How to Choose Between a Small Business Loan and a Merchant Cash Advance?

Running a small business is something that requires constant attention. A business owner needs to juggle different roles one of which is financial controller because without finances a budding business will fail. That being said finances are needed for things like restocking the inventory, purchasing updated equipment, repairing, upgrading and paying staff. But there are times when you will find yourself low on capital and in situations such as these how do you find the money to keep your business alive? As a business owner you have a number of financing options at your disposal, so much so that it is probably hard to decide which of these offers are best for business. Below we look at two of the biggest types of financing and how they work.

Small business financing

You can usually get small business financing from a bank and this is the first step that most businesses take when they need money. Small business owners are required to submit an application to the bank after which the bank will examine a number of factors which include their business history, credit history and the collateral they can put up. If you are approved for the loan you will receive the lump sum amount you applied for accompanied in most cases by a fixed repayment installment which needs to be paid on time or you will incur penalties. The process of getting business financing can take weeks if not months.

This type of business financing is usually best for businesses that have predictable monthly sales. The business owner should also have the ability to put up collateral and have a strong credit history. You also shouldn’t be in a hurry to get the loan because if you are then this is probably not the best option.

Vendor Financing

Vendor financing allows business owners to get up to around $150,000 if they are an accredited distributor, vendor, manufacturer or a reseller of equipment. Unlike a regular business loan this is based a lot on your own personal history as well as your business history but you do not need to have perfect credit to avail this type of financing. This loan does not require extensive paperwork or a list of your clients. All you need to do is to show proof that you are an accredited vendor, and your credit history. That being said many companies reserve the right to ask for more documentation to ensure that they know everything about your business prior to approving the loan.

Vendor financing is great for small businesses whose business varies each month and for business owners who do not have perfect credit and zero collateral to put forward. The money can be used to increase inventory and venture into new markets. However, these types of loans have a higher than usual interest rate associated with them primarily because they are unsecured loans.