Small Business Loans vs. Merchant Cash Advances

Loans for the small business and merchant cash advances help small businesses stay competitive. But they’re different instruments. You should understand what you’re dealing with when it comes to small business loans versus merchant cash advances.

Loans for Small Business

SBAs are financial instruments guaranteed by the U.S. Small Business Administration. They’re distributed by banks under the government’s guarantee. This security allows SBAs to be flexible with terms and interest rates.

Merchant Cash Advances

An MCA is a cash advance given to a business. Only, it’s not a loan. The company issuing the advance is buying a portion of the small business’s future sales.

Differences Between the Two


The company takes a percentage of daily credit or debit card deposits. funds are directly withdrawn from business accounts on a fixed schedule. There is a shorter repayment period compared to SBAs.

The transaction doesn’t involve a traditional interest rate. It uses a factor rate. This is a figure reflecting the total amount for repayment. It’s a rate calculated by assessing potential risks of providing the advance. Business type, financial history, years operating and card sales all play a part.


SBAs are structured like other business loans. Only they’re designed to support smaller operations that lack the infrastructure of larger competitors. These loans take longer to get than MCAs. SBAs have interest rates and all other fees associated with loans. SBAs have several programs: 7(a) [the flagship loan], 504 loan and microloans. Each has unique characteristics, such as the microloan being for funding inventory, supplies, equipment and machinery. There is also a SBA disaster loan.

Choosing the One For Your Small Business

To start with the biggest difference, MCAs are not loans governed by bank or federal regulations. This means they have little oversight. The borrower has to research options to ensure they team with the right company.

Small business loans are repaid in regular installments with interest. SBAs repayments can be set up over years. MCAs have very short repayment terms, usually three to six months. MCAs provide quicker handouts on cash. SBAs have stricter guidelines for approval so the process is longer. SBAs may ask for collateral while an MCA won’t.

SBAs come with variable or fixed interest rates and those vary based on borrower and type. Still, the SBA interest rate is likely to be lower than the factor rate on the MCA. APRs are also typically lower on SBAs.

SBAs are the affordable option. But MCAs promise a quick turnaround. Funds you need now can be in your account in 24 hours.

SBA and personal loans expert Lantern Credit has said, “If you own a small business, maintaining cash flow and covering essential expenses can be challenging at times. If you have limited options and need quick funding, you may consider a merchant cash advance.”

So if you’re finding yourself short on supplies or subject to unexpected expenses, look at a MCA. If your intent is to grow and sustain operations, small business loans are the feasible option.