Merchant Cash Advance vs Bank Loan: Your Questions Answered
Choosing between a merchant cash advance and a bank loan comes down to how fast you need funds, how strong your credit is, and how much you are willing to pay for speed and flexibility. Here are straight answers to the questions business owners ask us most.
Is a merchant cash advance a loan?
No. A merchant cash advance is the purchase of a portion of your business's future sales. You receive capital upfront, and repayment comes from a share of your revenue rather than a fixed loan payment. A bank loan is borrowed money repaid with interest on a fixed schedule.
Which is faster, a merchant cash advance or a bank loan?
A merchant cash advance is usually much faster. MCA funds can arrive in as little as 24 hours after signing, while a bank loan can take several weeks or longer because of more extensive underwriting and documentation.
Which costs more?
A merchant cash advance typically costs more than a bank loan. MCAs are priced using a factor rate rather than an interest rate, and the total cost depends on the amount, the factor rate, and how quickly the advance is repaid. If you qualify for a bank loan and can wait, it will usually be the less expensive option.
What is a factor rate?
A factor rate is a number, set by the funding partner, that is multiplied by the advance amount to show the total you will repay. Always ask for the total repayment amount so you can compare offers clearly.
Which is easier to qualify for?
A merchant cash advance is generally easier to qualify for. Approval is based mainly on your business's revenue and cash flow. Bank loans usually require strong personal and business credit, a longer time in business, financial statements, and often collateral.
Can I get a merchant cash advance with bad credit?
Often, yes. Because approval focuses on revenue, many businesses with lower credit scores can still qualify for a merchant cash advance. Credit is still reviewed, but it carries less weight than it does for a bank loan.
How is a merchant cash advance repaid?
Repayment is usually collected automatically as a percentage of daily or weekly sales, or as a fixed amount from your business bank account. Depending on the funding partner, payments can be daily or weekly, sometimes biweekly, and in a few cases monthly, although monthly is rare. Bank loans are typically repaid in fixed monthly installments over a set term.
Do I need collateral?
Most merchant cash advances do not require specific collateral such as property or equipment. Bank loans, especially larger ones, often do.
When does a bank loan make more sense?
A bank loan is usually the better choice when you have strong credit, several years in business, solid financial statements, and time to wait for approval. It tends to offer lower costs and longer repayment terms.
When does a merchant cash advance make more sense?
A merchant cash advance can make sense when you need funds quickly, your business has steady revenue, and you may not qualify for a bank loan or can't wait for one. Common uses include payroll, inventory, equipment repairs, and time-sensitive opportunities.
How does Fidelity Funding Group help?
Fidelity Funding Group is a business funding broker. We work with a network of funding partners to present options that fit your business, explain the full cost of each offer, and help you compare them. If a different type of funding is a better fit, we'll tell you.
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Fidelity Funding Group is a business funding broker and does not lend directly. Funding is provided by third-party funding partners and is subject to approval. Merchant cash advances are not loans.
