What Is Better, Merchant Cash Advance Or SBA Loan?
Are you worried that the drop in bank lending after the worldwide credit crisis will leave your business short of cash? Do you fear that risky Small Business Association (SBA) loans will add more troubles than solutions for your business? Have you considered Merchant Cash Advance (MCA) as a potential funding alternative for your business? Are you finding it difficult to decide between SBA loans and MCA? This article can help you decide which alternative is more suitable for your business and will get it the resources required to expand and flourish.
Look at the following factors when comparing the pros and cons of SBA loan and MCA.
Necessary Financial Documents
Well established organizations are expected to produce records of current arrears, loan balance, and payment schedules and available guarantee that can be offered to the bank. Startup companies have to submit a business plan that provides information on monthly cash flow predictions for the first two years along with your SBA loan request. Your creditworthiness will be further assessed by considering credit card arrears, liquid capital, personal loans and monthly statements, tax documents, and property holdings.
Merchant cash advance providers ask for only two documents while filing your application. These are monthly credit card statements and the time in business. These two factors by themselves will assess your eligibility for merchant cash advance and also help determine the amount of the advance.
High Approval Rate
Banks are careful lenders. The SBA is only the loan facilitator. Your loan will be approved only after convincing the banks or brokers that you will repay each penny of the loan. The number of financial documents evaluated along with the lender’s caution reduces the chance of your SBA loan request being approved. The financial recession has only added to the troubles of SBA loan seekers.
On the other hand, MCA providers only want to verify your average credit card sales volume in a month and the number of months the business has been in operation. Another advantage compared to SBA loans, merchant cash advance rules do not accept low FICO and past bankruptcies as denial criteria for the application.
Repayment Flexibility and Lower Risk
With an SBA loan, you cannot negotiate repayment terms once it has been processed. The repayment schedule is fixed and incurs serious fines on breach. Banks may cease and sell off your company assets. The same can also happen to your private assets including your home and vehicle can be seized in case of failure to pay the loan, thereby making SBA loans very perilous in a financially weak environment.
Merchant cash advance offers a business friendly and flexible repayment plan. Each month you are required to pay a predetermined cut of your credit card receipts to the provider. When your sales are booming, you pay more. When your company is going through a slow sales phase, the repayments reduce in amount and don’t make the situation worse. The possibility of defaulting is very small.
Merchant cash advance impacts profit margins but is safer
MCA repayments do impact profit margins to some degree. But on the other hand, not being able to repay SBA loans can cause the closure of your business. Merchant cash advance offers a superior, safer, and flexible financing option relative to SBA loans. Save yourself from potential difficulty by making sure you understand the benefits of MCA before filling your SBA loan application.
Daljeet Sidhu. Read Business Cash Advance blog. Get Merchant Cash Advance quotes.
