Merchant Cash Advance or SBA Financing

Merchant Cash Advance or SBA Financing

Right now most businesses, especially startup businesses have 2 strong business financing options available and those are MCA (merchant cash advance) or SBA loans. It is very important that a business owner knows exactly where it should go for whatever kind of business loan that you may need.

 It is also important the business owner makes the right decision in this regard as not doing so could come back to hurt the business cash flow. Any business that fails to make a beneficial financing decision in these difficult times can expect to be facing serious cash flow problems that could result in a closing of the business. 

A business or startup can choose between SBA financing and merchant cash advance if it has the information on the sources of funding and how to obtain the right loan for the business needs. 

Once a business has gained insightful information it would be able to make the decision that would help further its interest in an MCA or SBA financing. 

Understanding how the alternative finance industry compares with the traditional lending banks is key in your search for finding the right loan to fit your business needs and finding the right company to help you get approved for your MCA or SBA financing for your business. 

SBA Financing

Obtaining loans from traditional banks has become extremely difficult over time. This is why the government began looking at ways in which it could encourage banks to issue out loans to new businesses, especially small businesses. 

The availability of funds provided by bank loans to small business is currently at an all-time high since for the first time traditional bank lending to small businesses has dropped by over 15% while lending to big companies has recently seen an increase of 11%.   

When the SBA approves a loan it promises to pay back the loan if the borrowing business fails. The small business administration is not fully responsible for paying back the business loan. It typically guarantees about 80% of the full loan. 

So if the business fails to pay it is that portion the SBA is required to pay back. The bank, in that case, bears the risk for the remaining part of the loan if the business is to fail.

How is SBA financing limited

The big reason why business owners want SBA financing is due to the low-interest rates that are associated with the SBA financing program. 

In spite of this benefit of lower interest rates and longer payment period, there are limitations to SBA financing.

A big problem with SBA financing is that a business is still required to provide security for the part of the loan that is not backed by the small business administration. 

This means that businesses still have to provide collateral probably in the form of real estate before it can be considered for SBA financing. 

Some lenders will ask business owners to provide personal guarantees which make them personally responsible for paying back the loan if the business fails.

 This issue alone has made SBA financing practically out of the reach of a lot of business owners.

With an MCA there is no requirement for collateral, neither is there any requirement for personal guarantees. Another benefit of MCA is the amount of money that can be obtained through merchant cash advance is typically higher than SBA financing.

Inside a merchant cash advance

An MCA is an alternative source of funding to an SBA financing program and does not have much in common with the small business administration financing program. The only similarity is both require the business owners to pay some of the charges for the service. 

There are other differences between SBA financing and a merchant cash advance. With SBA loans, the terms are fixed and if a business is unable to keep up with payments for whatever reason it can expect to be punished in a way for not paying as we described above. 

If the business makes payments much earlier than expected it could be rewarded with lower interest rates. With a merchant cash advance, there is no specific time which the business is expected to complete the payments mostly and thus gives much more flexibility to business owners. 

Peach Capital Funding Insight

Having taken a look at both a merchant cash advance and SBA financing, it is obvious which one of them is a better option for a business in need of business funding. 

Receiving a merchant cash advance has most of the time been preferred to SBA financing because of the fact that it is unsecured, fast, easy, and does not even require as high of a credit score.

Although a merchant cash advance is more expensive than SBA financing, it remains the best means of obtaining small business funding for your business.

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