For many businesses in need of working capital, a merchant cash advance often looks like an attractive option. A merchant cash advance claims to offer flexibility, low costs, and zero debt. But how does a merchant cash advance stack up against asset based lending?

Flexibility

Unlike traditional loans, a merchant cash advance does not have a regular payment schedule. Payments are made automatically when customers pay for purchases with credit cards. While this is great in theory, a business going through a light sales period may not be able to repay the merchant cash advance before the terms of the agreement end, which can trigger a number of heavy penalties. Asset based lending, by contrast, works like a regular business line of credit. Business owners only owe on what they use, rather than being forced to take a large lump sum.

The Low Costs Offered By A Merchant Cash Advance

A merchant cash advance is usually advertised by offering no credit checks, and with overall costs which are lower than bank loans. It is true that there are no credit checks, but business owners need to look at the interest rates attached to most merchant cash advances. The longer it takes to repay the advance, the more the balance increases. Additionally, a business must look at the cost of processing credit card transactions. If a business is taking out a merchant cash advance as a remedy for immediate cash flow problems, it may end up in worse financial shape than when it started. On the other hand, asset based lending is structured around concrete things, like the value of receivables, equipment, and other assets owned by a business. Because asset based lending is a line of credit, it is not based on future sales, and the interest rate is no different than other credit lines.

Zero Debt

Merchant cash advances do not place any debt on the balance sheets, which is always nice. However, a merchant cash advance is not inexpensive, in the long run. There is still the matter of having an advance structured around future sales, when those sales are unpredictable. Additionally, once the capital provided by a merchant cash advance is used, it is gone forever. Asset based lending provides a lines of credit which can be accessed as needed, and the amount of credit available actually grows with your business.

Contact CNH Finance to learn more about asset based lending solutions, and how they help small businesses.