If you need funding for your small business, there are a lot of ways to get it. Depending on your situation, needs and goals, you may be considering a merchant cash advance vs. bank loan.
Before signing away for the funds, it’s important to note that the two options couldn’t be more different in many ways. Here are the five biggest differences to keep in mind as you shop around and compare options.
When comparing a merchant cash advance vs. loan, here’s what you need to know about how their features break down.
Whether you’re looking to apply for a merchant cash advance or a bank loan, there are costs associated with accessing funding for your business. But how costs for those funding options are calculated are very different.
With a bank loan, you’ll get a more traditional approach. The lender will assign you an interest rate based on business or possibly personal creditworthiness, and it’ll be represented as an annual rate. The lender uses that rate to amortize your loan, and each payment will include both principal and interest.
If you pay off the loan early, you can typically save on interest because interest accrues as you pay it down.
With a merchant cash advance, the purchaser charges a fixed amount of interest using what’s called a factor rate.