Business loan vs business cash advance: which one is better?

If you’re running a business, you’ll know how useful extra financing could be. By unlocking extra capital, you could be able to rapidly grow your business and scale up. One option to achieve this is through borrowing. But would a business loan or a business cash advance be better? Read on to find out.

What is a business loan?

A business loan is a type of loan designed for commercial enterprises rather than individuals. Usually, this involves loaning a lump sum, before repaying it with set monthly payments plus interest. Sometimes you’ll need to secure this loan with an asset your business owns to provide the lender with security. If you can’t meet your repayments, the lender will be able to possess this asset. These loans can often last up to 25 years and can provide you with long-term funding.

What is a business cash advance?

A business cash advance also helps you unlock extra financing, but the terms and structure of the loan differ. When you take out a business cash advance, you’ll receive a loan based on your monthly card sales. You’ll then make repayments proportional to the monthly earnings you make from your card sales. As a result, you’ll pay the lender back through customers’ card transactions.

Pros and cons of a business loan

The main difference between the two loans is that a business loan is designed as a long-term funding solution. As a result, you’ll benefit from lower interest rates. However, on the other hand, you’ll have to deal with fixed monthly rates – regardless of how successful your business is. Plus, there’ll be additional costs for late repayments and there’ll be a thorough background check, making this type of loan harder to secure.

Pros and cons of a business cash advance

A business cash advance, meanwhile, will give you short-term credit for a flat fee rather than interest. This fee can make a business cash advance seem unappealing, but you will benefit from quick access to money, flexible repayments depending on the success of your business, and no long-term arrangements.

If you’re looking for extra finance for your company, there are plenty of options. By following the guide above, you should be all set to decide whether you need the long-term finance from a business loan or the instant credit from a business cash advance.

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