Before deciding on a particular financing arrangement for your business, it makes sense to compare various financing alternatives such as factoring, merchant cash advances, equipment leases or bank loans that might be available to you. The table below compares some of the common financing options for small businesses. Ultimately, you will be best positioned to understand your business needs and the option that makes sense for you and your business.
Comparison of Financing Alternatives
| Merchant Cash Advance | Factoring | Equipment Lease | Bank Loan | |
|---|---|---|---|---|
| Type of Funding | Financing through sale of future credit card transactions | Financing through sale of accounts receivables | Lease financing for specific piece of equipment | Real loan conforming to regulatory requirements |
| Speed of Approval | Fast 4-7 days | Fast 4-7 days | Medium 1-2 weeks | Slow 3-4 weeks |
| Collateral Requirement | No | No | Yes | Yes |
| Credit Check | May be required, but not as important | May be required, but not as important | Yes | Yes |
| Effective Interest Rate | High | Medium-High | Low | Low |
| Repayment Schedule | Variable, based on credit card sales | Variable, based on collections of invoices | Fixed, but may have some flexibility | Fixed |
| Personal Guarantees | Not required | Not required | May be required | Generally required |
| Documentation Requirement | Low | Low | Low | High |
| Term | Short | Medium-long | Medium-long | Medium-long |
| Credit Card Sales Required? | Yes | No | No | No |
| Merchant Processing | May need to switch processor | No effect | No effect | No effect |
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