Which is Better: a Short-Term Business Loan or Merchant Cash Advance?

There comes a time for most businesses when extra cash is needed. Even successful companies borrow money for expansion opportunities, marketing campaigns and investing in new product development.

If you run a successful company that is making at least $100,000 or more annually, you will have many financing options at your disposal. Depending on what you want to use the money for, a business loan or a merchant cash advance will likely be your best options.

pros and cons to a merchant cash advance

A business loan through a traditional bank lender is often very difficult to quality for, especially if you run a small local business. Many restaurants, hotels and doctor’s offices will find it near impossible to qualify.

On the other hand almost everyone qualifies for a merchant cash advance. Because cash advance companies are not regulated they often use predatory practices to take advantage of small business owners who aren’t able to qualify for a loan through the bank. In fact, APRs can range from 50% up to 200% for a merchant cash advance and repayment in full must be made within 6 to 9 months.

Often the best middle ground for successful small business owners is taking out a short-term business loan. Such loans, when obtained through ARF Financial, offer terms up to 24 months with no predatory practices. All business loans obtained through ARF Financial are brokered through community banks meaning that they are regulated by the government just like any other bank loan. Keep reading if this sounds of interest to you!

Short-Term Business Loan or Merchant Cash Advance?

The main differences between a short-term business loan and a merchant cash advances are seen in the repayment process.

  • Repayment – Cash advance repayment follows your sales pattern, so you will pay according to your sales volume, and for as long as it takes to repay, whereas a loan is repaid at fixed amounts on a fixed term meaning that you can keep any extra profits.
  • Early Repayment – Most loans can be paid off early with no extra charge, whereas you will probably be charged the full amount to pay off a cash advance early.
  • Higher Loan Amounts – A business loan is calculated based upon your cash and credit card sales, as opposed to a merchant cash advance, which is calculated using just the credit card sales, meaning that loans will generally give a higher amount.
  • Tax – The interest which is paid on a loan can be put through as a normal expense and is tax deductible. A cash advance will represent future sales, sold at a discounted rate, and so don’t offer any tax benefit.

With a loan arranged by ARF, there is limited paperwork required and the money can be in your hands within 7-10 business days. A merchant cash advance can often be obtained in 2 days, but waiting the few extra days to be approved for a real bank loan will definitely pay off in the long run.

At ARF Financial we have professional business consultants who can advise you on business growth and development. Unlike a merchant cash advance that simply wants to get their money back with significant interest, we want to help you grow your business so we can establish a long-term relationship with you. Many of our customers have worked with us time and again to help finance their company’s growth. Establishing a partnership like that allows both of our companies to thrive together.

Would you like to explore financing options to grow your business? Click here to request a free, no-obligation loan proposal.