It is not always easy to qualify for a bank loan. Banks have strict rules for handling these loans, and you might not have enough credit data to get the funds you need. You can use a merchant or ACH advance if you’ve had trouble trying to get a loan from a bank.
Your advance will provide you with the funds you need for many operations. You can use these funds to hire new workers, purchase new equipment, or restore your business inventory. You will have limits on what you can do with your funds after you receive them through an advance provider.
But these two loan options are different from each other. Here’s a look at what sets these two loan choices apart.
How a merchant cash advance works
First, let’s look at a Merchant Cash Advance or MCA. You will sell a portion of your future credit card receipts to a buyer. The buyer will provide funds based on what you request. You will then repay those funds through the credit card transactions you make. The buyer will receive a percentage of what you earn each day and continue to do so until you have fully paid the total of the advance and all associated fees.
How an ACH advance works
The second option to see is an automated clearing house or ACH advance. It works like a merchant cash advance, but an ACH advance works with deposits from your bank account. The provider will offer funds based on your bank statements, including your cash flow.
An ACH is ideal for those who do not accept credit cards. People who collect credit card payments might also consider this, although an MCA is better suited for this occasion.
An MCA will require an analysis of your company’s credit card transactions. The buyer will offer funds based on the ability of your business to raise funds.
An ACH advance provides funds based on your deposits in your bank account. Your bank statements and cash reports can also determine how much you will receive. You might not qualify for that much money, especially since you might not earn as much as you would if you made more credit card payments.
In an MCA, you will repay the total of the advance through an agreement you make with the buyer. You will offer the buyer a percentage of your total daily credit card sales. You can schedule a split hold effort where your credit processor will split the funds between you and the buyer, or you could have your funds entered into a bank account controlled by the advance provider. In the latter case, the buyer will send you your share of the funds after withdrawing a percentage of whatever you use.
A ACH Advance involves the buyer deducting funds from your bank account. The buyer can withdraw the appropriate amount of funds each day or each week.
How much are you paying?
An MCA will allow you to pay a varying amount each day. You can set a percentage for the amount of your credit card receipts you send to the buyer each day.
An ACH advance requires you to schedule a fixed payment every day or every week. The payment effort provides predictability, but you might experience limited cash flow if you can’t bring in enough funds.
How long does it last?
You will have more flexibility to repay an MCA than if you had an ACH advance. A merchant cash advance gives you varying time frames to repay the funds. You might be facing a dry spell in sales, and you would still be able to afford the MCA because you aren’t under any pressure on something you can’t handle.
An ACH advance is different because you would have a set deadline to pay everything back. You can declare that you want to repay the advance in a few months.
What fees work here?
Both advance options include similar fee structures. You would spend more on your advance through a factor rate. The rate means that you will be charged a percentage of whatever you borrow.
What’s the approval rate?
The approval rating for an MCA is higher than what you would get from an ACH advance. An MCA is easier to manage because a buyer will know that the company has a plan for bringing in funds. The buyer will allow it in advance to operate if he knows that a business has enough credit card receipts.
An ACH advance is more difficult to predict because there is no guarantee that someone will get the funds they need. Most businesses that request ACH cash advances do not accept credit cards, or they may not accept as many types of cards as a traditional business. The lack of card support could make it harder for a business to make some sales, especially as people start to flock to cashless payment solutions. Therefore, you would have an easier time getting approved for a merchant cash advance than if you were to stick with an ACH advance.
Which option should you consider the most?
The best way to determine what to do is to review your business operations. A merchant cash advance is best if you are having fluctuations in your business income, and if you accept credit cards, it works.
Until then, an ACH cash advance is best if you don’t accept card payments or take them as often. An ACH advance will also work if you have a constant amount of money going into your business. You will need this steady stream to make sure that you can afford the fixed payments needed for the job at hand.
Make sure to consider both of these options and determine how your business operates to see what fits your needs. A Merchant Cash Advance or ACH Advance will provide you with the funds you need for all of your general transactions. But make sure that when you find a lead, you know what you are getting from your plan.