July 18, 2024

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The Healthy Lovers

Business Cash Advance vs Working Capital Loan

Business Cash Advance vs Working Capital Loan

Raising sufficient working capital is an essential requirement for any business start-up. Moreover running a small business often calls for the need of a financial boost at times of crisis. The business cash flow can be disrupted due to various unforeseen reasons. Payment of dues, purchase of new equipment or starting new business venture might cause additional disruption in cash flow particularly of a small business. There are plenty of options for choosing the right service to acquire this capital, and this process could be quite confusing. The mode of financing is an important element that determines the success of the organization and thus an exhaustive understanding of the available funding options is almost mandatory.

Business cash advance is one of the most popular modes of acquiring essential business finance. It is almost similar to a payday loan. However, payday loan requires an individual to provide proof of employment and salary whereas business cash advance is perfect for an entrepreneur to get funds when he lacks perfect credit or doesn’t have the ability to get funds by other means. The only requirement of business cash advance is that the business should accept credit transactions, i.e. it should allow it’s customers to pay with visa or master cards. It is just an advance and not a loan; hence every time the business receives a payment, a part of it is automatically forwarded to meet the repayment of advance.

Working capital loan, another great way of acquiring funds is the traditional and most commonly followed method by most small business. However, it is not as easy to get funded in this mode as compared to business cash advance. Working capital loan is difficult to qualify for when compared with business cash advance as an alternative source for working capital financing. The credit score of the borrower, the available collateral and various factors are carefully considered before acceptance of working capital loan. However, most small businesses would easily qualify for a business cash advance.

Getting a working capital loan involves a lot of paperwork and quite some time. However, it is not the same for business cash advance. Business cash advance is processed much faster and it involves relatively less paperwork, thus simplifying the process of working capital financing. Moreover a business cash advance does not have a fixed repayment schedule as the case is with working capital loan. The repayment is done from credit card sales receipts and the businesses generally do not feel the pinch. However in case of working capital loan, if the borrower fails to repay the working capital loan, it might not only affect his credit score but also poses a threat of losing his collateral. Irrespective of the business volume on a particular month the borrower will need to repay the working capital loan according to the pre determined fixed amount.

Considering all these, it could be well concluded that a business cash advance is much easier option for an entrepreneur to acquire working capital financing.