MCA vs. Term Loans: Compare Business Funding
MCA vs. business term loans — compare speed, cost, and repayment structure for the two most common alternative lending products.
Merchant Cash Advance: A merchant cash advance delivers a lump-sum advance against your future credit card or daily revenue, repaid as a fixed percentage of daily sales. Business Term Loan: A business term loan delivers a fixed lump sum repaid over a set schedule with predictable monthly payments — the classic business funding structure.
Merchant Cash Advance vs. Business Term Loan — side by side
| Merchant Cash Advance | Business Term Loan | |
|---|---|---|
| Typical amount | $5,000 – $500,000 | $25,000 – $2,000,000 |
| Typical term | 3 – 18 months | 1 – 10 years |
| Rate | 1.10 – 1.50 factor rate | 7% – 30% APR |
| Minimum time in business | 6 months | 1 year |
| Minimum credit score | 500+ | 600+ |
Which is right for your business?
- Merchant Cash Advance tends to fit best when you need inventory purchases or payroll gaps.
- Business Term Loan tends to fit best when you need expansion or equipment.
Frequently asked questions
Is an MCA a loan?
Technically no — an MCA is a purchase of future receivables, not a loan, which means it is generally not subject to state usury laws. Functionally it operates like a short-term loan: you receive a lump sum and repay it from business revenue over a defined estimated period.
Which option has lower total cost?
Business term loans almost always have lower total cost than MCAs. An MCA with a 1.35 factor rate on $100K means you repay $135K regardless of timing. A term loan at 20% APR repaid over 18 months costs about $115K total — a $20K difference on the same amount.
