As any business owner can tell you, sometimes you just need a little bit of extra cash to make improvements or satisfy business expenses. The question of where to get that cash, however, is a little more complicated. Between small business loans from a bank or other lender, fast cash programs, and merchant cash advance providers, the options seem endless — and more than a little confusing. But with the right information, you’ll find that each option impacts your business in very different ways.
Below, we answer your questions about small business loans and merchant cash advance programs like those offered by Rewards Network to help you make informed capital decisions for your business.
How is a merchant cash advance different from a loan?
Although both provide capital to small business owners, a merchant cash advance is different from a restaurant loan in a variety of ways. The most notable differences, however, are in how the merchant obtains the money and makes payments, and in the merchant’s obligation to pay.
With a small business restaurant loan, the lender offers the borrower money with the agreement that interest will be charged for the service of maintaining and providing the loan itself — the borrower has an absolute obligation to repay the principal and interest. With a merchant cash advance, the business owner receives an immediate infusion of cash by selling a percentage of their future credit and debit card receivables to the merchant cash advance provider.
Because it is a purchase of future receivables, rather than a loan, payment is based on your business’s credit card sales, if and when those receivables are generated — not any predetermined payment schedule. Therefore, your payment varies in any given month based on the ebb and flow of your business.
Rewards Network’s Merchant Cash Advance solutions in particular offer restaurants a unique benefit above and beyond a loan: a 6+ million strong base of rewards-seekers and active diners being driven to each partner restaurant through our comprehensive Marketing Services program.
As members of loyalty programs run in conjunction with our 16 national partners — including such companies as American Airlines™, Hilton Hotels & Resorts®, United Airlines®, Overstock™, and more — our member base is encouraged to regularly visit our partner restaurants nationwide through weekly geotargeted emails, banner ads, personalized restaurant landing pages, and more.
What is required to apply for a merchant cash advance?
Because the terms of a loan depend on your ability to repay the amount provided, loan applications and approvals are typically lengthy processes.
A merchant cash advance, however, does not usually require the same rigorous and lengthy application, and you are typically asked for less information than a lender requires. This allows for a speedier approval process — within 24 to 72 hours, compared with the 30 to 60 day span one could expect for approval for a small business loan — and is available to more businesses.
What is payment like for a merchant cash advance?
The timeline for payment on a merchant cash advance can be shorter than with a typical loan. Most small business loans can have a repayment timeline of 5 to 10 years, whereas the average term for the completion of payments for a merchant cash advance is typically within 12 months.
This unique payment structure means that the company offering you the merchant cash advance has a vested interest in your business’s success. That’s precisely why Rewards Network offers its comprehensive Marketing Services program with all Merchant Cash Advance options.
By driving our members through targeted digital marketing to the restaurants that participate in our Merchant Cash Advance solution, Rewards Network is working to increase the partner restaurant’s revenue by offering our member base another location to earn rewards. The result? A cyclical system in which both the partner restaurant and Rewards Network benefits: As more members discover and dine at the partner restaurant, more sales are generated — leading to more improvements and expansions, and more customers coming to the restaurant’s doors!
What can I use a merchant cash advance for?
Another benefit of a merchant cash advance is the business’s options for how to use the cash infusion provided. With a merchant cash advance, you can apply the money to pretty much any business-related expense you can think of, including:
- expanding your business
- increasing inventory
- opening a new location
- purchasing or upgrading equipment
- advertising or marketing
- funding a remodel
Pretty much no matter what your plans, you can use funds from a merchant cash advance to make them happen for your business.
Want to learn more about how our Merchant Cash Advance programs can help your business?