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Merchant Cash Advances vs. Business Credit Cards – What is the Difference?
If you own a small business and you need access to working capital to purchase additional inventory, open a new location, or to cover expenses during a seasonal slump you may be wondering how you can get the cash you need.
A merchant cash advance (MCA) and a business credit card are both sensible options, but it may be difficult to understand which is right for your business. The following information should help you understand the differences between these funding options and ultimately decide which, if either, is best for your business.
What Is a Merchant Cash Advance?
A merchant cash advance is not a loan but rather the purchase of a portion of future credit card sales in return for a lump sum payment.
The business then repays the advance by remitting a percentage of its daily or weekly credit card sales directly back to the lender, until the entire advance has been repaid, as well as any applicable fees.
One of the biggest benefit of a merchant cash advance is that business owners do not need good credit to be approved. As long as the business can supply income statements that prove the business is making a profit, along with a few additional documents, you can get approved for a MCA.
What Is a Business Credit Card?
A business credit card works much like a personal credit card but it is issued to a business, rather than directly to an individual. When a business owner receives a business credit card, they get a credit line they can use right away. The line of credit can be up to $50,000 or more depending on how successful the business is, their personal credit score, and other contributing factors.
As with a personal credit card, business credit cards have an APR which determines the interest one would have to pay if the borrowed amount is not pay off completely at the end of each billing cycle. APRs are typically between 16% and 23%. However, interest is only paid if the balance is not paid in full at the end of each billing cycle.
Some business credit cards also offer additional perks such as discounts, cashback, travel and hotel rewards, and more. These perks can provide a lot of business value, however, most business rewards cards also have high annual fees.
Which Option Is Best for My Business?
The best option would depend on a number of factors including personal credit score, what the business needs the money for, and how the money will be repaid.
If rewards points and extra perks are important, and the cash flow to pay off the business credit card each month is available, then a business credit card may be a great option. Remember, if the balance cannot be paid in full at the end of each billing cycle, the interest will add up quickly.
With that said, if one does not have the best credit score and is looking for a flexible way to get more working capital for their business, a merchant cash advance may be the better option.
Regardless of which option you may choose, make sure to do your due diligence and research the provider to be sure they are reputable. Find out how long they have offered merchant cash advances, how long it takes for a request to be approved or denied, and how long it takes to receive the advance once approved.
If you think your business could benefit from a merchant account cash advance, consider applying through ACR Funding. We offer approvals within 24 hours and do not charge an application fee. Contact one of our representatives today to learn more about our services.