Merchant Cash Advance FAQ – How does this type of financing compare to small business loans?
Business loans are granted based on an organization’s estimated credit worthiness, collateral, and ability to repay. Because merchant cash advances are based on an organization’s average monthly credit and debit card sales history, and repaid from future sales, credit worthiness is not the most important consideration in determining approvals.
An organization that has an imperfect credit history or low credit score is unlikely to receive approval for a traditional business loan, but may quickly obtain a large merchant cash advance and get working capital to grow their business or address cash flow challenges. Plus, while banks often require the pledging of collateral before approving business loans, merchant cash advances are unsecured, and approvals may not even require UCC filing or personal guarantys.
Finally – and sometimes most importantly – business loans often take weeks (or even longer) to go from initial application, through the underwriting process, and to a final determination for approval or denial. By contrast, merchant cash advance approvals and offers might take as little as 24 hours, with funding in 3-5 business days of approval and offer acceptance. Merchant cash advances might be preferable to business loans when fast access to working capital is desired.