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Merchant Cash Advance vs Business Loan: What’s Best…

Merchant cash advances (MCAs) and business loans are both financing options that provide small businesses with working capital. While both can be beneficial for small businesses, there are tradeoffs in costs, terms, and qualifications that business owners should consider. For most borrowers, a business loan is best, but an MCA also has uses.

Merchant Cash Advance vs Business Loan

Business Loan

Merchant Cash Advance

How It Works

Advance based on revenue

Advance based on credit card receivables

APR Range

10% to 100%

35% to 150%

Loan Amount

Up to $500,000

Up to $500,000


Weekly or monthly, up to five years

Daily, up to 18 months


Fair credit accepted

Low credit accepted

Speed of Funding

One to five days

Two to five days


MCA vs Business Loan: How They Work

Merchant cash advances and business loans are both working capital loans. These financing options help businesses purchase equipment, expand operations, meet payroll, and deal with seasonal cash flow. Even though businesses can use both options for the same purposes, there are many differences between the two, including the cost of financing, repayment terms, and qualifications.

How Business Loans Work

Short-term business loans are a common financing option for working capital. A business loan works like a mortgage or auto loan. A lender offers the business a specific dollar amount for fixed, regular payments. Lenders amortize payments over the term of the loan and have interest rates ranging from 9% to 100%.

The repayment schedule on a business loan can be daily, weekly, or monthly. However, there’s always a fixed maturity date with a business loan, and borrowers must repay the loan in full by that maturity date. Loan amounts for business loans range from $5,000 to $500,000, and business owners can receive the funds in one day to one week.

How Merchant Cash Advances Work

A merchant cash advance is technically not a loan but an advance on future credit card sales. Merchant cash advance providers “purchase” future credit card receivables from a business at a discount and charge a factor rate in place of an interest rate. Factor rates range from 1.1 to 1.5 times of the amount advanced and represent the total cost of financing.

The MCA provider advances a lump-sum payment that borrowers repay with a percentage―called the holdback percentage―of daily credit card receipts. While the holdback percentage is fixed, the daily payments are variable, resulting in a variable repayment term. Because of the variability of the term length, between three and 18 months, the annual percentage rate (APR) ranges from 35% and 150%.

When to Consider an MCA or Business Loan

Business owners who can qualify for both a merchant cash advance and a business loan are usually better off with a business loan. For businesses with seasonal revenue and business owners with a low personal credit score, a merchant cash advance is the best option. Borrowers that require long repayment terms, stable payments, and a large loan amount are best served by a business loan.

When to Consider a Merchant Cash Advance

Merchant cash advances are an excellent choice for business owners who don’t want their credit report pulled, seasonal businesses, and online merchants. Because of the high cost of MCAs, business owners should evaluate merchant cash advance alternatives before they apply for funding. When a merchant cash advance is the only available option, borrowers should shop around for the lowest rates.

Scenarios when a business owner should consider a merchant cash advance include:

  • Borrowers unable to qualify elsewhere: Borrowers that get turned down for other financing products may have no other choice but to apply for a merchant cash advance. This funding is the last resort, and business owners should exhaust all other options first.
  • Seasonal businesses: Because of the repayment terms, a merchant cash advance is a good option for seasonal businesses. This is because the payment amount is less when a business is making less revenue and increases when the business makes more revenue.
  • Online merchants: Since businesses of this nature receive payment via credit card purchases, they will receive a high advance amount for part of their daily credit card receipts.

When to Consider a Business Loan

Businesses with a long operational history and good credit that need large amounts of capital and want a stable repayment term should consider a small business loan. The overall cost of business loans is lower than that of a merchant cash advance. Applicants that qualify for a small business loan should always consider this option first.

Scenarios when business owners should consider a business loan include:

  • Borrowers with good credit: Applicants with a credit score of 640 or higher and no recent bankruptcy or tax lien on their credit report are in a good position to get approved for a business loan.
  • Established and profitable businesses: Businesses with over one year of operations, consistent revenues, and profitable growth are more likely to qualify for business loans.
  • Businesses seeking large amounts of capital: The amount of money a merchant cash advance offers depends on credit card sales. Term loans like alternative business loans and Small Business Administration (SBA) loans have longer terms, lower rates, and provide more overall funding than merchant cash advances.
  • Business owners needing stable repayment terms: While some small business owners appreciate the flexibility of a merchant cash advance, the repayment schedule is variable. Business loans have predictable installment payments making budgeting easier.

