| Feature | Merchant Cash Advance (MCA) | Small Business Loan |
|---|---|---|
| Definition | Lump-sum advance repaid via a percentage of daily sales | Lump-sum loan repaid in fixed installments |
| Approval Time | Fast (often 24–72 hours) | Slower (days to weeks) |
| Credit Score Requirement | Low or not required | Moderate to high |
| Collateral Required | Typically no | Often yes, especially for large loans |
| Repayment Method | Daily/weekly deduction from sales or bank account | Monthly or biweekly fixed payments |
| Cost/Interest | High (factor rates 1.1–1.5; APRs 40–350%+) | Lower (APR 6–30% typically) |
| Best For | Businesses with strong credit card sales, needing cash fast | Stable businesses planning long-term growth |
| Impact on Cash Flow | Can strain daily cash flow due to daily deductions | Predictable impact due to fixed payments |
| Use Cases | Emergencies, inventory buys, short-term needs | Equipment, expansion, working capital |
10
Wait your video link is ready….
🔍 What is a Merchant Cash Advance (MCA)?
A Merchant Cash Advance is not a traditional loan. Instead, it’s a cash advance based on your future sales—especially credit/debit card sales. Merchant Cash Advance vs Small Business Loan
How it works:
- You get a lump-sum amount upfront.
- You repay it through a percentage of your daily sales (or fixed daily ACH debits).
- You pay a “factor rate” (e.g., 1.3x the loan amount), not interest.
✅ Pros of MCA:
- Very fast approval (24–72 hours)
- Flexible repayment tied to sales volume
- Doesn’t require strong credit or collateral
❌ Cons of MCA:
- Extremely high costs (APR can exceed 100%)
- Daily/weekly repayment can hurt cash flow
- Not ideal for long-term or low-margin businesses
🔍 What is a Small Business Loan?
A small business loan is a more traditional form of financing offered by banks, credit unions, and online lenders.
Types include:
- Term loans
- SBA loans (government-backed)
- Business lines of credit
✅ Pros of Business Loans:
- Lower interest rates
- Structured repayment terms (predictable)
- Higher loan amounts possible
❌ Cons of Business Loans:
- Slower funding process
- Requires good credit, financials, and sometimes collateral
- More paperwork and vetting
🏦 Cost Comparison: MCA vs Small Business Loan
| Example Loan Type | MCA | Small Business Loan |
|---|---|---|
| Loan Amount | ₹10,00,000 | ₹10,00,000 |
| Factor Rate / APR | 1.4 (or 120% APR) | 14% APR |
| Total Repayment | ₹14,00,000 | ₹11,40,000 |
| Daily/Monthly Payment | ₹14,000 over ~100 days (daily) | ₹95,000 per month for 12 months |
| Prepayment Penalty | Rare | Sometimes |
💡 MCAs seem fast and easy but are much more expensive than traditional loans over time.
📈 When to Choose a Merchant Cash Advance
Use an MCA when:
- You need funds immediately (emergency repair, unexpected cost)
- You have strong daily sales (especially card payments)
- Your credit score is low, and banks have denied you
- You’re comfortable paying more for speed and flexibility
🧾 When to Choose a Small Business Loan
Choose a loan when:
- You want lower cost financing
- You can wait 1–3 weeks for funding
- You plan to use the money for growth or large purchases
- You want predictable monthly payments
🧠 Final Verdict: MCA vs Small Business Loan
| Situation | Best Option |
|---|---|
| Need money fast (24–72 hrs) | ✅ Merchant Cash Advance |
| Long-term, low-cost financing | ✅ Small Business Loan |
| Bad credit, strong daily sales | ✅ MCA |
| Predictable repayment preferred | ✅ Small Business Loan |
| Building business credit | ✅ Small Business Loan |
✍️ Expert Tip:
Avoid MCAs unless absolutely necessary. If you qualify for even an online business loan or line of credit, they are generally more affordable and scalable for growth.