If you’re a small or medium-sized business owner in India, chances are you’ll need financing at some point to expand your operations or explore new opportunities. As funding options, there are two popular choices- business loans and merchant cash advances. But which one to go for? For this, you would need to understand merchant cash advance vs business loan in depth.
So, let us explore merchant cash advance vs loan (business). By the end of this article, you’ll have a clear understanding of which financing solution is right for your business needs.
What is a business loan?
A business loan is a traditional form of financing where a lender provides a fixed amount of money to a borrower. This loan comes with fixed monthly payments over a specified period, known as the loan’s maturity date. The repayment amount includes the principal borrowed and the business loan interest charged by the lender.
One key advantage of taking out a business loan is that it offers lower overall costs compared to other types of financing options. The interest rates on business loans are typically lower than those associated with merchant cash advances.
What is a merchant cash advance loan?
A merchant cash advance (MCA) is an alternative financing option primarily designed for businesses that rely on credit card sales. In this arrangement, lenders provide an advance based on a percentage of the borrower’s future credit card sales. The repayment is done automatically as a portion of each credit card transaction.
One major advantage of opting for an MCA is the absence of collateral requirements. Unlike business loans, merchant cash advances do not require borrowers to pledge any assets as security.
Key differences: Merchant cash advance loan vs business loan
Here’s the comparison between merchant cash advances (MCAs) and business loans in the form of a table:
This table provides a concise comparison of the key differences between merchant cash advance vs business loan, allowing businesses to make informed decisions.
When to consider taking a business loan?
While both business loans and merchant cash advances have their advantages, there are specific situations where a business loan may be your best bet:
- If you have a positive credit history without any defaults or tax-related issues, you’ll likely qualify for favorable terms and conditions on a business loan.
- If you need significant funding to support your growth plans or undertake substantial projects. This is particularly true if you have valuable assets to offer as collateral.
- When you know exactly how much you need to repay and at what intervals, allowing for better budgeting and financial planning.
When to consider taking a merchant cash advance loan?
Merchant cash advances are better suited for certain situations when:
- Businesses are seasonal
- No collateral is requiredÂ
- Business merchants operate online
Conclusion
Exploring merchant cash advance vs loan (business), we have found that choosing between them depends on various factors specific to your business needs and circumstances. While business loans offer stability and well-defined repayment terms, merchant cash advances provide flexibility and convenience based on your actual sales.
If you are looking to apply for business loan, Mahindra Finance is your ideal partner. Mahindra Finance offers a range of financial solutions tailored to meet the needs of Indian businesses like yours.
If you’re a small or medium-sized business owner in India, chances are you’ll need financing at some point to expand your operations or explore new opportunities. As funding options, there are two popular choices- business loans and merchant cash advances. But which one to go for? For this, you would need to understand merchant cash advance vs business loan in depth.
So, let us explore merchant cash advance vs loan (business). By the end of this article, you’ll have a clear understanding of which financing solution is right for your business needs.
What is a business loan?
A business loan is a traditional form of financing where a lender provides a fixed amount of money to a borrower. This loan comes with fixed monthly payments over a specified period, known as the loan’s maturity date. The repayment amount includes the principal borrowed and the business loan interest charged by the lender.
One key advantage of taking out a business loan is that it offers lower overall costs compared to other types of financing options. The interest rates on business loans are typically lower than those associated with merchant cash advances.
What is a merchant cash advance loan?
A merchant cash advance (MCA) is an alternative financing option primarily designed for businesses that rely on credit card sales. In this arrangement, lenders provide an advance based on a percentage of the borrower’s future credit card sales. The repayment is done automatically as a portion of each credit card transaction.
One major advantage of opting for an MCA is the absence of collateral requirements. Unlike business loans, merchant cash advances do not require borrowers to pledge any assets as security.