If you’re looking for cash to fund business growth, odds are you’ll do it with a bank loan or a line of credit. But, especially for smaller businesses, merchant cash advances are another popular source of funds.
A 2015 Federal Reserve Bank of New York study found that, although loans and lines of credit are the most popular financing method among small businesses (57 and 52 percent, respectively), 7 percent had used merchant cash advances in the previous year. Smaller businesses were more likely to do this: 10 percent of microbusinesses (revenues below $100,000) took out merchant cash advances last year.
Either a loan or a cash advance may be a good choice, depending on how proceeds of the loan will be used.
“Loan purpose should drive the whole conversation,” said Ty Kiisel, head of financial education for OnDeck, an online provider of business loans. “That is going to tell you how much money you need and how much you can afford to spend for it.”