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Merchant cash advance vs term loan
Compare a merchant cash advance with a business term loan: speed, qualification, payment frequency and the real yearly cost of each.
The short answer
A merchant cash advance funds fast and leans on your sales, not your credit, but its factor rate usually makes it far more expensive per year and its daily payments take cash out quickly. A term loan takes a little longer and asks more of your credit and financials, but spreads a lower cost over predictable payments. Use an advance only when speed or eligibility leaves no better option.
Side by side
| Feature | Merchant cash advance | Term loan |
|---|---|---|
| How the cost works | Fixed payback: advance × factor rate | Interest on a falling balance, plus any fees |
| Payments | Daily or weekly, or a share of card sales | Usually monthly, sometimes weekly |
| Time to funding | Often within days | Days to a few weeks |
| Qualification | Mostly sales volume; flexible on credit | Credit, time in business and cash flow |
| Typical length | A few months to about a year | One to five years |
| Paying early | Usually saves nothing unless a discount is offered | Often saves interest; check for a prepayment fee |
Choose merchant cash advance if…
- You need cash in days and can't wait for underwriting
- Your sales are steady but your credit is limited
- The use pays back quickly, such as inventory that sells fast
- You've confirmed the daily payment works in a slow week
Choose term loan if…
- You can wait one to three weeks
- You want a lower cost and predictable monthly payments
- Your credit and financials can support an application
- The money funds something that pays back over years
What it costs on the same amount
Borrowing $100,000. Illustrative terms only.
Merchant cash advance
Merchant cash advance at a 1.35 factor over 252 business days
- Payment
- $535.71 a business day
- Repaid over
- about 12 months (252 business days)
- Total cost (interest + fees)
- $37,000.00
- Yearly cost (APR)
- 67.7%
Term loan
Term loan at 18% for 2 years, 2% fee
- Payment
- $4,992.41 a month
- Repaid over
- 24 months
- Total cost (interest + fees)
- $21,817.84
- Yearly cost (APR)
- 20.1%
The term loan runs twice as long yet costs less in dollars, and its yearly rate is a fraction of the advance's.
Questions owners ask
Why is the advance's APR so high when the factor rate looks small?
A 1.35 factor means paying 35% more than you received — and repaying it within months, through daily payments that start right away. Spread over a short time, that adds up to a high yearly rate.
Can I refinance an advance with a term loan?
Sometimes. Some lenders will pay off an advance as part of a new loan if your cash flow supports it. Since most advances don't discount early payoff, compare the remaining payback with the new loan's full cost.
Does an advance affect my credit?
Approval often relies less on credit, but providers may still check it, and many file a lien on business assets. Ask what is filed and when it is released.
Terms on this page
APR (annual percentage rate)Factor rateMerchant cash advancePrepayment penaltyTerm loanUCC lien
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Comparisons and examples are for education only, use illustrative terms, and are not an offer or commitment to lend. Actual rates, fees and terms depend on each provider’s review. ScaleKit Financing is operated by Arch Ventures LLC and is not a lender.