Merchant Cash Advance vs Business Term Loan

A Merchant Cash Advance and a business term loan are both ways to put capital into a business — but they work very differently. Understanding the difference helps you choose the right tool, or recognize when one might be used to replace the other.

Structure

An MCA is generally structured as a purchase of a portion of a business's future receivables, not a loan. The business receives an advance and agrees to pay back a larger total amount, collected through daily or weekly ACH payments. A business term loan is a conventional loan: the business receives a lump sum and repays principal plus interest on a defined schedule over a set term.

Pricing

An MCA is priced using a factor rate — a flat multiplier that sets the total payback. A term loan is priced using an interest rate (fixed or variable), with the cost accruing on the outstanding principal balance. Because the pricing mechanisms differ, the two aren't directly comparable by a single number. A factor rate doesn't account for the repayment timeline the way an APR does.

Repayment

An MCA is typically repaid through fixed daily or weekly ACH debits, with the total payback collected over a number of months. A term loan is typically repaid in regular installments — often monthly — over a term that can range from months to several years. The longer term of a term loan generally means a lower periodic payment, which is one reason businesses explore term loans as a way to replace higher-frequency MCA payments.

Underwriting

MCA underwriting often emphasizes revenue, bank deposits, and bank activity, and can fund quickly. Term loan underwriting typically weighs credit, time in business, profitability, financial statements, and existing obligations, and may take longer. The trade-off is generally speed and flexibility (MCA) versus cost and term (term loan).

When Each May Be Appropriate

An MCA can be appropriate when speed matters, the business has consistent revenue, and the structure is understood. A term loan can be appropriate when the business qualifies and wants a longer-term, lower-frequency repayment structure. For businesses already carrying MCA obligations, a term loan is one structure that may be explored as part of an MCA buyout — subject to underwriting and eligibility.

A Note on SBA Term Loans

It's worth noting that SBA term loans specifically are no longer available for refinancing MCA debt. Under SBA SOP 50 10 8 (effective June 1, 2025), MCA and factoring arrangements became ineligible for SBA debt refinancing. Other term loan options outside the SBA may still be available. Read more in our article on SBA MCA refinancing rules.

Compare the Numbers

The clearest way to compare an MCA and a term loan is to look at the actual payment burden. Use our payment calculator to estimate both side by side, then explore term loan options if a longer-term structure may fit your situation.