Differences Between Merchant Cash Advances And SBA Loans

Progressive Business Capital - - Differences Between Merchant Cash Advances And SBA Loans

Not sure if a merchant cash advance is right for you, or how it’s different from an SBA loan? In this guide from Progressive Business Capital, we’ll explain the basics. Read on to learn more.

What Is An SBA Loan?

An SBA loan is a traditional small business loan that’s issued by a bank or credit union, based on the guidelines issued by the U.S. Small Business Administration. This reduces risk for lenders, and makes it easier for you to get a loan.

To qualify for an SBA loan, you’ll need to apply with a bank or other financial institution, and you’ll need to provide lots of paperwork about your business. You may also need a reasonably high credit score.

What Is A Merchant Cash Advance?

A merchant cash advance (MCA) is not a loan at all. Instead, it’s an agreement that provides you with a lump sum of cash – say, $50,000 – which is repaid by splitting a percentage of your credit and debit card payments (5%, for example) until the lump sum is repaid.

Rather than being a loan, an MCA is a sale of future revenue. This means it’s a quick and easy way for merchants to get access to the cash they need. You don’t need to submit a bunch of paperwork, and can get approved within hours, in most cases.

mechant cash advance
Merchant Cash Advance – an easy way to get access to the cash you need.

Differences Between Merchant Cash Advances And SBA Loans

Wondering what other differences there are between MCAs and SBA loans? Let’s look at 3 key ways that these financial instruments differ.

  • Interest rates – SBA loans typically have lower interest rates than MCAs, so you may pay less overall interest if you qualify for an SBA loan, but only if you’re a qualified borrower.
  • Loan terms – MCAs are usually issued for loan terms of between 1-18 months, depending on the lender. SBA loans typically start at 1 year and can go up to 10-25 years, depending on the purpose of the loan. SBA loans are a better option for long-term investments in your business, but MCAs are ideal for quickly obtaining short-term capital.
  • Qualification requirements – Typically, MCAs only require you to show positive cash flow for your business for the past 4 months, along with some other basic paperwork, so it’s easy to qualify. No credit check is required.

SBA loans, in contrast, involve a lot of paperwork, and require you to provide lenders with various financial statements from your business. Your credit score and history will also be checked as well, and bad credit may result in higher rates or outright loan denial.

Get The Cash You Need From Progressive Business Capital

We offer both traditional loans and merchant cash advances at Progressive Business Capital. If you need funding for your business, our team is always here to help. Contact us online to begin applying, or give us a call at (800) 508-4532 for more information.

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