Monthly Archives: May 2018

Merchant Cash Advance and Business Loan

How Merchant Cash Advance differs from a Business Loan

Are you in need of working capital for scaling up your business? If yes, we shall walk you through the two financing options, Merchant Cash Advance or Loan against POS Machine Card Swipes and Business Loan – pitted against each other, which in turn would help you, take a decision. Although structured very differently, both of these finance products provide small to medium scale businesses with interim funds. Entrepreneurs can utilize this amount to purchase equipment, process payrolls, expand operations and so on. But, how they differ from each other is a crucial area of study, especially for entrepreneurs who are looking for suitable business finance modules.

Let us now understand the key differences between the Merchant Cash Advance and Business Loan.

CostsMerchant Cash AdvanceBusiness Loan
FunctionalityLoan in Return for a Percentage of Daily Credit Card Sales Loan in Return for Fixed Monthly Payments
Maturity DateVariableFixed
Repayment ScheduleVariable Amount – Depends on a Percentage of Daily Credit Card SalesFixed Amount – Depends on summation of Principal and Interest
Primary QualificationsCredit Card Sale History and Personal Credit ScoreAnnual Revenue and Personal Credit Score
Time to Funding1 to 3+ days1 to 3+ days
Maximum Loan AmountUp to 1 crore (Typically up to 200% monthly Credit Card Sales)Up to 1 crore

What is a Business Loan?

A business loan comes with an interest rate and an interest period. The total interest rate and repayment period would determine how much you need to pay back for taking out the loan. The higher the rate of interest, the more you’ll pay to borrow the money. Let’s just say, it typically works like a car loan or a mortgage loan. A business loan can be repaid on a daily, weekly or monthly basis, but the entire amount has to be mandatorily paid off by the fixed date of maturity.

Pros of Business Loans

  • Lower Overall Cost
  • Fixed amount of repayment
  • Specified term of repayment
  • Scope of earlier repayment

Cons of Business Loans

  • Stringent eligibility criterion
  • Requires good personal credit score
  • No variable repayment

When should you go for a Business Loan?

Business loans are ideal for businesses which are NOT seasonal (for e.g. food trucks, outdoor adventure business, fireworks retailers, etc.), and do not have high credit card sales. Here’s when you should go for business loans:

  • You have a good credit score
  • You run a profitable business
  • You need a large amount of capital
  • You are looking for stable repayment terms

What is Merchant Cash Advance?

A Merchant Cash Advance doesn’t loan you money in its literal sense. A lender who provides you with a Loan against POS Machine Card Swipes, pre-purchases some of your credit card sales, and therefore advances money to you. So, the lender owns a part of your future sales and gets his money back from those sales. Unlike business loans, MCAs do not come with a rate of interest, or a fixed repayment period. Instead, the lender recovers the principal amount and the profits earned by acquiring a percentage of your credit card sales every day, unless you’ve repaid the balance and greed upon fee. This percentage is called the ‘holdback percentage’. It is mostly constant throughout the life of an MCA, but credit card receipts vary with each passing day, and therefore, the daily repayable amount becomes variable. However, most MCAs are repaid within a span of 6 to 18 months.

Pros of Merchant Cash Advance

  • Flexible eligibility criterion
  • Sales based repayment
  • No fixed repayment term

Cons of Merchant Cash Advance

  • Difficulty in budgeting
  • No scope of early repayment

When should you go for a Merchant Cash Advance?

MCAs or Loan against POS Machine Card Swipes are the ideal choice of businesses that leverage a high volume of credit card sales. Here’s when you should go for Merchant Cash Advance:

  • You do not want a loan on your credit history
  • You run a seasonal business
  • You are an online merchant who receives high advance amount in return of a small portion of your daily credit card receipts

Qualifications for a Business Loan and Merchant Cash Advance

Typically, a merchant cash advance provider pays more heed to a company’s credit card sales, and a business loan lender is more concerned with the company’s total revenues.

Let us understand the primary differences between the qualifications for these business finance options.

Typical QualificationsMerchant Cash AdvanceBusiness Loan
Credit Score650+650+
Time in Business1 year1 year
Revenue10 lakhs + yearly Card Sales15 lakhs + Per Year

Costs associated with Business Loan and Merchant Cash Advance

It is very important to understand the costs associated with finance modules such as business loan and loans against POS Machine Card Swipes. Look at the differences below:

CostsMerchant Cash AdvanceBusiness Loan
ROIStarts from 12% p.a.Starts from 12% p.a.


Whereas Business Loans continue to be the first choice of large-scale businesses, Merchant Cash Advance has emerged as the ideal pick for entrepreneurs who run small businesses, especially in the restaurant, retail and trade sectors. Since Digital India has revolutionized the exchange of plastic money (POS Machine Card Swipes), businesses looking to satisfy small scale operations should ideally opt for Merchant Cash Advance financing.

TAB Capital Ltd. offers an advance of up to 1 crore to small businesses, with minimum process documentation and quick loan disbursal. To know more about the TAB Capital Ltd.’s Loan against POS Machine Card Swipes scheme, visit here