Differences Between a Business Loan and a Merchant Cash Advance

Differences Between a Business Loan and a Merchant Cash Advance

When you want to grow your company, you need access to capital. Fortunately, there are many options; for example, business loans and merchant cash advances. Of course, each has its benefits and drawbacks.


Most business loans have a set payment schedule that bills each month. Often, the payment is fixed, but some loans, such as lines of credit, have a payment amount that varies based on how much you’ve used.

A merchant cash advance is more flexible. Payment amounts are impacted by your credit card sales: The more you make, the more you’re expected to pay. Additionally, this type of financing is repaid daily rather than monthly.


Lenders usually have rigorous requirements for business loans. This makes them more difficult to get if you’re a startup or small business.

Merchant cash advances, on the other hand, aren’t dependent on your credit history. Rather, approval is determined by your credit card sales. This means companies that have been turned down for traditional loans may still qualify for a cash advance.


Many business loans require collateral. If you default on your payments, the lender has the legal right to take your collateral as recompense.

A cash advance, on the other hand, doesn’t require any collateral. This means no risk to your assets.


Business loans can be short- or long-term depending on the type or purpose. For example, mortgages typically last 30 years while bridge loans only last two.

A merchant cash advance is generally a short-term arrangement lasting 18 months to 3 years. However, unlike business loans, term length isn’t fixed since you don’t know what your credit card sales will look like. Instead, you gradually pay off the advance as your sales allow you to.

Interest Rates

No matter what type of financing you apply for, you’ll have to pay interest. The big question is, how much interest will you end up paying by the end of the loan? That depends on the rate.

Business loans can have fixed or variable rates, which tend to fall into the 10% to 100% range. If you have collateral and good credit, the rate may be even lower.

In contrast, lenders regularly charge 35% to 150% for merchant cash advances. For this reason, an advance is best used as a short-term funding solution.

Both business loans and merchant cash advances have many benefits to offer. Understanding your business needs is the best way to figure out which will work for you.

At TCF Capital, we help business owners from industries secure financing to aid with everyday operation expenses or continued business growth. If you have a commercial finance need, chances are we can help you meet it quickly and efficiently, so you can get back to business.