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Whats the difference ?
June 17, 2014
Bank Loan, Merchant Cash Advance, Line of Credit, ACH Funding and Bank Deposits
As lenders and technology are getting more innovative, it can sometimes get a little confusing, what do all these differences mean, why would you want to go with one over the other and what will you qualify for.
Years ago it was simple, you needed money you went to your bank, what wasn't simple was the complicated process of applying and the length of time it took to get approved as technology emerges application and approval process has gotten a lot easier and faster, but the many options can get confusing.
Here is a simple overview of what they mean to you:
Loans are funded, there's a cost associated with it and there is the method of payback.
You will have a scheduled monthly payment, this payment will include interest and principle, if you are good at paying bills on time this can be a good option, yet it might be harder to qualify.
Merchant Cash Advance:
This is done based on your business credit card sales, the funder will withhold a fixed percentage off your daily batches. This can be a great option if you have enough to manage and don't want to worry about your payments, when business picks up your balance goes down faster, if it slows down don't sweat it, there is no penalty, it goes with the flow of your sales.
Line of Credit:
A line of credit is access to funds, you would make monthly payments like a bank loan, your payments will go towards interest and principle until you pay it off, this can be good if you know you will have a lump some of money to pay it off in the near future, otherwise you may incur long term debt.
This has the benefits of a Merchant Cash Advance where it pays itself off with small daily payments, but this is more structured, the payments are fixed amounts and it is paid in a fixed time frame, it is designed to work with your banks cash flow so that you don't feel much of a dent, and when business picks up, you keep the money in your pocket, no need to pay off faster.
This is a less common option, it is kind of a hybrid between a Merchant Cash Advance and ACH Funding, instead of holding a percentage of your credit card sales the funder will debit a percentage of your bank deposits, whenever you deposit funds into your account, this does require online banking access.
What option is best for you? feel free to give us a call and tell us about your business, we would love to help you.