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A merchant cash advance is a business funding option that is repaid through a percentage of future sales along with a fee. The key distinction between a merchant cash advance and a traditional loan is that the advance charges all interest on the total amount upfront, whereas a loan applies interest throughout its repayment term until it is fully paid off. With a merchant cash advance, you receive clarity on your total repayment amount immediately, allowing you to plan accordingly while ensuring your cash flow remains robust.

One of the significant benefits of a merchant cash advance is that it typically does not require a personal guarantee. While this may pose a higher risk for lenders, it can be advantageous for the borrower, as it minimizes personal liability. Generally, merchant cash advances do not have a specific interest rate or defined payment schedule. Instead, the merchant agrees to sell a fixed percentage of their future cash receivables in exchange for a predetermined repayment amount.

Working capital refers to the funds that a business requires to manage its day-to-day operations and cover short-term liabilities. It is calculated by subtracting current liabilities from current assets and is a crucial indicator of a company's financial health. Positive working capital ensures that a business can meet its operational expenses, such as payroll and inventory costs, while also providing the liquidity needed for unforeseen expenses or opportunities. For businesses seeking loans, understanding their working capital is essential, as it demonstrates their ability to manage cash flow and repay borrowed funds efficiently.