Compare business loans vs. merchant cash advances

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.

How to compare two common business financing options.

If you’re a business owner and looking for access to capital, you may have come across business loans and merchant cash advances. While each can help your business, they vary widely in which businesses qualify, the interest rate charged and how they’re repaid.

Quick snapshot: Business loan vs. merchant cash advance

Business loanMerchant cash advance
Maximum amountUp to $5 millionUp to $2.5 million
Interest rateAs low as 6%As low as 20%
Repayment termsMonthly payments, though exact terms vary by lenderDaily holdback of credit card receipts until advance is paid in full
Collateral requiredDepends on the loanNone

How do business loans differ from merchant cash advances?

Business loans

A business loan is a fixed amount of capital offered by a lender in return for predictable, fixed monthly payments. Business loans come with fixed maturity dates that indicate when your loan must be repaid in full. They can be secured or unsecured, and you have multiple options when it comes to how you use your loan funds.

Merchant cash advances

A merchant cash advance is a lump-sum advance of a business’s credit card receipts. Capital is provided upfront by the provider in exchange for a percentage of daily credit card receipts — called the holdback. There is no fixed due date for repaying the advance, but interest for merchant cash advances can be high.

Compare business loans from top online lenders

Updated April 7th, 2020
Name Product Filter Values Min. Amount Max. Amount Requirements
Lendio
$500
$5,000,000
Operate a business in the US or Canada, have a business bank account and have a personal credit score of 675+.
Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
OnDeck
$5,000
$500,000
600+ personal credit score, 1+ years in business, $100,000+ annual revenue
A leading online business lender offering flexible financing at competitive fixed rates.
SmartBiz
$30,000
$5,000,000
650+ personal credit score, US citizen or permanent resident, 2+ years in business, $50,000+ annual revenue, no outstanding tax liens, no bankruptcies or foreclosures in past 3 years
Get funding for your small business with a government-backed loan and extended repayment terms.
loading

Compare up to 4 providers

What are the benefits of business loans and merchant cash advances?

    • .

Business loans

      • Multiple loan options. Several types of business loans are available, such as SBA loans and balloon payment loans.
      • Competitive interest rates. Depending on the lender and size of your loan, interest rates can be as low as 6%.
      • Flexible payment options. A wide range of loan terms can results in more flexible repayment options.

Merchant cash advances

      • No collateral required. Lenders use your business’s credit card sales history to assess your financial viability.
      • Easy application process. Fewer documents are typically required to apply. Lenders are primarily interested in financial statements and business tax returns.
      • Fast access to capital. Funding is often available within a week after submitting your application.

What are the drawbacks of business loans and merchant cash advances?

Business loans

      • Lengthy application process. The required documentation for a term loan is extensive, and your application could take several days or weeks to process.
      • Collateral required. Secured business loans require you to identify an asset to back the loan against default, such as business inventory or real estate.
      • Good to excellent credit required. To qualify for the best rates, you’ll typically need a personal credit score of 700 or higher and a business credit score of 75 or greater.

Merchant cash advances

      • Expensive rates. Factor rates — the interest you agree to pay on the advance — can be quite expensive, with some rates as high as 40% of the amount advanced.
      • Unregulated lenders. Merchant cash advances aren’t loans, which means they’re not regulated by the lending laws that govern business loans. This can lead to predatory lending practices.
      • Forced commitment to credit card processor. Many merchant cash advances prohibit you from changing credit card processors after your advance is made.

Which borrowing option is better suited for me?

Business loans

Merchant cash advances

      • You need access to fast capital.
      • You have poor credit history but consistently process a large volume of credit card transactions.
      • You want to take advantage of a time-sensitive business opportunity, such as the purchase of discounted inventory.

Bottom line

Both business loans and merchant cash advances offer opportunities to increase your business capital, but application processes and interest rates can vary widely by lender.

If it’s more important that you get a competitive rate and predictable payments,look into a business loan. If you need quick access to capital and process a lot of credit card transactions, a merchant cash advance could get you over a financial hurdle.

Carefully assess your business’s needs before deciding on a financing option, and make sure that you understand the terms of your loan or advance before you sign any agreement.

Compare business loans to more financing options

Business loan vs. Line of credit
Business loan vs. Business credit card
Business loan vs. Angel investor
Business loan vs. Personal loan
Business loan vs. Home equity loan

Frequently asked questions

Ask an Expert

You are about to post a question on finder.com:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder.com provides guides and information on a range of products and services. Because our content is not financial advice, we suggest talking with a professional before you make any decision.

By submitting your comment or question, you agree to our Privacy and Cookies Policy and Terms of Use.

Questions and responses on finder.com are not provided, paid for or otherwise endorsed by any bank or brand. These banks and brands are not responsible for ensuring that comments are answered or accurate.
Go to site