Business loan vs merchant cash advance | Which offers better value?

Compare business loans vs. merchant cash advances

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Here’s how to sort the benefits and drawbacks of two business common financing options.

If you’re a business owner and looking for access to capital, you may have come across business loans or merchant cash advances. But what exactly are they — and how are they different?

These two financing options vary widely in their requirements, interest rates and repayment options. Before you commit to a decision, learn more about the fundamental differences that separate a business loan from a merchant cash advance.

OnDeck Small Business Loans

OnDeck Small Business Loans

Among the largest online business lenders offering term loans and lines of credit at competitive fixed rates.

  • Minimum Amount: $5,000
  • Maximum Amount: 500000
  • Loan Term: 3 to 36 months
  • Simple online application process with fast decisions
  • Dedicated loan specialists and loyalty benefits
  • Must have been in business for at least one year with annual revenue of $100,000+
  • Must have a personal credit score of 500+

    How do business loans differ from merchant cash advances?

    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.

    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 APRs for this type of financing can be high.

    Business loanMerchant cash advance
    Maximum amountsUp to $5 millionUp to $2.5 million
    Interest ratesAs low as 6%As low as 20%
    Repayment termsDaily, weekly or monthly payments with interest until the loan maturity dateDaily holdback of credit card receipts until advance is paid in full
    Collateral requiredDepends on the loanNone

    Compare business loans from top online lenders

    Rates last updated July 20th, 2018
    Unfortunately, none of the business loan providers currently offer loans for these criteria.
    Name Product Product Description Min Loan Amount Max. Loan Amount Requirements
    LoanBuilder, A PayPal Service Business Loans
    Customizable loans with no origination fee for business owners in a hurry.
    Annual business revenue of at least $42,000, at least 9 months in business, personal credit score of 550+.
    LendingClub Business Loans
    With loan terms that vary from 1 to 5 years, enjoy fixed monthly payments and no prepayment penalties through this award-winning lender.
    2+ years in business; $50,000+ in yearly sales; No bankruptcies or tax liens; At least 20% ownership of your business; Fair or better personal credit
    OnDeck Small Business Loans
    A leading online business lender offering flexible financing at competitive fixed rates.
    Must have been in business for at least one year with annual revenue of $100K+. Must have a personal credit score of 500+.
    Kabbage Small Business Line of Credit
    A simple, convenient online application could securely get the funds you need to grow your business.
    Must have been in business for at least 1 year. Revenue minimum is $50,000 annually or $4,200 per month over the last 3 months.
    Lending Express Business Loan Marketplace
    At least 3 months in business and $10,000+ in monthly revenue. Your business might also qualify if it's been in business at least 6 months with $3,000+ in monthly revenue.
    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.
    Your company must have been in business for at least 6 months and have an annual revenue of at least $180,000. Business Loan Marketplace
    Get connected with wide range of loan amounts and multiple loan types from reputable lenders.
    Must have good credit and at least 6 months in business.
    Fora Financial Business Loans
    No minimum credit score requirement and early repayment discounts for qualifying borrowers.
    Business age 6+ months. Monthly revenue $12,000+. No open bankruptcies.
    Excel Capital Management Small Business Loans
    Get personalized financing options that suit your unique business needs in just a few simple steps.
    Varies by loan type
    Varies by loan type
    Your business must operate in the US, be at least 1 year old and have monthly revenue of $15,000+.
    Balboa Capital Small Business Loan
    Short-term business financing with no minimum credit score or physical paperwork required.
    Must make $300,000 in annual revenue and be established for at least one year prior.
    LendingTree Business Loans
    Multiple business financing options in one place including: small business loans, lines of credit, SBA loans, equipment financing and more.
    Varies by lender and type of financing
    Varies by lender and type of financing
    Varies by lender, but you many require good personal credit, a minimum business age and minimum annual revenue.

    Compare up to 4 providers

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

    Business loanMerchant cash advance
    Multiple loan options. Several types of business loans are available, such as SBA loans and balloon payment loans.No collateral required. Lenders use your business’s credit card sales history to assess your financial viability.
    Competitive interest rates. Depending on the lender and size of your loan, interest rates can be as low as 6%.Easy application process. Fewer documents are typically required to apply, with lenders primarily interested in financial statements and business tax returns.
    Flexible payment options. A wide range of loan terms can result in more flexible repayment options.Fast access to capital. Funding is often available within one week of submitting your application.

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

    Business loanMerchant cash advance
    Lengthy application process. Required documentation for this type of loan is extensive, and your application could take several days to weeks to process.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.
    Required collateral. Secured business loans require you to identify an asset to back the loan against default, such as business inventory or real estate.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.
    Strong 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.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?

    A business loan could be good for you if:

    A merchant cash advance could be more helpful if:

    • 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

    Financing options for business owners can be confusing, what with so many options. 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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    Frequently asked questions about business loans and merchant cash advances

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