MCA vs. Term Loan: Which One Is Right for Your Business?

Two of the most common business funding products are merchant cash advances (MCAs) and term loans — but they work in very different ways. Choosing the wrong one can cost you money and create unnecessary cash flow stress. Here's how to think about which is right for your situation.

What Is a Merchant Cash Advance?

A merchant cash advance is not a loan. It's the purchase of a portion of your future receivables at a discount. Instead of a fixed monthly payment, you repay through a daily or weekly percentage of your revenue — called a holdback rate, typically 10–20%. Because repayment flexes with your sales, MCAs are well-suited to businesses with variable or seasonal revenue.

Best for: Restaurants, retail, service businesses, and any company that needs fast access to capital without fixed monthly obligations.

What Is a Term Loan?

A business term loan provides a lump sum of capital repaid over a fixed schedule — typically monthly — with a set interest rate. Term loans are more structured, often require stronger credit profiles and documentation, and take longer to fund. But they typically carry lower total cost of capital than MCAs.

Best for: Established businesses with strong credit, predictable revenue, and a specific capital need — equipment purchase, real estate, or long-term expansion.

Key Differences at a Glance

Speed: MCAs fund in 24–72 hours. Term loans typically take 2–8 weeks.
Credit Requirements: MCAs start at 500+. Term loans generally require 650+.
Repayment: MCAs use a factor rate (e.g., 1.25–1.49). Term loans use an interest rate (e.g., 7–25% APR).
Collateral: MCAs are typically unsecured. Term loans may require collateral.
Flexibility: MCAs adjust with revenue. Term loans are fixed.

Which Should You Choose?

If you need capital quickly, have strong monthly revenue, and can absorb a daily or weekly holdback — an MCA is likely the right tool. If you have time, strong financials, and a specific long-term investment to make — a term loan may cost you less overall.

The best answer depends on your specific situation. At CBC, we evaluate both options for every client and recommend the structure that makes the most sense — not the one that earns us the highest commission. Talk to our team and we'll help you decide.