Cash Advance Versus a Loan: What is the Difference?

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As a small business owner, you always seem to have a list of tasks you’d like to accomplish to help your company be more successful.

At the same time, you don’t currently have a ton of extra capital to make needed improvements around your small business, whether you want to remodel, repaint, invest in new computers, or bulk up your inventory.

To make these improvements, you have decided to look into some type of loan. You know that two common options are small business loans and a cash advance, but you are not sure what the differences are and which choice might be better for you.

To help you get the best small business financing for your company, it’s important to dive deeper into small business loans versus cash advances. Let’s get started:

Small Business Loans 101

As its name implies, a small business loan involves borrowing money from a financial institution, which you will repay over a period. There are several types of small business loans, including a line of credit similar to a credit card and working capital loans that you can use to pay for everyday business expenses, including your rent and payroll.

There are many benefits to a small business loan. For example, if you have ever considered working with investors, a loan will allow you to stay in control of your company. You will simply borrow the money you need and pay it back to the financial institution over an agreed amount of time—all without having to deal with investors eager to advise you about what they feel you should do with the money.

When selecting a financial institution for your small business loans, look for one that offers many different options. For example, Zinch provides small business owners with products that are fast, secure, and flexible. For example, the Zinch Flex loan includes simple and flexible payment terms that are determined by the revenue your small business generates. The company also offers a Zinch Loan, which is ideal when you need a sum of cash for your small business and are comfortable with paying it back in a fixed amount each month.

All About Merchant Cash Advances

A merchant cash advance will also help bring needed capital to your small business, but the repayment differs from a small business loan. Like the loan, you will get a lump sum with a cash advance, but you have to repay it based on a percentage of your company’s sales and credit card receipts.

One advantage of a merchant cash advance is that you can get approval quickly—sometimes in a day or two. They don’t require a lot of paperwork, and because a high FICO score is not usually needed, they can be the perfect loan for businesses with no credit.

If you have had some type of emergency at your business—for instance, a major piece of equipment has broken down, and you need to fix or replace it quickly, a cash advance can be a quick way to get your hands on cash right away. It is worth noting that you will literally pay for this convenience; as U.S. News and & World Report notes, the APRs for cash advances can easily get into the triple digits.

Knowing Your Options is Definitely a Good Thing

Investing in your small business can often pay big dividends in the form of more sales and customers. It is also reassuring to know that you have options in the form of a small business loan and merchant cash advance. Now that you know the differences between the two and the pros and cons of each, you will be able to decide which choice is best for your small business.