What’s the Difference Between an Overdraft and a Cash Advance for Your Business?

In business, there are times when you need to pay for things but don't have enough cash on hand. Whether it's for covering running costs or replenishing stock that sold out faster than expected, many business owners turn to overdraft facilities. However, business overdrafts can come with high interest rates, especially if not repaid by the end of the month. In such situations, a cash advance can be a great alternative and might even be a better option.

What’s an Overdraft?

An overdraft occurs when there isn’t enough money in your account to cover a payment or transaction, but the bank still allows the transaction to go through. Essentially, it’s a loan provided by the bank when your account balance hits zero, allowing you to continue withdrawing money. Like any loan, interest is charged on the outstanding balance. The interest on an overdraft is typically lower than credit card interest, making it a viable short-term option in emergencies. However, overdrafts often come with extra fees, such as insufficient funds fees, and banks may charge for overdraft protection services.

What is a Cash Advance?

A merchant cash advance (MCA) is a type of alternative lending designed to provide businesses with quick access to funds. Often referred to as "growth capital," an MCA can be used for short-term business needs, such as purchasing merchandise or funding marketing campaigns.

With an MCA, the lender buys a portion of your future sales, and your repayments are based on how well your business performs in the coming months. This flexibility allows you to pay back more when business is good and less when things are slower, removing the pressure of fixed monthly payments.

Benefits of a Cash Advance

• Unsecured Lending: Merchant Capital does not require any collateral, unlike traditional banks, making it less risky for you to obtain cash for your business.
• Fixed Cost of Capital: Merchant Capital uses a fixed cost of capital, meaning you know exactly how much you’ll repay from the start, allowing for better financial planning.
• Flexible Repayments: You can choose from daily or weekly debit orders, or split-processing, which has no debit order fees, potentially saving your business over R10,000 in fees over a 12-month period.
• Use the Cash Freely: You can use the cash advance however you see fit, whether it’s for training, marketing, or purchasing new inventory.
• Fast Funding: The application process is quick and straightforward. If all the required information is provided, you could receive your cash advance within 48 hours.

The Bottom Line

While overdrafts can be useful when you’re low on cash, a merchant cash advance offers a flexible and fast alternative for business owners looking to grow. For fast funding to boost your business within 48 hours, contact Merchant Capital today.

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