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Business Loan vs. Merchant Cash Advance

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A merchant cash advance and a business loan are both forms of financing that can help a business access capital. However, they differ in several ways.

  1. Repayment: With a business loan, the borrower repays the loan with fixed payments over a set period of time, typically ranging from a few months to several years. With a merchant cash advance, the borrower repays the advance through a percentage of their daily credit card sales until the advance is fully repaid.

  2. Cost: Merchant cash advances typically have higher fees than business loans. The cost of a merchant cash advance is expressed as a factor rate, which is a multiplier that is applied to the amount borrowed. This can result in an effective interest rate that is significantly higher than that of a business loan.

  3. Approval process: Merchant cash advances often have a faster approval process than business loans. Because the repayment is tied to daily credit card sales, the lender may be more willing to provide an advance to a business that has a strong sales history.


  1. Eligibility requirements: Merchant cash advances may be easier to qualify for than business loans, particularly for businesses with poor credit or limited financial history. However, this ease of access may come at a higher cost.

  2. Use of funds: Business loans may be used for a wide range of business purposes, while merchant cash advances are typically restricted to working capital needs.

Ultimately, whether a merchant cash advance or a business loan is the better choice for a business depends on the business's individual circumstances, including its creditworthiness, sales history, and financing needs. It's important for businesses to carefully consider the costs and repayment terms of both options before making a decision.

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