Merchant Cash Advance vs Business Loan
MCA vs business loan in one line: a loan is borrowed money repaid with interest; an advance is a sale of future receivables repaid from your deposits.
A business loan is borrowed money repaid with interest, while a merchant cash advance is a sale of future receivables repaid from deposits, and a 1.30 factor repaid over 126 business days works out to about 109% APR. A loan fits when the business can qualify and wait for it; an advance fits when deposits are strong but credit, history or timing rule the loan out.
How does the MCA vs business loan comparison look side by side?
The two differ in what is being bought, how it's repaid and what gets read. The table sets them side by side.
| Feature | Merchant cash advance | Business loan (term financing) |
|---|---|---|
| What it's | A sale of future receivables | Borrowed money with interest |
| How it's repaid | A share of sales or a fixed daily or weekly payments | Set monthly or weekly payments |
| What sets the cost | Factor rate and fees on the purchase price | Interest rate and fees over the term |
| What gets read | Bank deposits, balances and open advances | Credit, time in business, financial statements, sometimes collateral |
| If sales drop | Some contracts allow reconciliation of the payment | Payments stay the same |
| Disclosure forms | Some states require a sales-based financing disclosure | Varies by bank and state |
When does each one fit?
A business loan fits when the business can qualify and wait for it. An advance fits when deposits are strong but credit, history or timing rule the loan out.
Signs a business loan is worth pursuing first
Steady profits, clean tax returns and good owner credit point to a loan. So does a need that pays back over years, such as a build-out.
When the bank says no or now
Banks often ask for more history or collateral. An advance reads deposits instead, so it can fit where a bank passes.
Short needs with a clear end
Stock that sells through or a repair that restarts sales fits a shorter advance. Paying for a long project with a short payments strains the account.
Using an advance while waiting on a loan
Some owners take an advance while a loan is in review. Check whether the loan terms allow an open advance first.
Comparing MCA vs business loan cost on the same basis
Loans state an interest rate; advances state a factor rate. To compare, work out the cost per dollar received for each. Our Factor rate and APR guide shows how.
FAQ
Which costs more, an advance or a business loan?
An advance usually costs more for the same amount. The loan's lower price comes with stricter approval. Compare cost per dollar received, not the rate labels.
Does each one affect credit the same way?
Each bank and each funder sets its own steps, and they differ. Ask each one how any credit review works, and whether payments are reported, before you sign.
What sets the timing for each?
Timing depends on the bank or funder and on the paperwork. Loans often ask for more documents. No timing is promised for either.
Can I get a business loan if I already have an advance?
Sometimes. Banks will see the open advance in your bank statements and may ask to pay it off. Read the advance contract's terms on new financing.
Is a merchant cash advance a type of loan?
It's written as a sale, not a loan. Courts have sometimes treated advances as loans because of their terms. A lawyer can say how that applies to one contract.
Next step
Owners who want to see advance offers can Apply now. Afterfirst is a merchant cash advance broker, not a funder, and it doesn't arrange business loans.
Call 877-FUND-654What do the two cost in dollars?
Example: a merchant cash advance of $50,000 at a 1.35 factor over 126 business days pays back $67,500, a cost of $17,500, at about $535.71 a day. Say a two-year term loan for $50,000 carried a 14% APR. Its payment would be about $2,400.64 a month, and total interest about $7,615. The advance costs more and is repaid faster; the loan takes longer to get and asks for more paperwork.
Questions owners ask about this
What sets the timing for each?
Banks need more documents and review steps, while an MCA review leans on bank statements.
Sources
- New York Financial Services Law section 803: New York's sales-based financing disclosure list, behind the advance side of the Disclosure forms row in the MCA vs business loan table.
- Missouri Revised Statutes section 427.300: Missouri's disclosure law, whose definitions name commercial loans, behind the loan side of that same row.
Cost, credit, speed and stacking
Cost
Credit
Speed
Stacking
Send one file.
See what fits.
Call 877-FUND-654 with questions.