Business term loan vs merchant cash advance
A term loan is the cheaper instrument and the right one whenever the file can carry it — fixed payments, a defined end date, and pricing quoted as an annual rate. A merchant cash advance funds in 24 to 72 hours and approves on deposits rather than credit, which is why it exists, but it is priced on a factor rate with no time dimension, so a short payback annualises steeply. Take the advance when speed or approval is the binding constraint, not when it merely feels easier.
Start an applicationSide by side
| Best for | Term Loan: Growth, expansion, refinancing — Merchant Cash Advance (MCA): Fast working capital, cash-flow-driven approval |
|---|---|
| Typical range | Term Loan: $25K – $2M — Merchant Cash Advance (MCA): $10K – $1M |
| Speed to funding | Term Loan: 7–20 days — Merchant Cash Advance (MCA): 24–72 hours |
| Cost | Term Loan: ~8–22% APR — Merchant Cash Advance (MCA): Factor 1.15–1.45 |
| Collateral | Term Loan: Sometimes — Merchant Cash Advance (MCA): Unsecured |
Choose Term Loan when
- The use of funds is a one-time investment with a clear return
- You can supply financials and wait 7 to 20 days
- You want a fixed payment and a known payoff date
- Predictable monthly cost matters more than speed
Choose Merchant Cash Advance (MCA) when
- Capital is needed within 72 hours and the opportunity closes before that
- Credit or filed financials will not clear a term-loan underwriter
- Revenue is seasonal and repayment tied to a share of deposits fits better than a fixed instalment
- The business is under two years old
When both make sense
A common and defensible sequence is an advance to solve the immediate problem, then a term loan twelve months later once the repayment history exists — refinancing the short-term obligation into cheaper, longer money.
Frequently asked questions
How do I compare a factor rate to an interest rate?
Convert both to total cost of capital: total repaid minus amount received. A factor rate has no time dimension, so the same 1.20 costs the same whether repaid over six months or twelve — meaning the effective annualised cost roughly doubles as the term halves. Comparing 1.20 to a 20% APR as if they were equivalent badly understates the advance.
Does a merchant cash advance hurt my chances of a term loan later?
Not by itself. What hurts is uncontrolled stacking — several overlapping advances that a future underwriter reads as distress. One advance, repaid cleanly, is often neutral or mildly positive as evidence of repayment behaviour.
Which approves more easily?
The advance, clearly. It is underwritten on deposit consistency rather than credit score or filed statements, which is why businesses under two years old or with bruised credit can access it when a term loan is out of reach.
Related
- Chartered bank term loan vs Business Line of Credit — A chartered bank term loan is cheaper and should be your first call if the business is bankable — two or more years of history, clean financials and strong credit.
- Invoice Factoring vs Merchant Cash Advance (MCA) — If the business invoices other businesses, factoring is almost always the cheaper answer — it advances money the business has already earned, priced from 1.5% per 30 days, and creates no debt.
- Equipment Financing vs Term Loan — If the money is going into a specific piece of equipment, finance the equipment.