Equipment Financing vs. Merchant Cash Advance
What is the Difference and Which Option is Best?
Equipment financing and a merchant cash advance (MCA) are both great ways to get access to working capital you might need for your business. Let's face it, your business can’t move forward without the right equipment. From heavy equipment like forklifts and excavators to large medical equipment, having the right equipment is necessary for success. Don’t be deterred by the huge price tag of new equipment. Get cash quickly via an MCA or equipment financing to purchase the tools necessary to grow your business.
Secured Financing to Purchase New Equipment
Equipment financing is a type of secured loan used to purchase business related equipment. The equipment being purchased serves as collateral for the loan so if you default on the loan the lender has the right to repossess the equipment. Since equipment financing is a type of installment loan, repayment is a fixed monthly expense.
The amount of the loan should match the price of the equipment being purchased and the loan term should match how long you expect to use the equipment. Also, since the loan is secured by the value of the equipment you may qualify even if you have poor credit. Interest rates usually vary from about 8-30% depending on qualifications.
One of the main benefits of financing large equipment is that it frees up working capital for daily operations. Some other things to consider are the loan terms and if you will need a down payment.
Pros of Equipment Financing
An equipment financing loan typically has the lowest interest rate if you have good credit.
Once the loan is repaid you will own the equipment outright.
Once owned you can enter into a sale-and-leaseback agreement by selling the equipment to a lender in return for cash upfront and then lease it from that lender.
The interest paid is deductible.
Cons of Equipment Financing
An equipment financing loan may require a high initial down payment.
Once the equipment becomes outdated you will need to update the equipment.
Merchant Cash Advance – Made For Businesses That Need Flexibility
A merchant cash advance is not a loan, rather an alternative source of providing immediate access to working capital through the purchase of future receivables. A lender provides you with a lump sum of money upfront and over time you repay the advance based on a percentage of your future credit card sales until the advance and all associated fees are repaid.
It is important to note that an MCA is not tied to a secured asset but rather your businesses future credit card sales. Therefore, you can receive an advance even if you have poor credit as long as you can prove that your business is generating revenue each month.
Another benefit of a merchant cash advance is that they are not limited to the purchase of new equipment as is the case with equipment financing. With a merchant cash advance you can purchase additional inventory, pay rent or staff, or expand and grow your business.
Also, it is important to remember that unlike equipment financing that requires a fixed monthly payment, with an MCA the business will only make flexible daily or weekly remittances to repay the advance based on a percentage of actual sales.
Which Is Best For Your Business?
If you need to purchase expensive equipment for your business and you have reasonable credit equipment financing could be right for you. However, if you need more flexibility a merchant cash advance might be the best option especially if your credit is sub par.
Before you commit to any type of alternative financing, it’s crucial that you do your due diligent. It is always best to consult with a professional to review and discuss your options.
If you think your business could benefit from equipment financing or a merchant cash advance, consider applying through ACR Funding. We have years of experience in providing alternative funding solutions for businesses of all types. We offer approvals within 24 hours and never charge an application fee. Contact one of our representatives today to learn more about our services.