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.

Our top pick: National Business Capital Business Loans

  • Min. Loan Amount: $10,000
  • Max. Loan Amount: $5,000,000
  • Requirements: Your company must have been in business for at least 6 months and have an annual revenue of at least $100,000.
  • Approvals within 24 hours
  • No industry restrictions
  • High approval rate
  • Startup financing options

Our top pick: National Business Capital Business Loans

Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.

  • Min. Loan Amount: $10,000
  • Max. Loan Amount: $5,000,000
  • Requirements: Your company must have been in business for at least 6 months and have an annual revenue of at least $100,000.
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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 October 16th, 2019
Name Product Filter Values Min. Amount Max. Amount Requirements
$5,000
$500,000
Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
Customizable loans with no origination fee for business owners in a hurry.
$5,000
$250,000
6+ months in business, $100,000+ annual revenue, 600+ credit score, not based in North Dakota or South Dakota
Get a predictable business loan with a fixed weekly rate.
$50,000
$1,000,000
2+ years in business, 620+ credit score, not a sole proprietorship or nonprofit, strong financial history
Financing for high-risk industries with transparent rates and terms.
$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.
$10,000
$5,000,000
Your company must have been in business for at least 6 months and have an annual revenue of at least $100,000.
Get a large business loan to cover your financing needs, no matter what the purpose is. Startups welcome with 680+ credit score.
$500
$250,000
1+ years in business, $50,000+ annual revenue or $4,200+ monthly revenue over last 3 months
A simple, convenient online application could securely get the funds you need to grow your business.
Varies by lender and type of financing
Varies by lender and type of financing
Varies by lender, but many require good personal credit, minimum annual revenue and minimum time in business
Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
$5,000
$1,000,000
1+ years in business, $10,000+ monthly revenue
Apply online and get approved within hours with minimal paperwork. Multiple financing options available.
$500
$5,000,000
Must operate a business in the US or Canada, have a business bank account and have a personal credit score of 560+.
Submit one simple application to potentially get offers from a network of over 75 legit business lenders.
$500
$100,000
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.

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

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    Frequently asked questions

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