Ellen Cunningham Marketing Manager at CardFellow

“Often, businesses that are struggling financially have been denied for loans and turn to cash advances hoping for a quick cash injection. Since cash advances typically have less restrictive qualifications, they’re easier to obtain. However, they often come with hefty fees and a daily repayment, tightening cash flow even more and leaving businesses in a worse position.”
—Ellen Cunningham, Marketing Manager, CardFellow

MCA vs Business Loan: Costs, Terms & Qualifications

Merchant cash advances and business loans have different costs associated with them. Business loans charge an interest rate on the remaining principal balance after borrowers make a payment. MCA providers charge a “factor rate”—a multiple of the advance amount—and collect a “holdback percentage,” both of which alter the effective APR on the advance. Some online business loans charge a fee on business loans, that works similar to a factor rate.

Merchant Cash Advance vs Business Loan Costs

Merchant Cash Advance

Business Loan

APR Range

35% to 180%

10% to 100%

Application Fee



Origination Fee

Up to 5%

Up to 5%

Prepayment Benefit



The costs of a merchant cash advance are higher overall than a business loan. This is because the minimum requirements of a merchant cash advance are lower, and it has less predictable repayment terms. Business loans also sometimes offer business owners the opportunity to save on interest by repaying the loan early; however, this is rarely the case with a merchant cash advance.

Merchant Cash Advance Costs

A merchant cash advance is unique in how borrowers assess the cost of capital. An MCA provider charges the borrower a “factor rate,” in place of interest. The factor rate, multiplied by the amount of the advance, is the total amount a borrower has to repay.

For example, a business loan with a factor rate of 1.2 must repay the advance plus an additional 20%. A business that borrows $100,000, with a 1.2x factor rate must repay $120,000. The fluctuating payments cause the APR of a merchant cash advance to range from 35% to 150%—potentially costing much more than business owners initially expect.

Business Loan Costs

Business loans have an interest rate ranging from 9% to 100%. While prime borrowers can sometimes receive rates as low as 9%, standard borrowers should expect offers closer to 40%. Most business loans also have origination fees up to 5% and may include prepayment penalties.

The stable payments that business loans offer make the APR much more predictable. These aides business owners in planning expenses, managing cash flow, and estimating their cost of financing when making a borrowing decision. Business owners that can qualify for both financing options will always pay less for a business loan than a merchant cash advance.

Merchant Cash Advance vs Business Loan: Qualifications

Merchant Cash Advance

Business Loan

Credit Score

At least 500

At least 500

Time in Business

At least six months

At least one year

Annual Business Revenue

At least $50,000

 At least $100,000

The qualifications for merchant cash advances and business loans are different. MCA providers focus credit card sales as the primary qualification while business loans evaluate total revenue. Most merchant cash advances have lower minimum qualifications than business loans because the lenders collect payments directly from receivables, effectively collateralizing the loan.

Merchant Cash Advance Qualifications

Merchant cash advance lenders focus primarily on a company’s credit card sales. This is because lenders base the size of the advance on a company’s annual credit card sales, and repayment comes from a percentage of the company’s daily credit card receipts. Although many merchant cash advance lenders have low credit score requirements, most do consider creditworthiness as a factor.

To receive a merchant cash advance, borrowers must have an account with an approved credit card processor. Depending on the MCA provider and its agreements, business owners may need to change credit card processing providers. The minimum requirements for time in business and creditworthiness for a merchant cash advance are lower than a business loan.

Business Loan Qualifications

Lenders consider personal credit, annual revenue, and time in business together when evaluating a borrower. Business owners can find business loans for bad credit as long as their annual revenue and time in business is high enough. The same is true for startup business loans, which have lower time in business requirements, but look for high personal credit scores.

The funding process for business loans is also different and includes a credit check. Borrowers can improve their chances of qualifying by improving their credit score and submitting an application when revenue is growing. However, the overall requirements for a business loan are higher, and business owners may need to apply with several lenders before receiving approval.

Merchant Cash Advance vs Business Loan: Terms

Merchant Cash Advance

Business Loan

Loan Amount

Up to $500,000

Up to $500,000

Repayment Term

Up to 18 months

Up to five years

Repayment Schedule


Weekly or monthly

Blanket UCC Filing



Personal Guarantee



The terms of a merchant cash advance and a business loan are a large differentiating factor. Aside from the required blanket Uniform Commercial Code (UCC) filing and personal guarantee, these loans have little in common. Business loans offer longer repayment terms and less frequent payments than merchant cash advances. Although the loan amounts are similar, a merchant cash advance will provide less funding than a business loan to the same applicant.

Merchant Cash Advance Terms

A merchant cash advance can offer a large amount of funding to small business owners with high credit card receivables. However, because a business loan depends on revenue, qualifying for larger loans is easier for most businesses. The largest drawback of a merchant cash advance is the daily payments, which lenders deduct directly from receivables.

Business Loan Terms

Business loan terms are more flexible and offer small business owners options with long terms and weekly or monthly payments. Qualifying for a larger loan is simple, and business owners have the flexibility to manage cash flows on their own when making loan payments. Also, although the funding speeds are similar, fast business loans are available and can provide business owners with funding the same day they apply.

