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What is the Difference Between a Merchant Loan and a Bank Loan?

When your business starts seeing growth, it can be exciting. But with the excitement of new growth comes the need for financing. And not just any financing, you will need the right kind of financing to best fit the specific needs of your growing company. This being the case, it is a good idea to examine the different kinds of loans available for your business. Getting the right kind of funding can be difficult and it can be hard to know what will best suit your needs. Should you get a merchant loan or a bank loan? These are the two options you will want to consider. There are many factors that come into play and knowing the difference between a merchant loan and a bank loan can be difficult. With this in mind, here are some helpful points for your consideration.

Qualifications and Turnaround Time

One of the main differences when it comes to the two different types of loans is in qualifications and turnaround time. A merchant loan is typically easier to qualify for and will have a quicker turnaround time. When it comes to qualifying for a merchant loan, usually the only documents needed are bank statements and past credit card receipts. A bank however will ask for collateral tax records, credit ratings and more in addition to the documents required for a merchant loan.

In addition to requiring more to qualify, a bank loan will also have a longer turnaround time with sometimes taking months to qualify. On the other hand, a merchant loan can be qualified for quickly. With quick turnaround and easy qualification, there are many benefits to getting a merchant loan.

Funding Flexibility

Another major difference between merchant loans and bank loans is in funding flexibility. A merchant loan will typically be more flexible due to the fact that they technically aren’t actually loans. A more accurate way to describe a merchant loan is a cash advance. With a merchant cash advance, you are actually selling a portion of your future sales. This will grant you a great deal of flexible in how you structure your loan.

On the other hand, a bank loan has strict usury laws that put a limit on how your funding can be structured. You will always be required to pay a set monthly amount, unlike a merchant cash advance that only requires you to pay a certain percentage of future sales.

Funding Availability

In 2008, the United States saw a financial crisis that affected the availability of funding even to credit-worthy borrowers. During this time, merchant loans became a non-traditional alternative to borrowers that were affected by this financial crisis. Merchant loans still provide a helpful option for those who are having difficulty finding financing with how easily borrowers can qualify. With the availability of funding they provide over bank loans, the advantage once again goes to merchant cash advances.

If you are looking for a funding option that provides easy qualification and quick turnaround time as well as plenty of funding availability and flexibility, you will likely find what you are looking for in a merchant loan. Like any type of financing, the right option will depend on your specific needs and you need to be sure you are considering factors like revenue, cash flow, goals and risk before you settle on the right type of loan for you. However, there are many advantages to be found in getting a merchant loan. Do your homework and due diligence and you will find the option that is best for your growing business. Good luck and happy hunting!

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