Ecommerce businesses are on the rise. People are choosing a convenient click of the button over the inconvenient drive to the closest retailer. Online inventory options are vast compared to what stores keep in stock anymore. And we want to keep the cashflow going strong. How do you keep up with consumer demand? The phrase “You need to spend money to make money” has never been truer.

Money is what makes the world go round and your business thriving. It’s not enough to earn money and put it back into the business. You need to predict spikes in trends and plan launches accordingly. That takes money that hasn’t been made yet. We’ll discuss the differences between merchant cash advances and business loans, so you can make the right decision for your growing business.

Merchant Cash Advance vs Business Loan:Which One Is Right For Ecommerce?

Ecommerce businesses, whether you are both online and in-store or just online, need financing to build and expand. It can be difficult to know the exact route to take. We’re here to discuss your options and nudge you in the right direction.

What Is Merchant Cash Advance?

Merchant cash advances are just that—they’re cash advances. You receive a lump sum of money to go towards your business and you repay that lump sum with your future sales. A percentage is taken out to pay off this debt during each credit and debit card transaction. It’s easy to get approved since they have lenient requirements. If you have a decent credit score and have been in business for at least three months, you can be approved.

There are several merchant cash advance companies out there waiting for you to apply. You can use the advance for anything related to your business. They don’t have a say in your investments or supply orders. So long as you sell your goods and they get their cut, you are good to go. They’ll discuss the options available to you, as every business is unique in its sales and revenue. Together, you’ll create a projection, so you can agree on a fixed or flexible amount.

Pros

· You get to control what you use the cash advance for

· Your credit score is not always a factor in approval

· It’s easier to get approved than traditional business loans

· You pay it back when you have the money—percentage per sales transaction

· No collateral needed

· No monthly restrictions on spending

· Quick approval and payment

· The more sales you make, the faster the advance is paid off

Cons

· Credit card processors are mandatory, so they can keep track of sales

· Lenders can pull money from your business account, regardless of sales volume

· Two years is the average payoff time vs business loans that often require five years

· It’s not government regulated

What Is A Business Loan?

A business loan is money loaned to you from a traditional bank or lender. You must jump through a lot of hoops to be considered, let alone approved. Once you have been approved, they will give you a certain amount of time to pay off the loan with fixed monthly payments, regardless of your sales volume. They run a tight ship, so you need to be prepared when going down this path.

There are several banks and lenders out there. The vast majority don’t loan to start-ups and need you to be in business for one year and have a yearly minimum revenue of fifty thousand dollars. If you manage to get to this point without quitting, congratulations! You’ve done what most couldn’t. You now have the money to spend on things to expand your business and inventory. Just know that the bank will need you to disclose your plans for the money they gave you. They will monitor it and decide the limits you have per month.

Pros

· You typically have a longer amount of time to pay off the loan

· The monthly rates are fixed, so you know what to expect regardless of sales made

· Interest rates may be lower than a merchant cash advance

Cons

· It’s more difficult to get approved

· Your credit score must be seven hundred and above

· Your business must have been thriving for at least a year before being considered

· Less control, as the bank chooses when and what you spend the money on

· Your debt-to-income ratio is a huge factor during the approval process

· You may need collateral

· Your net income must be 1.25x greater than your expenses

Which One Should You Choose For Your Ecommerce Business?

We vote for merchant cash advances. Every business is different and has unique needs, but cash advances have the most success. Ecommerce businesses, especially, have shown the best results with this option. Online businesses are a dime a dozen, so if you are to keep up with demand you need cash fast. Credit cards are the way of online payments, making this system perfect for merchant cash advance companies. They’re great to cover short-term expenses. With this, you can get ahead of the spikes in growth. You can control how you spend your cash advance. You are the business owner, and you know what is best for it, unlike banks who need to know every aspect of your business plan. Whichever you choose, think of the most cost-effective strategy.

When Should You Apply?

You should apply when you need a boost in your new business or need help expanding your growing company. Every business experiences stagnancy in its cashflow at one point or another. It may be only for a short time or it may last because you keep falling behind trying to keep up with consumer demand. Keeping inventory stocked, paying your employees their wages, advertising, expanding, and paying yourself an income can become difficult without some extra money to rely on. No one likes living “paycheck to paycheck,” so why should you live “sale to sale?”