If you are new to the landscape of business loans, it may be a bit jarring at first; all the technical banks terms, acronyms and complex terms and conditions can leave your heads spinning. A common misconception is that a cash advance and a line of credit for a small business are similar and it’s easy to see why entrepreneurs don’t know the difference at first.
Cash Advance – This is an advance; so the cash that is received is contingent on future sales. Often called a merchant cash advance, this is where business owners will agree to pay back an up-front loan with future sales and pay a portion of the credit card sales directly back to the lender. It’s a way for a business owner to rely on future sales to cover current costs. A lot of business will find themselves opting for a business cash advance as a means to stay afloat in slow times or if opportunity strikes.
Business Credit – When you apply for a line of credit, it works in a similar fashion for businesses as it does for personal credit. You are allotted a certain credit amount and you can chose how much you take from there. Then interest is applied and you are to pay back the loan in a certain time frame or a certain amount per month. A line of credit can seem appealing at first but the same pit falls apply.
At the end of the day, there are pros and cons to both and knowing the difference is the first step to making an informed decision. Check out the Ace Biz Funding blog to learn more about small business loans.