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Oct 23, 2017 at 07:00 AM

Small Business Finance - The Difference Between Loans, Cash Advances and Factoring

By Alexandra Trujillo
Small Business Finance - The Difference Between Loans, Cash Advances and Factoring

While there are many options available for funding your small business, the differences are not always clear. There are loans, cash advances, and factoring to take into consideration when funding a startup. It can be easy for people to fall into debt if they do not understand things like the fact that cash advances and factoring are not loans, even though they may be presented as so. Luckily this article does a great job at describing key differences between the three.

By: Rob Starr

Getting the right financial product for your small business is important. However, entrepreneurs should be careful about which small business financing options they choose. Some make more sense for your company than others. Small Business Trends talked with Hanna Kassis an expert at Segway Financial about how to differentiate between loans, cash advances and factoring.

“The biggest difference is cash advances and factoring are not loans, although sometimes they’re disguised as loans,” Kassis says. The trick for small business owners is in understanding how to pick the financial product that works to make their situation better.  Choosing the wrong path can lead to deeper financial issues if your small business is in some trouble to begin with.

The Difference Between Small Business Financing Options

Small Business Loans and FICO

There are some fundamental differences. For example, small business loans report to the credit bureaus about the credit of the business and not the owners. These are generally the way to go when you’re looking to make a long term investment in your business.

A good FICO score is required. All your company assets can be used as collateral and funding usually takes about 3-7 days. Use these when you’re on a stable footing financially and looking to grow or expand. Small business loans are a great way to replace outdated machinery and even build a new wing.

Miss a payment on one of these and it gets reported on your business credit. With the other two types, that kind of slip up gets reported on your personal credit.

Merchant Cash Advances and Factoring: For a Different Set of Business Needs

These other products have a different set of requirements. A merchant cash advance is a good product for an emergency financial situation. Factoring is the right tool to match income and expenses.

Posted in Small Business Financing.







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