Merchant Cash Advance vs Term Loan: Honest Comparison
Merchant Cash Advance
An advance against future credit card or debit card sales, repaid via a daily or weekly percentage of revenue. Not technically a loan — it is a purchase of future receivables.
Term Loan
A traditional lump-sum business loan repaid in fixed monthly installments over a set term with a stated interest rate.
Side-by-Side Comparison
| Feature | Merchant Cash Advance | Term Loan |
|---|---|---|
| Interest Rates / Factor Rate | 1.1–1.5 factor rate (20%–150% APR equiv.) | 7%–30% APR |
| Approval Speed | 24–48 hours | 1–14 days |
| Term Length | 3–18 months | 1–10 years |
| Collateral Required | None — based on future sales | Often required for larger amounts |
| Minimum Credit Score | 500+ (some have no minimum) | 600–680+ |
| Minimum Revenue | $5K–$10K monthly card sales | $50K–$250K annual revenue |
| Funding Time | 1–3 business days | 1–7 business days |
| Flexibility | Payments scale with revenue | Fixed payments regardless of revenue |
| Total Cost of Capital | Very high — often 2x–3x a term loan | Moderate to low |
| Best Business Stage | Businesses with strong card sales but poor credit | Businesses with stable revenue and fair-to-good credit |
Our Verdict
A merchant cash advance should be a last resort, not a first choice. The convenience and speed come at an enormous cost — a $50,000 MCA with a 1.4 factor rate costs $70,000 to repay, while a term loan at 15% over 3 years costs roughly $62,300. Always explore term loan options first at /apply before considering an MCA.
Best For
Merchant Cash Advance
Businesses with poor credit, high card transaction volume, and an urgent need that cannot wait for conventional loan processing. Restaurants, retail stores, and e-commerce businesses use MCAs when no other option exists.
Term Loan
Any business that qualifies. Term loans are cheaper, more transparent, and regulated. If your credit score is above 600 and you can wait a few days, a term loan saves you significant money.
Frequently Asked Questions
Why are merchant cash advances so expensive?
MCAs carry high factor rates because they accept high-risk borrowers with low credit scores and short operating histories. There is also less regulation around MCAs compared to traditional loans, which allows providers to charge more. The daily repayment structure adds effective cost because you lose access to capital faster.
Can an MCA hurt my credit score?
Most MCA providers do not report to credit bureaus, so on-time repayment will not build your credit. However, defaulting on an MCA can result in collections activity and legal action, both of which can damage your credit. Some providers place UCC liens on your business assets.
Is there a way to get out of an MCA early?
Unlike loans, most MCAs do not offer early payoff discounts — you owe the full purchase price regardless of when you pay. Some providers offer modest discounts for early repayment, but this must be negotiated before signing. Always ask about early payoff terms upfront.
Are merchant cash advances regulated?
MCAs are largely unregulated because they are structured as commercial transactions, not loans. This means Truth in Lending Act (TILA) disclosures do not apply. Several states are introducing disclosure requirements, but protections remain limited compared to traditional lending.
How do I convert from an MCA to a term loan?
First, pay down the MCA balance as quickly as possible. Once your daily remittance obligation drops, your cash flow improves and you become more attractive to term lenders. Apply through Brevo Capital and we can help identify lenders willing to refinance MCA debt into a structured term loan.
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