Line of Credit vs. Merchant Cash Advance: Which Is better for Business?
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Business Line of Credit vs. Merchant Cash Advance: Which Is More Beneficial To Your Business?

All small business owners run into cash flow issues over their business’ lifetime. During these rough patches, it may be required to take on some debt to cover working capital and operational expenses. Whether you need to cover your rent, make equipment repairs or purchases, hire additional staff, or almost anything else pertaining to your business, having access to the funds you need can be a lifesaver. Let’s take a look at two popular emergency business funding solutions to help you decide which is more beneficial to your business – a  Line of Credit versus the increasingly popular, Merchant Cash Advance.

What Is a Business Line of Credit?

A  Line of Credit, also known as a “LOC” is a type of loan that provides business owners with access to quick business funding needed to fix cash flow issues and fulfill other short-term business needs. There are two main types of Business Lines of Credit.

Secured Business Line of Credit:
A Secured Business Line of Credit requires business owners to pledge assets as collateral in order to obtain the loan. While lenders do not typically require business owners to pledge assets in the form of capital, such as property, they will require the collateral in the form of inventory, accounts receivables, and more. Consequently, if you are unable to pay back the loan, your lender will seize your collateral in order to pay the balance.   

Unsecured Business Line of Credit:
Unlike a Secured Business Line of Credit, Unsecured Business Lines of Credit do not require borrowers to pledge any assets as collateral. This tends to be the more attractive type of business credit lines to business owners for obvious reasons, however, they are much more risky for the lender, therefore your credit score must be excellent. Additionally, Unsecured Business Lines of Credit tend to be smaller with higher interest rates.

What are the Qualifications for a Business Line of Credit?

Both Secured and Unsecured Business Lines of Credit will require your business to be in good standing. Lenders typically prefer to work with businesses that are well-established and in good financial standing, thus proving the ability to pay back the loan. Depending on the lender, various financial documents will be requested to support this. 


What is a Merchant Cash Advance?

The primary purpose of a merchant cash advance is to service the financial needs of small to medium-sized business owners. However, there are unique advantages included in the service that tailors to a specific business owners need. Merchant Cash Advances do not require a minimum credit score to qualify. Similarly, these financing products do not require any personal collateral to qualify, therefore, business owners who have limited assets never need to worry about losing their collateral. In addition, since there is no fixed payment with a Merchant Cash Advance, business owners who run into financial trouble or weakening sales do not carry the burden of a fixed remittance. Payments come from a small percentage of credit and debit sales, a business owner will actually see their payment decrease during lean times.

What are the Qualifications for a Merchant Cash Advance?

In order to qualify for a Merchant Cash Advance, lenders typically require that the business have at least 3 months of operating history, documented gross monthly sales of $7,500 or more, $3,000 or more in monthly gross credit card sales, and no open bankruptcies. Usually, just to receive an approval and offer, lenders will only need to see 4 months of recent business bank statements and 4 months of recent credit card processing statements. Funding can even happen in as little as three business days.

In conclusion, both business lines of credit of and Merchant Cash Advances are both great working capital funding solutions that your business can take advantage of. For more on Business Lines of Credit, Merchant Cash Advances, and other working capital funding solutions for your business, click here!

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