Give us a call for more info 1-800-210-5649
Skip to content

Choosing a Merchant Cash Advance Over a Business Loan

As of 2016, there were 28.8 million small businesses in the US, which represented 99.7% of US businesses. Only about 24.1% of small business loans were approved by big banks, and smaller banks approved about 48.9%. Alternative lenders approved 58.2% of loan requests.

In less than 20 years, the merchant cash advance (MCA) industry has gone from $0 to $10.7 billion by 2015, and is expected to account for $15.3 billion in 2017.

Are you faced with the problem of whether you should take out a business loan or a merchant cash advance? Below you can find some important information regarding these types of business funding that will help you make the right decision.

Business Loan Vs Merchant Cash Advance

A business loan is intended for business purposes. It’s a debt that you’ll be obliged pay off, according to the loan’s terms and conditions. Business loans have traditionally been a popular source of commercial finance.

A merchant cash advance (MCA) is not a loan. It’s an advance based on your future revenues or credit card sales: you simply agree the amount upfront and the percentage that will be taken from your sales.

Business Loan Characteristics

  • Lump sum loan in return for fixed monthly payments
  • More affordable as compared to merchant cash advances: interest rates are usually in single figures
  • Fixed monthly repayments, which facilitates budgeting and forecast
  • Exact date for the final repayment and when you’ll have extra cash on hand
  • Mostly offers early repayment, which will help you save enough amounts of interest (don’t forget to ask about early payment penalties)
  • Requires a reasonably good credit score to be eligible (banks are much more exacting than alternative lenders)

Merchant Cash Advance Characteristics

  • Lump sum advance in return for a percentage of daily credit card sales
  • Amount varies based on a percentage of daily credit card sales
  • Doesn’t require excellent credit scores, so poor credit histories or weak track records can be eligible
  • Repayment based on sales: doesn’t require repaying the same amount whether sales are good or bad
  • No fixed schedule to pay the debt
  • Expensive way to borrow

If you need short-term business funding, both a merchant cash advance and a business loan are good options to try. However, you should weigh both the pros and cons offered by business loans and MCAs so to figure out which one is more suited for you.

Be aware that with a reputable alternative online lender like, you can get a merchant cash advance with the lowest possible rates and the best terms in the industry. First American Merchant is an award-winning business funding provider and processor that serves both traditional high risk businesses. Poor credit scores and no credit histories aren’t a problem for FAM.

For seasonal businesses or those that have a high volume of credit card transactions, a merchant cash advance can be the right option to choose. Businesses with stable revenues that accept cash and checks, can go with a business loan.

Business loans are generally much more affordable as compared to merchant cash advances. However, if you have poor credit, you won’t be able to secure a business loan, so an MCA could be the solution you need.