While loans are a top source of small business funding, cash advances are increasingly gaining popularity among business owners. SBA loans and cash advances involve businesses receiving and repaying funds but have inherent differences. Here are four differences between SBA loans and cash advances, so you choose the right financing method for your business.
Anatomy
Like any loan, an SBA loan is pretty straightforward. A lender gives an entrepreneur an agreed amount upfront in return for monthly payments of the loan amount plus interest over a given duration. On the other hand, in cash advance, an enterprise receives funds –advance against future credit card sales. Credit card sales serve as repayment, and the frequency can be daily or weekly.
Borrower Requirements
As small business funding options, cash advances and SBA loans have varying eligibility criteria. In cash advances, the requirements are lenient, and borrowers get approval based on their credit card transactions. You don’t need an excellent credit history or collateral. On the other hand, a loan requires a good credit score as well as collateral, depending on the loan amount. Businesses may also need financial statements, annual revenue, and loan proposals.
Repayment
Cash advances are ideal for short-term small business funding because they have a shorter repayment schedule of 6-24 months. On the other hand, SBA loans are flexible, from the loan amount to the interest rate and repayment period. Businesses get long repayment periods of up to twenty-five years, depending on the lender and loan type. A business owner can pay more than the minimum monthly loan payment to shorten the loan term or prolong the loan if needed.
Approval Rate
Among the noticeable differences between these two types of small business funding is the speed of approval. Cash advances are renowned for their speedy approvals, making them ideal for businesses requiring financing urgently. Startups can apply for a cash advance online and get the funds in 24 hours or a few days. By comparison, an SBA loan may take weeks or even months before approval and cash is available.
Both cash advances and SBA loans are good small business funding options. While cash advances have faster approvals, require less paper, and are eligible for businesses with less-than-perfect credit scores, SBA loans have flexible repayment schedules, and enterprises get competitive offers from numerous lenders. If you are unsure whether a cash advance or SBA loan is best for your business, contact Hemingway Financial Group. We offer solid financial advice to meet your financial needs and thrive your business.