Merchant Cash Advance vs Business Loan: Funding Speed

Merchant Cash Advance

Business Loan

Time to Apply

As quick as 10 minutes

As quick as 10 minutes

Earliest Approval Decision

Same day

Next day

Fastest Funding Speed

Same day to three days

Next day to four weeks

Both MCAs and business loans offer fast funding compared to other small business financing options, such as traditional bank loans. Lenders can approve and fund business loans and merchant cash advances within a week and, for both financing options, lenders deposit funds directly into the business’ bank account.

Merchant Cash Advance Funding Speed

There are many merchant cash advance providers, and not all have the same fees and costs of capital. Because MCAs have the potential to have a high repayment amount applying with multiple lenders is important. Most merchant cash advance providers have an online application which business owners can complete in 10 minutes.

Business Loan Application Funding Speed

When looking for a lender for a business loan, business owners have multiple financing solutions and lenders to choose from. Every lender makes a trade-off, offering higher loan amounts, faster funding, and easier requirements. Selecting the best lender is a difficult process, and enlisting the help of a business loan broker is a good place to start. Business owners that decide to apply for term loans can expect slower funding speeds but longer repayment terms and shorter rates.

Merchant Cash Advance vs Business Loan: Providers

Merchant Cash Advance Providers: National Funding & Alternatives

Business owners have been working with National Funding for more than 20 years to get equipment financing, business loans, and merchant cash advances. It offers funding to businesses with one year of operations and monthly credit card receivables of $3,000. Applicants can qualify to borrow up to $250,000 with funding available in as quick as one business day.

Alternative merchant cash advance providers include:

  • Credibly: Best for high revenue businesses with at least $15,000 in monthly revenue. Funding is available up to $250,000 with daily payments and an approval decision as soon as the same day.
  • Fora Financial: Best for newer businesses with at least $10,000 in monthly revenue. It requires three months in business and offers up to $500,000 in funding as soon as the next business day.

Short-term Business Loan Provider: BlueVine & Alternatives

BlueVine offers business owners a business loan the same day they apply to borrow up to $250,000. It requires six months in business and personal credit score of at least 600 for business owners to qualify. Rates start at 4.8%, and repayment terms last up to one year with weekly payments. Besides a short-term business loan, BlueVine also offers a line of credit and invoice factoring.

Alternative business loan providers include:

  • OnDeck: Best for established businesses and business owners with stellar credit. OnDeck offers starting rates of 9% for prime borrowers and funding up to $500,000. Applicants can qualify for repayment terms up to three years and receive funding the next business day.
  • Fundbox: Best for new businesses with outstanding customer invoices. Fundbox offers revolving credit up to $100,000 based on account receivables and has low starting rates of 4.66%. It offers businesses with six months of operations and $50,000 or more in revenue funding the same day, with no minimum credit score requirement.

Merchant Cash Advance vs Business Loan: Example

Business owners get a merchant cash advance or a business loan because of their circumstances and funding needs. Businesses with inconsistent revenue because of seasonality and high credit card receipts are more likely to qualify and use a merchant cash advance. Companies with predictable revenue can save money with a business loan instead and further reduce their costs by paying the loan off early.

Merchant Cash Advance Example: Seasonal Restaurant

A pizza oven breaks down in a seasonal restaurant, and the owner needs it to operate the business and make money. The business owner accepts credit card payments but has a low credit score and inconsistent revenue. Instead of committing for a business loan, the business owner opts to apply for a merchant cash advance.

A merchant cash advance is more expensive and offers less funding, but it’s easier to get approved. The business owner also doesn’t worry that weekly revenue is inconsistent since the lender takes payments out of credit card receipts. The restaurant owner replaces the oven, reopens the business, and over the following months repays the advance even though weekly earnings fluctuate.

Business Loan Example: Corporate Catering Business

A catering business with stable revenues and several corporate clients requires financing to purchase new equipment and hire more staff. Although the catering business takes credit card payments, the business owner prefers stable repayment terms because the business generates predictable earnings.

The business owner qualifies for the business loan and invests the money into new equipment and additional staff. The business owner repays the loan with regular monthly payments over several months and, because the expansion is successful, the catering business pays the loan back three months early. The business owner receives a discount on interest, saves money in the process, and the business is now growing.

Bottom Line

Business owners that run a seasonal business or have a high volume of credit card transactions can consider a merchant cash advance. Businesses with stable revenues, solid operational history, and a good credit score are better off with a business loan. Overall, a business loan is more cost-effective and easier to manage than a merchant cash advance.

BlueVine offers term loans up to $250,000 with repayment terms of six or 12 months. There are no origination or additional fees, and rates start at 4.8%. Business owners can prequalify online in minutes and receive funds within 2 hours.

Visit BlueVine

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