SBA loans VS. Merchant Cash Advance: What is Best for Your Business?

sba loans

In present times, taking out a loan by a business owner or organization has become much simpler and accessible through the various kinds of loan programs available at banks and financial institutions. Most businesses have taken to using SBA loans as a way to get assistance in meeting payrolls, purchasing equipment, dealing with seasonality, expanding operations, and the like, not knowing that there are better options out there.

Read More: Private Business Loans to Push Businesses in the Right Direction

What are SBA loans?

SBA loans are small business administration loans. These are quick loans, which offer various loan plans with the aim of meeting the financial needs of a broad array of business organizations. These loans come with a guarantee from the government, thus eliminating most of the threats for a lender. SBA loan requirements reduce the danger of lending to all lenders by warranting that the loan amount would be repaid. Thus, the lender can give out capital amounts, which are otherwise not possible in reasonable terms.

In such loans, the government is not straightforwardly giving out money to small businesses. In its place, the SBA loans set guidelines prepared together among its partners. These partners consist of microlending institutions, community development organizations, and banks.

These are 3 primary SBA loans:

  •    Advantage Loans
  •    Grow Loans
  •    Microloans

What are merchant cash advance loans?

In addition to taking SBA loans, business owners and organizations have also taken to another popularly used loan type called the merchant cash advance loan for getting capital for their business purposes. It is a loan system where an amount is given to a business as payment in return for a pre-arranged percentage from their future debit or credit card sales.

Key Differences between SBA loans and Merchant Cash Advances:

  1.   Time Consumption: Unlike loans from merchant cash advance, which typically take twenty-four hours to process, an SBA loan application usually tends to be much more time-consuming. This is because of their additional government and general paperwork involved in the loan process.
  2.    Interest rates: Unlike merchant cash advance, where deducts are made from one’s credit or debit sales, SBA loan payment is quite different. The latter has a higher interest charge compared to most conventional loans.
  3.    Payback schedule: In a merchant cash advance loan, one can pay back their advance cash depending on their sales through their credit or debit card. This means if a business is going slow, then its repayment would also be slow. Thus, there is no fixed payback schedule like it is in SBA loans.
  4.    Extra fees: In case of SBA loans, an additional service and annual fee are charged along with the extended loan balance amount. However, in taking out a loan through merchant cash advance, one need not pay any extra fee in the process. In the latter, the sales and flow of cash would ultimately determine the mode of payback.

Read More: Valuable Insights About the Merchant Cash Advance Industry

These are main differences between SBA grants and merchant cash advance enumerated for your information. Even though loans from SBA provide government guarantee, it is not entirely a smooth process. Through such differentiation between the loan types, you can practically decide on the kind of loan, which would suit your business needs in the best way.

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