Finding effective financing options to help your cover business operational expenses is vital. When you understand your financing options, you make informed decisions too. Merchant cash advance and working capital loans are among the options you can consider for your business needs. It is beneficial to understand how these financing options can serve your interest.
Comparisons Between MCAs and Working Capital Loans
Approval Process
Unlike working capital loans, you don’t need credit card assessment for approvals. It becomes easier to get the fund you need for your business when you consider MCAs. On the other hand, you need impressive credit history to convince the lender to approve your loan. With merchant cash advances, the approval is fast.
The Risks Involved
You should understand the with cash advances, your business counts on finds it hasn’t yet earned. It becomes riskier to use MCAs, especially when you factor in accounts receivables. Note that the risk is higher with merchant cash advances than with capital loans. It is crucial to assess your invoices against your market demands before utilizing MCAs.
Loan vs. Non-loans
You should note that merchant cash advance is not a loan but a promise to fund your business with a certain amount based on future credit card sales. On the other hand, working capital loans are among the alternative financing options under traditional loans. When you consider capital loans, you get the amount in a lump sum for your business needs. There are also payment terms and duration that you must adhere to when you secure the loans. For MCAs, you receive the amount needed in the whole sum but make repayments weekly or daily, depending on your credit card sales.
Use Allowances
As much as MCAs and capital loans are financing options to consider for your business, you should understand how to use them. In some cases, the lender can put restrictions or guide on using the funds provided. Most lenders will dictate you state your business plan before approving capital loans. Merchant cash advance becomes vital as they have no limits.
Annual Percentage Rates (APRs)
The annual percentage rates vary with MCAs and working capital loans. In MCAs, the APRs can go as high as 200% and cost more in the long run. Capital loans have reasonable and easier APRs.
It is important to note that MCAs and working capital loans are among the financing options to utilize in your business. The information and guidance you have are, therefore, vital. Contact Sterling Capital Consulting today for guidance.