Know the difference — Merchant Cash Advance versus A Business Loan

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Johnson Esparza, Negosentro | A merchant cash advance is a credit facility provided to a certain investor or entrepreneur, to be repaid at a later date than the credit date.

A business loan is also a credit facility provided to selective investors and entrepreneurs, for repayment at later dates which are longer in tenure.

The non-bank business loans lender like Discovery Credit are important for a certain business to grow and run till the time it does not begin to repay or pay back the debts or its borrowings. Hence, it is important for a certain investor or entrepreneur to know the type and tenure of a business loan or credit facility they require and thus avoid unnecessary liability and hamper one’s credibility or credit score.

Point of difference Merchant Cash Advances A Business Loan
Use and medium Merchant cash advances come in handy for a business which enables credit cards or master cards for small size financial transactions. A business loan comes in handy to a business, which mostly enables its transactions in cash as well as physical credit.
Advances A certain lump sum amount provision is proved as a merchant cash advance or credit. The total amount of loan is disbursed to the investor’s or entrepreneur’s account after the documents are cleared for approval.
Documentation and criteria Merchant cash advances documentation and criteria are simpler and easier than that of business loans and are easier apply and acquire. Criteria and rules for business loans are selective and strict and are not easy to apply and acquire like that of a merchant cash advance.
Credit scores and credibility Merchant cash advances do not provide much importance to credit scores or credibility of the user/ investor/ entrepreneur. Credit scores or credibility of a certain investor or entrepreneur are looked upon while processing a certain request for a business loan.
Requirement for collateral There is no requirement for a collateral for acquiring a merchant cash advance. A business loan might require a collateral provision for getting processed and providing a loan to a certain debtor.
Tenure for repayment Merchant cash advances generally do not have specific tenures for repayment as a part of sales through credit cards are automatically reimbursed for the lump sum amount provided. A business loan does consist of a certain tenure for repayment of the loan, namely a day, a month, a quarter or even a year.
Interest rates There are no such major interest rates charged, but there are some nominal interest charges which are charged on every sale transaction that occurs through the credit card on the type of card that is used for payment, that is a Visa or a Master Card. A business loan shall levy a universal rate of interest for the tenure of the loan and the investor or the entrepreneur will have to adhere to the interest rate for repayment purposes.

Such are the differences between a Merchant Cash Advance and a particular business loan which an investor or an entrepreneur should be aware of for borrowing purposes.

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