What is the difference between a bank loan and a merchant cash advance? This is, perhaps, the most popular question we receive from our clients. It also is the most important question to answer because, of course, the many differences between bank loans and merchant cash advances are what make our unique program so beneficial to Canadian business owners.
Firstly, we must look at the process that business owners must go through to attain financing for their companies. With a bank loan, collateral is generally required. Putting up one’s house, car, cottage of even the business itself is a common request. This is to ensure that if payments are not made in a timely fashion, the bank will have an asset to make up for the losses.
In addition, because the money is being borrowed from a bank, there is an impact on the borrower’s credit score for even inquiring about attaining money. Of course, if there are problems with payments throughout the course of borrowing the money, that credit score is continually impacted negatively.
A merchant cash advance is not borrowed money. It is the purchase of future credit and debit sales. So if a merchant accepts Visa, MasterCard and/or Interac as methods of payments at their establishments, the sales they have not even made yet can be provided to them in advance!
Another major difference between bank loans and merchant cash advances is the cost of getting the extra working capital. Naturally, a bank charges interest on a loan. For as long as the money is being borrowed, interest charges will accumulate on the outstanding balance.
Synergy’s merchant cash advance program has no interest rate. Instead, we simply charge a one time fee. The benefit of knowing the exact cost before even taking the advance is a great one. This provides the merchant the peace of mind in knowing that the amount of his or her repayment will never increase.
This leads us to the best part about our program. Banks, of course, request that payments towards the loan are made on a regular basis, usually monthly. When payments are not made on time, one’s credit history is impacted, late fees may accrue and the interest rate may increase.
Our program has no fixed repayment schedule. Instead of paying by any specific date, payments are made automatically through the merchant’s credit and debit sales transactions. Business owners literally do not have to lift a finger. It doesn’t matter how long it takes for the advance to be paid back. A bank will never be able to promise that!