|
Feature |
Merchant Cash Advance (MCA) |
Traditional Business Loan |
|
Repayment Structure |
Repay via a fixed percentage of daily/weekly card sales (flexible repayments) |
Fixed monthly repayments |
|
Eligibility |
Based on card sales volume and business trading history; less emphasis on credit score |
Based on credit score, business plan, collateral |
|
Collateral Required |
No |
Often required |
|
Approval Speed |
Fast-typically 24–72 hours |
Slower-can take days or weeks |
|
Cost Structure |
Fixed fee agreed upfront instead of interest; total repayment is known in advance |
Interest rate (usually lower); may include fees |
|
Loan Amount |
Tailored to your business based on card sales and turnover |
Based on creditworthiness and collateral |
|
Use of Funds |
Flexible-can be used for any business purpose |
Sometimes restricted by lender |
|
Impact on Cash Flow |
Lower when sales are slow, higher when sales are strong |
Fixed, regardless of sales |
|
Early Repayment |
Usually possible, but total repayment amount may not decrease |
Sometimes possible, may reduce interest paid |
Pros of Merchant Cash Advance:
- Flexible repayments that adjust with sales
- Quick approval and funding-often within days
- No collateral required
- Suitable for businesses with fluctuating income or those who may not qualify for traditional loans
Cons of Merchant Cash Advance:
- Higher overall cost due to factor rates
- Only available to businesses with sufficient card sales
- Not suitable for businesses with little or no card turnover
Pros of Traditional Business Loan:
- Lower interest rates and total cost (in most cases)
- Higher borrowing limits for established businesses
- Predictable repayment schedule
Cons of Traditional Business Loan:
- Slower approval process
- Strict eligibility requirements (credit score, collateral, business plan
- Fixed repayments may strain cash flow during slow periods
A Merchant Cash Advance is best for businesses needing fast, flexible funding and who process regular card sales, especially if they have variable revenue or don’t meet strict loan criteria. A traditional business loan may be more cost-effective for businesses with stable income and strong credit profiles who can wait for approval and manage fixed repayments.