Is A Merchant Cash Advance Like a Traditional Loan

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Written by Michael Foote , founder of Quote Goat, with over 13 years experience working in the finance, insurance and currency sectors.
11/06/2020

Although merchant cash advances are often compared to a traditional bank loan, as the name suggests, they actually work slightly differently. A merchant cash advance is not actually considered to be a loan, instead, it is a form of advance payment borrowed against your business’ future income.

The initial sum put forward by a merchant cash advance provider is repaid through card payments and ecommerce transactions. The percentage that a business is expected to repay each month out of their takings is predetermined when the cash advance is agreed upon.

Merchant cash advances and traditional loans are comparable in their uses. Both can be used to invest in similar areas; whether this is new improved equipment, more inventory to increase output, boosting employee numbers to deal with an increase in business, which is a common requirement for certain industries like bars and restaurants that see a boom in customers during hotter months.

Unlike a traditional bank loan, however, merchant cash advances can be secured in much less time. So, businesses that require investment immediately and cannot wait for the long process of securing a loan with their bank often resort to merchant cash advances instead.

A loan agreement with your bank may see you paying a large portion of your taking each month in order to repay. With a merchant cash advance things are different. With an agreed upon repayment percentage, you will always receive the lions share of your takings no matter how much, or how little business you receive that month.

At Quote Goat you can compare merchant cash advance options in order to find one that best suits your business. There are plenty of options out there to choose from so make sure you compare as many options as you can so that the best deal doesn’t slip through the net.

You may also like to consider other forms of business finance, for example invoice finance, which gives companies access to capital tied up in unpaid invoices.

 

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