If you’re out looking for financing, chances are you’ve stumbled across these two types of financing before. If you are looking for an opportunity to get financing and help your business grow, we’ve got you covered today.
What I want to do today is run down the differences and advantages of both working capital and merchant cash advances. The distinctions are poorly understood outside of the financial companies that offer them, so I consider this a service to small businesses looking to find a good financing option.
There are similarities, I’ll acknowledge. In both cases, the process tends to be quick, the financing unsecured and the applications involve mercifully small amounts of paperwork. But there are real differences, too.
Let’s break these two options down into their component parts.
Working Capital Loan
Designed to take the form of quick loans that can be used for a huge variety of purposes. Your business can use working capital to get better deals on inventory, help pay your way through taxes or set your shop up for a re-model.
One of the advantages of working capital loans over bank loans is this: While companies with excellent credit can get the financing, so can those companies who may struggle a bit. Direct Capital looks at a variety of factors, but ultimately it boils down to being willing to believe in a small business without perfect credit but with a wealth of determination and an excellent business plan.
So think of working capital essentially as a loan that doesn’t require the insanely convoluted approval process and can be used for any number of purposes.
Merchant Cash Advance
Merchant cash advances are not your typical loan. Instead, they serve as an advance on your future credit card sales.
Does your small business qualify, even if you don’t have great credit? It depends, but here’s a handy rule of thumb: If you have 75 or more credit card transactions a month and at least $3,000 in receipts, you probably do.
Essentially, it’s a way of getting a quick infusion of cash to help you navigate the slow months or hard times. And given that there are comparatively few credit hurdles to jump over, it’s a smart way to get access to financing for anyone who doesn’t think they’ll survive the baptism by fire that is getting a bank loan.
The best part? There are no fixed terms or fixed payment amounts. As you get in the money, so does the finance company who gave you the MCA. Hard to argue with that.
I hope this was a helpful post. Are you looking at working capital or merchant cash advances at all this year?
Free eBook: Working Capital 101
Terms You Need to Know
Whether it’s interest rates vs. rate factors, or determing ROI vs. cost-of-money, this ebook is a glossary of terms that every small business owner should know.
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