In the modern world, there are many ways for a person to get the money they need to run a small business. This is true regardless of whether they are looking for start up money or expansion money. For a person that is looking for expansion money however, the options are plentiful by comparison and include two flagship deals known as the business loan and the business cash advance. There is a lot of debate as to which one is better, so here is a close comparison between the two in some key areas. Read the facts and then make up your own mind.
The requirements for a particular deal are important because they govern how many businesses are actually eligible. For a business loan, you need to have a good credit rating and a history of good repayment. Having a good relationship with a bank or credit union is also a plus and in many cases willingness to accept terms that includes higher interest rates or higher collateral is also something that can assist you in getting a loan. For this reason, business loan requirements tend to shift wildly with market conditions.
Business cash advances on the other hand are not really tied to the market fluctuations. In order to get a business cash advance, you generally need to have a proven track record when it comes to the actual prosecuting of your business, while at the same time processing a minimum amount of sales in cash value through credit card transactions. If you have these requirements down, then you can generally get a business cash advance regardless of what other circumstances might be surrounding your need for the money.
Amount is difficult to comment on simply because there is so much individual variation within the market. In general however, a business loan of average size to an average borrower might be between $50,000 and $200,000 in size, with the middle point in terms of volume being somewhere around the $100,000 range. With a business cash advance on the other hand, much larger amounts are possible. There have been many business cash advances issued to smaller businesses that have exceeded $300,000 in size.
For a business loan, repayment is very strict. You actually are shown something called an amortization schedule beforehand which actually works out the amount of interest and principle that you will be paying back as time goes on. For most deals, you can not deviate from this payment schedule and falling a few payments behind can result in very bad things for your credit rating.
For business cash advances, the amount of money that you repay is tied to the credit card revenue that your company generates. This revenue essentially goes directly from your credit card generation to the institution that did the cash advance. Your other cash flows are left completely out of the equation. This is perhaps the main practical point of difference between a business loan and a business cash advance.