Asset Based Lending Vs Merchant Cash Advance

When it comes to securing funding for your business, various options are available, each with its own set of advantages and considerations. Two popular financing methods are Asset-Based Lending (ABL) and Merchant Cash Advance (MCA). Understanding the differences between these two financing methods can help business owners make informed decisions that align with their unique financial needs.

Asset-Based Lending (ABL):

Asset-based lending is a financing solution where a business secures funding by leveraging its assets as collateral. These assets can include accounts receivable, inventory, equipment, or real estate. ABL provides businesses with the flexibility to access capital based on the value of their assets, making it an attractive option for companies with substantial tangible assets.

Pros of Asset-Based Lending

Flexible Capital

ABL allows businesses to access a revolving line of credit, providing flexibility in managing cash flow and responding to changing financial needs.

Lower Rates

Since ABL involves collateral, funders often offer lower rates compared to unsecured loans, making it a cost-effective financing option.

Asset Utilization

ABL enables businesses to leverage underutilized assets to secure funding, optimizing the use of resources.

Cons of Asset-Based Lending:

Strict Qualification Criteria

Funders may have stringent eligibility requirements, making it challenging for some businesses to qualify for Asset Based Lending.

Asset Valuation

The funding amount is tied to the value of the assets, and fluctuations in asset value can impact borrowing capacity.

Merchant Cash Advance (MCA):

Merchant Cash Advance is a form of financing where a business receives a lump sum upfront in exchange for a percentage of its daily credit card sales, plus a fee. MCA is particularly popular among businesses with consistent credit card transactions, such as retail stores and restaurants.

Pros of Merchant Cash Advance:

Quick Access to Cash

MCA offers a fast and straightforward application process, providing businesses with rapid access to capital.

Flexible Repayment

Repayments are tied to daily credit card sales, ensuring that businesses pay a percentage of their revenue, making it easier during slow periods.

No Collateral Requirement

Unlike Asset-Based Lending, MCA does not require businesses to pledge assets as collateral, making it accessible to businesses without significant tangible assets.

Cons of Merchant Cash Advance:

Costs

MCA often comes with higher fees and costs compared to traditional loans, making it a more expensive financing option.

Daily Repayments

The daily repayment structure may pose challenges for businesses with fluctuating cash flow, potentially impacting daily operations.

Choosing between Asset-Based Lending and Merchant Cash Advance depends on the specific needs and circumstances of your business. Asset Based Lending is suitable for businesses with valuable assets looking for cost-effective and flexible financing. At the same time, Merchant Cash Advance is an option for those with consistent sales seeking quick access to cash without collateral requirements.

Here at REIL Capital, we specialize in finding the right working capital plan that is just right for your financial needs. If you would like to find out more about how we can help your business, fill out our commitment-free application and one of our financing specialists will reach out to you.