March 06, 2018

How A Merchant Cash Advance Is Different from A Business Loan

Merchant cash advances and business loans are two popular types of business financing. They can both be used for business needs, but have fundamental differences, which are important for entrepreneurs to understand. In this post, we’ll explore both options so that you can determine if either one is right for your business.

Merchant Cash Advance

Merchant cash advances are a beneficial product to businesses that accept credit cards as payment. Typically, if a business accepts many credit card payments in small amounts, they’ll be a strong candidate for a merchant cash advance. When a business owner receives a merchant cash advance, they are supplied with a lump sum. To fulfill their obligations, a percentage of the business’s future credit card sales will go towards the remittance of the advance.


Merchant cash advance providers typically focus on a business’s credit card receivables. If your business meets the funder’s credit card sales requirement, you will likely qualify. Because of the importance that credit card payments, your personal and business credit scores will probably not be as important to the funder. In addition, no collateral is required, which differs from other financial options. Prior to applying, ensure that the funder doesn’t have any qualifications that you are certain that you won’t meet.


Merchant cash advances do not have set repayment terms. Instead, you remit the cash advance based on your business’s credit card sales. If sales are slow, you’ll remit a smaller amount than you would when you’re receiving more credit card sales. This is beneficial because the remittance process works with the flow of your business, so you won’t risk having to remit an amount you can’t afford.

Small Business Loan

When you receive a business loan, you’ll be given a lump sum, and set terms for when you'll need to repay the established amount. Depending on your qualifications and the lender’s preferences, you might have to secure the loan with collateral, such as a vehicle, equipment, or real estate. If you have a decent credit score, you might be able to receive an unsecured loan.


Most business loan providers review the business’s overall financial health. They’ll request paperwork such as tax returns, monthly bank statements, and review of potential collateral. In addition, most lenders will have a minimum credit score requirement. To increase your chances of getting approved, research lenders’ requirements prior to applying. This way, you won’t apply to a lender who won’t approve your application.


Business loan terms will vary based on the lender’s prerequisites. For instance, at Fora Financial, our business loan terms go up to 18 months. Other lenders may have shorter or longer terms depending on their policies. Before applying, you should research business loan terms to ensure that they meet your needs. Depending on the lender, you could receive your loan in a few days, while lenders that require collateral may take several weeks. In addition, unsecured loans usually have shorter terms than collateralized loans.

Choose the Best Option for Your Business

Before applying for a merchant cash advance or a business loan, evaluate your business’s financial needs. Although both products have their merit, you should determine which one is best for your business.