Business loans and merchant cash advances are two different types of business finance options. Although they both provide instant working capital, they differ in many ways. To help you understand the differences between a business loan and merchant cash advance, we’ve compared the two – looking at how they work, how you qualify and when to consider them.
How it works
Both business loans and merchant cash advances provide working capital, enabling businesses to grow. They can help businesses expand, refurbish, buy new equipment and attract new clientele. But how do they work differently?
A business loan is a lump sum loan in return for fixed repayments (equal in amount and frequency), whereas a merchant cash advance is a lump sum advance in return for a percentage of your daily credit or debit card sales (daily repayments that vary in amount).
How to qualify for a business loan
To qualify for a small business loan, you must:
- have been in business for at least three years
- have a positive daily bank balance
- have acceptable credit
- have no excessive loans, open judgements or bankruptcies
How to qualify for a merchant cash advance
To qualify for a merchant cash advance, you must:
- take card payments
- have been trading for nine months or more
- have monthly turnover of at least £6,000
- have monthly card sales of at least £3,000
When to consider
It’s best to consider a business loan when your business is well-established and profitable, ideally for B2B companies. If you’ve been in business for at least three years and have a stable cash flow, it’s best to consider a loan if you want stable repayment terms.
A merchant cash advance on the other hand is better for B2C companies who don’t want a loan on their credit report. If you run a seasonal business, it’s worth considering a merchant cash advance as your cash flow will fluctuate. That way your repayments will depend on your daily sales, so if there’s a dip in cash flow, you don’t have to worry about a fixed repayment amount as your repayments will reflect your business performance.
We offer these two different types of business finance. Our small business loans and merchant cash advances can be extremely beneficial to businesses who need funding fast. So far, we’ve helped over 22,000 businesses in the UK, US and Canada secure the funding they need to grow together with our corporate group. Since 2002, we have lent over £1.6bn to small businesses operating in more than 400 industries.
If you’re considering a business loan or a merchant cash advance, we can tell you if you qualify instantly and help you make the right decision for your business. We can give you the step-up you need, giving you the time to focus on growing your small business. Apply in seconds – or if you have any questions, get in touch on 0800 138 9080 to speak to a member of the team.