ACH Loan or a Merchant Cash Advance? Understanding the Difference

Traditional business loans are becoming increasingly difficult to obtain. This has caused more business owners to consider alternative financing options to get funding for business growth. With multiple funding options to choose from, how do you know which would be best for your business? Two popular options for business funding are the ACH loan and the merchant cash advance. However, just because they are a popular choice, that doesn't necessarily mean either is the right choice for your business. To make a wise decision when choosing between these or any other alternative funding options, it's important to understand how they differ. Let's take a more in-depth look at each of these options to make the choice easier.

The ACH Loan

Although it is called a loan, an ACH loan is actually an advance on future revenue. ACH (Automated Clearing House) refers to the method of repayment. With an ACH loan, the business receiving funding will repay the lender via direct withdrawals from their business bank account.

These withdrawals are a set amount taken at specific intervals and will be monthly, weekly, or daily depending on the terms offered by the lender. Regardless of any fluctuations in your incoming revenue during the repayment period, your payments will remain the same. If your revenues should decrease during the repayment period, you could face a serious disruption in your cash flow.

ACH loans are designed for most types of business and can be a good option for short-term funding. When evaluating your application for ACH funding, lenders will be more interested in the average daily balance of your business checking account rather than your credit score.