eliminate options right from the start. Bank loans and merchant cash advances can offer similar amounts, but depending on your circumstances, a bank may be able to offer you around £500,000, while you would only get around £100,000 with a business cash advance loan, for example.
Loan Vs Business Cash Advance: What Do You Need The Money For?
- What you intend to do with the money is also critical information that you need to know before taking the loan, and that you will also need to communicate to the provider, most likely. Not only that, but your intention can help decide what sort of financing option to go for. For example, a business cash advance is a better option in case of emergency, and if you have poor credit history. A traditional loan from a bank, however, is the best option for a long-term loan for an investment or expansion, let’s say, because it’s cheaper and more sustainable.
Loan Vs Business Cash Advance: For How Long Do You Want To Take The Money?
- Coming back to short-term loans and long-term loans, the amount of time you plan to take to repay your loan is also incredibly relevant to the type of loan you should take. If you’re only interested in a quick loan that you’re going to repay in a month or two, then a business cash advance is for you. But if you’re looking at a larger sum that you want to repay over a longer time, then you are better off looking into a regular, more stable type of loan.
Loan Vs Business Cash Advance: How Much Interest Are You Willing To Pay?
- The interest rate is one of the key details when it comes to borrowing money from any source. It's what makes a loan affordable, worth it, or on the contrary – too expensive for what it is. At this stage, you have to know that a cash advance for business is very expensive, especially if you make the mistake of using it as a long-term borrowing option. While you still pay interest on a loan, the rate is comparatively smaller, so it’s more affordable and feels like less of a rip-off.
Loan Vs Business Cash Advance: Do You Have Collateral?
- The current state of your assets is important when deciding how much money to get, as well as the source. If you have collateral, you will be chuffed to hear that you will have access to a secured loan from a bank, which grants you more money or whatever business endeavour you are planning. If, however, you don’t have much to offer in terms of security, an unsecured business loan such as a business cash advance might just be a more sensible option, or your only option.
Loan Vs Business Cash Advance: What Is Your Credit Score Like?
- The majority of providers of financing options rely on a credit check in order to determine whether or not to approve you for a loan and how much money they can give you. If your business benefits from good credit, that’s good news for you, and it means you can ask for a loan from a bank. But what if your credit is not great? There are still options, don’t worry. An advance business cash provider will not require a credit check, so you can still receive access to the money you need. If you do need a credit check, Equifax is the most reliable option.
Loan Vs Business Cash Advance: Does Your Business Earn Income From Credit Card Transactions?
- Because we’re discussing cash advances for small businesses, this information is crucial – how much does your business rely on credit card transactions? Does it make much income from them? You see, if you want a merchant cash advance, you need to make a regular income from credit card transactions, in order for the provider to be able to get their money back. If your business operates primarily in cash, a loan will be a more feasible solution for you.
Loan Vs Business Cash Advance: How Do You Prefer To Repay The Money?
Repayment is a massive part of the process of getting a loan, so you’d better start thinking about it before you commit to one. Ask yourself some questions:
- How much can I repay?
- Over how long do I want to repay?
- How much can I afford to repay per month?
Based on the answers to your questions, you can either opt for a loan, which you will need to repay in fixed monthly instalments over a longer period, or you can choose a business cash advance, which you will repay in a fixed percentage of your everyday income from credit card transactions. The advantage of the former is consistency, while the latter offers flexibility.
All in all, a business cash advance or a bank loan are both suitable options for a business in need of financing; it's just a matter of circumstances and preference when choosing which one is better for your case. Whatever one you choose, make sure to review every possible aspect and look into things like business merchant cash advance dangers to avoid.