The Distinction Between Cash Advance Loans And Bank Loans

If you are a small business owner, you will need extra funding from time to time to make sure that your business is running well. And if you are wondering whether to get Cash Advance Loan or bank loans for your business, you need to understand the difference and see which one best suits your business. If we try to understand the difference between these two, the primary difference will be how the loans are paid back. You can pay back the bank loan over a while, on the other hand, you can pay back the cash advance loan based on credit card sales depending on your daily or monthly credit card transactions. Let’s take a closer look at the difference between these two:

Bank Loans: To explain bank loans in simple words, it is when the bank agrees to give an individual or an industry an amount and in return, the individual agrees to pay back the amount over a period of time with interest. The individual can pay back the sum and the interest once a month, and if they want, they can also put more money down. They can also shorten or extend the length of the loan if needed.

Cash Advance Loan: A cash advance loan is similar to a bank loan, where the lender agrees to give money upfront to the borrower and the borrower will repay it over a certain period. However, the difference is on how the borrowed money is paid back. In the cash advance loan, the company will pay back a percentage every day or month of their credit card sales. Instead of paying back an agreed amount at the end of every month, a cash advance will take a portion of the credit card sales.

Now that we have understood the difference, let look at their advantages and disadvantages:

Requirements To Obtain The Loans: When it comes to a cash advance loan, you will be required to provide a bank statement and your history. The provider will usually look at your past record and see whether you will be able to pay it back. In the case of a bank loan, along with the bank statement, they will also check your credit score, collateral, tax record, and other documentation. And it takes a while to get the loan approved.

Repayment Terms: Cash advance loans are not actually loans, you are not borrowing money but selling a portion of your credit card sales. You can repay the cash advance through a percentage of your daily credit card sales. However in the case of bank loans, they are harder to obtain, but they may be more affordable in the long run depending on the interest rates, loan terms, repayment schedules, and others. With bank loans, you will have to pay back a set amount every month, but in cash advance, the payment is tied to future revenue.

Which One Is Better For Your Business?

Choosing whether to get a cash advance or a bank loan will depend on your business goals. You should also understand your revenue and cash flow and the risks involved in it. If you take a bank loan, you will have to pay back a set amount every month, but if you take a cash advance loan, the amount that you pay back daily or weekly will depend on your future sales.

Both bank loans and Cash Advance Loans have their advantages and disadvantages. With a bank loan, you will know exactly the amount that you have to pay back every month so you can plan accordingly. But with a cash advance loan, it depends on your credit card loan, if the business is not doing well, you will pay back smaller payments, and when the business is doing well, you will have to produce a higher payment.