Merchant Cash Advance vs. Equipment Financing: Which Is Right For You?
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Merchant Cash Advance vs. Equipment Financing: Which Is Right For You?

Every business owner is faced with the age old question from time to time. How do I grow my business and where do I get the capital to fund that growth? Luckily, It’s a great time for small business owners (contrary to what many people in the media and the news agencies like to forecast). Gone are the days of waiting for mainstream funding options  like the traditional bank loan and venture capital. No more waiting weeks for an approval, or a disheartening decline. All business owners know this saying holds true time and time again, Time is Money! No more wasting time. Now, the industry of alternative financing has made acquiring capital for small business owners easier than ever, allowing their focus to be on the growth and success of their company instead playing the approval waiting game.

Most small business owners use their newly acquired capital for a few main things: working capital, bulk inventory purchases, equipment purchases such as vehicles or machines, office supplies such as computers and workstations, and hiring and training of personnel (employees need to learn how to use all of these things, after all). When you as a business owner decide it’s time to grow and need to secure capital there are many forms of it available in the ever-changing alternative lending landscape. It’s important to differentiate between the pros and cons of each and see which makes the most sense. Generally, as a rule of thumb, you first need to know what you are using the funding for, or in bank language, highlight the use of proceeds. In this article we are going to highlight the differences between Merchant Cash Advances and ACH Loan products compared to Equipment Financing, assuming the use of proceeds is for an equipment purchase.

Merchant Cash Advance

Merchant Cash Advances are considered to be a strict sale of future credit card sales at a discount. This means that they are not categorized as a loan and do not have an APR percentage attached to it. There is one set cost attached to the capital over the duration of the advance which is generally estimated to be repaid in 6 – 18 months. They are collected as a split percentage of credit card sales – meaning for every dollar spent in a merchant’s place of business via credit card transactions, a predetermined percentage is withheld and used towards the outstanding advance. These are advantageous for the following reasons:

What are the Pros of a Merchant Cash Advance?

  • Their is no set repayment schedule so you pay at the pace of your business without strict penalties for late payments
  • No minimum or maximum funding amounts
  • Approvals in 24 – 48 hours
  • Funding in as little as 48 hours
  • No personal guarantee
  • No collateral needed
  • No credit requirements
  • Can be used for cash flow, inventory, equipment, expansion or anything else related to the business

What Are The Cons of a Merchant Cash Advance?

  • Have a higher cost of capital attached then a traditional loan and are more in line with a high yield credit card.
  • Short-term, typically 6- 1212 Months and can be extended to 1824 months for well-qualified candidates.
  • Sometimes hard to forecast payments since a percentage is tied to sales
  • May require a change in the existing credit card processing company to apply the splitdelay your credit card deposits by 24 – 48 hours in some instances

What is Needed to Qualify?

  • At least 3 months of operating history
  • $35,000 or more of monthly gross credit card sales
  • Documented gross monthly sales of $7,500 or more
  • No open bankruptcies allowed
  • Startups are usually ineligible
  • For approval, all you need to do is complete an application and send it back with 3 months of bank and credit card statements

Equipment Financing

Equipment Financing is a loan product used to help business owners purchase any type of equipment needed to run the business. The loan amount is dependent upon the type of equipment needed, as the repayment term is usually as long as the expected life of the piece of equipment and if it is used or new. This particular financing solution usually implies a fixed interest rate and fixed term, in turn allowing for fixed, non-fluctuating payments. Equipment Financing is advantageous for many reasons:

What are the Pros of Equipment Financing?

  • Approved in a few days to a few weeks
  • Equipment leasing is flexible and doesn’t usually require a down payment (if it does, it is usually a small one) which is a plus for businesses without a big bank account
  • Leased equipment may be returned or purchased at the end of the term
  • Equipment loans can be used to update equipment and inventory or for equipment replacements
  • Tax Deductible
  • Flexible Payment Plans


What are the Cons of Equipment Financing?

  • Equipment Financing must only be used for business equipment: machines, personal property for the business, vehicles for the business, office equipment, business furniture, computers, machine operator training, etc.
  • Higher down payments and higher long term costs
  • Term is usually as long as the expected life of the equipment
  • Businesses must sell or discard outdated equipment at the end of the term


What is Needed to Qualify?

  • Great to excellent credit needed
  • Resume may be requested to verify your character and risk
  • Bank and credit card statements must be provided (number of months may vary)
  • Profit and loss statement and balance sheets must be provided
  • For approval, all you need to do is complete an application; other requirements may vary depending on the lender, but are usually simple

In conclusion, we can see why both Merchant Cash Advances and Equipment Financing are effective loan products for business owners for many reasons.  It all just depends on at the product is being used for. For more information on Merchant Cash Advances, Equipment Financing, and other financing solutions, check out Excel Capital Management’s  Solutions page here.

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