Business Loans or a Cash Advance Based on Future Credit Card Sales?

Often, merchants are torn between applying for a bank business loan and a credit card sales advance. For those who have been the bank loan route and have experienced the extensive paperwork, hard-to-meet requirements, and long waiting/processing times, choosing an advance on credit card sales is relatively easy. But for small business owners who have not applied for either method of business financing, the choice may be a bit more difficult.

It is important to know the advantages and disadvantages of both bank business loans and credit card sales advances and to understand how each business funding option works, in order to make an educated decision that will benefit both you and your business.

A business line of credit allows you to get a credit card to use for your small business. Typically, these cards offer credit between $10,000 and $100,000. The credit cards can be used to make any business purchases and you must make at least the minimum payment every month. You are free to use as much of the remaining balance as you wish, but typically, the more you spend, the higher your monthly minimum payment will be.

Business Loans

Business loans are an excellent method of business financing for those who meet the stringent requirements. Typically, banks will require small business owners to have excellent credit scores and put up collateral in order to be approved. Usually, applicants must also present personal financial history, the bank must also approve of how you plan to use the money they lend.

Pros

• Business loans are generally less expensive then credit card advances.
• Business loans can be used to finance startup businesses and you don't have to own a retail and/or service-oriented business that processes credit card sales to be eligible for a bank business loan.

Cons

• Bank lending requirements have tightened over the past year, making it more difficult to qualify.
• The review and funding processes can take months.

Credit Card Sales Advances

A credit card sales advance is also an excellent method of business financing. Merchants can use credit card sales advances to improve their businesses or to keep their businesses afloat.

Pros

• You don't need an excellent credit score or collateral to be approved for an advance on credit card receipts.
• Providers use your business's daily credit card sales to repay your advance
• Advances can be renewed frequently
• Entire process can take as little as two weeks

Cons

• Businesses that do not process credit card sales can not receive advances
• Advances can not be used to finance startups