Defference Between a Small Business Loan and A Product owner Cash Advance

Loans

A business loan goes through an underwriting process that can take a few weeks before you decide to are notified if you are approved or even denied. Depending on the loan size, the funding bank will need certain records such as personal tax returns, business comes back and financial statements. The underwriting process will determine if the business or business owner has a good credit history as well as the ability to pay back the loan that will involve a personal guarantee from the business proprietor. Usually there will be a stipulation that the business can’t open up any brand-new debt during the term of the loan.

Repayment Terms

A business loan will often have a maturity or payoff deadline of 3 to 10 years as well as the interest rates are usually fixed. The payments however can be amortized over a longer period of time making the payments more affordable. In this case, the loan will have the balloon payment due at maturity so the business owner will want to make sure they have a plan to payoff this balance at maturity or they may have to request a renewal or extension.

Collateral

Depending on the loan size, the financial institution may require collateral which can be in the form of house or assets. This can include real estate property if they own the property, business resources and in some cases accounts receivables.
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There are specific type loans with loan quantities up to $50, 000. These are usually based on the owners credit and personal guarantee and do not require collateral. Since it can be unsecured, rates are usually higher and can come in the form of a revolving line of credit or a fixed term loan. The processing of these types of loans can be carried out usually within three to five days.

Service provider Cash Advances

A merchant cash advance could be processed much quicker and may be more easy depending on the need for the funds. Since these types of loans are based on credit card volume, the business owner must have a vendor account for credit card transactions. Usually a good approval can be done within 24 hours and since the documentation is limited, can fund within 72 hours. In some cases a company owner will use a merchant cash loan as a bridge loan while these are in the process of a business loan application.

Pay back Terms

A merchant cash advance is a short term solution for funds required for business purposes such as inventory, enlargement, upgrades or temporary cash flow. The repayment terms are based on a factor price depending on the term of the loan. This particular loan will also have a balloon transaction so the business owner will want to have an intend to payoff the note or will have to renew the loan.

Collateral

These types of loans base their approval in the monthly volume the business owner will in monthly credit card transaction. The collateral is basically the business owner saying yes to use future credit card sales for that repayment of the loan. Documentation is restricted so this type of financing can finance quicker than a traditional business loan. Typically there is no personal guarantee and can not effect the business owners private credit.