Small Business Loans: Conventional Credit Vs FinTech Vs MCA
Many small business owners struggle to maintain their business up and running without a Small business loan. The truth is that their resources are scarce but they want to ensure that they are able to make the right investments to improve their overall ROI.
So, small business owners need to turn to loans. However, which one should you choose?
Nowadays, there are mainly three different ways that small business owners can use to finance their activities: the conventional credit, FinTech, and Merchant Cash Advance (MCA).
So, we decided to take a closer look at each one of them and state the differences. Hopefully, by the end of this post, you will be able to decide which one is the best option for you.
Conventional Small Business Credit
In most occasions, a conventional small business credit is a traditional term loan. In this option, you will need to borrow a specific amount of money and state the business purpose, and then you will need to pay back the loan for a specific number of months or years at a fixed interest rate.
Many small business owners tend to opt for this kind of loan because they know the interest rate they will need to pay as well as the amount that they need to pay each month. In addition, this type of loan can be used for many different business purposes.
When you are able to comply with all the payments, you will benefit from a higher credit score. So, in the future, when you need another loan, you may have easier access to it or with better conditions.
One of the big cons of this kind of loan is that it usually takes too long to be approved. The reality is that the time the entire process takes depends on the lender. However, you should expect to wait between weeks to months.
Another thing to keep in mind about conventional small business credits is that your contract may include a prepayment penalty clause. So, in case you want to pay your loan sooner, you will need to pay an extra fee. While this would be good news since it would mean that your business is growing more than you anticipated, you will become frustrated because you’ll need to pay an extra fee.
Generally speaking, your business will need to comply with certain criteria so that you can qualify for a conventional small business credit. You will need to have annual revenue of more than $300,000, a credit score of 680 or more, and you need to be operating for at least 4 years.
FinTech is another solution that small business owners have to finance their operations. The truth is that it came up with an alternative to conventional small business credits.
Offering a wide variety of products, FinTech has been putting available different tools that are easily accessible and affordable. As you can imagine, lending money to small and micro businesses is one of them.
In the old days, whenever you wanted to open your own business and you needed to borrow money to do it, traditional financial institutions wouldn’t lend you the money. You needed to borrow money from your family or friends. However, when FinTech appeared, they entered in the market to change all this.
Fortunately, when you now want to open your small business, you can turn to FinTech and their digital lending. Since they use the latest technology, the process is a lot faster than the process with traditional financial institutions.
One of the main reasons why so many small businesses are turning to FinTech to get a loan to finance their operations is because the entire process is convenient, online, instant, and paperless.
Merchant Cash Advance (MCA)
The Merchant Cash Advance is another alternative to conventional small business credits. After all, Merchant Cash Advance’s process is faster and in case you have poor credit, you can still use it. However, MCA’s can’t be used for opening a new business. In fact, when you ask for a Merchant Cash Advance, you will need to provide at least six months of operations so that they can see a track record of your sales.
Today, many small business owners are turning to Merchant Cash Advance, especially when they need to:
– build a cushion for the seasonal periods that are usually slower
– improve credit
– purchase new materials or equipment
– pay off existing debt
– restock inventory to grow the business
– grow marketing efforts
– purchase new locations or renovate/expand the current ones
One of the things that you need to know about Merchant Cash Advance is that you will have a repayment structure where you’ll need to pay a fixed amount each day. This amount will be deducted from your business bank account and it varies according to your revenue. So, if it suddenly drops, your daily fee will also drop.
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