Compare business loans vs. merchant cash advances

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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

Data indicated here is updated regularly
Name Product Filter Values Loan amount APR Requirements
First Down Funding business loans
$5,000 – $300,000
Fee Based
At least 1 year in business, an annual revenue of $100,000+, and a minimum credit score of 400
Alternative financing up to $300K with highly competitive rates.
Lendio business loans
$500 – $5,000,000
Starting at 6%
Operate business in US or Canada, have a business bank account, 560+ personal credit score
Submit one simple application to potentially get offers from a network of over 300 legit business lenders.
ROK Financial business loans
$10,000 – $5,000,000
Varies
Eligibility criteria 3+ months in business, $15,000+ in monthly gross sales or $180,000+ in annual sales
A connection service for all types of businesses — even startups.
OnDeck small business loans
$5,000 – $250,000
As low as 9.99%
600+ personal credit score, 1 year in business, $100,000+ annual revenue
A leading online business lender offering flexible financing at competitive fixed rates.
Rapid Finance small business loans
$5,000 – $1,000,000
Fee based
Steady flow of credit card sales, bad credit OK
Fundbox business loans
$1,000 – $100,000
4.99
You must have an established business.
Get flat rate, short-term financing based on the financial health of your business, not your credit score.
Kickpay e-commerce business loans
$20,000 – $1,000,000
Not applicable
At least $250,000 in the past 12 months of revenue, e-commerce business, use a 3rd party fulfillment center for storing and shipping inventory, at least one US location.
Get a loan for your e-commerce business based on your sales history.
Fundera business loans
$2,500 – $5,000,000
7% to 30%
$300,000+ of annual revenue, 680+ personal credit score, in business for 3+ years
Get connected with short-term funding, SBA loans, lines of credit and more.
LendingClub business loans
$5,000 – $500,000
12.15% to 29.97%
12+ months in business, $50,000+ in annual sales, no bankruptcies or tax liens, at least 20% ownership of the business, fair personal credit score or better
With loan terms that vary from 12 to 60 months, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
Monevo business loans
$500 – $100,000
3.99% to 35.99%
Credit score of 500+, legal US resident and ages 18+.
Use this connection service to get paired with a loan you can use for business.
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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.

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