Comparison

Merchant cash advance vs business loan: the differences that decide it.

A neutral side-by-side, with the arithmetic, so you can pick the structure that fits.

✓ Checking what you qualify for does not affect your credit score.

The short version

A business loan and a merchant cash advance can both put money in the account this week, but they are built on different promises. A loan promises a schedule and an interest rate. An advance promises a fixed total repaid from future sales.

What you repayLoan: principal plus interest over a set term. Advance: a fixed payback, the amount times a factor rate.

How the cost is quotedLoan: an annual rate or APR. Advance: a factor rate, which is a multiplier, not a rate per year.

Payment patternLoan: fixed monthly instalments. Advance: daily, weekly or a share of sales.

Collateral and paperworkLoan: often security, financial statements and tax returns. Advance: deposits and recent bank statements.

SpeedLoan: weeks. Advance: often same-day decisions and next-day funding on a complete file.

Who tends to qualifyLoan: established firms with strong credit and statements. Advance: businesses with healthy deposits, including weaker credit.

Typical total costLoan: usually lower in dollars. Advance: usually higher, which is the price of speed and flexibility.

A worked example

Illustrative arithmetic

A retailer depositing about $60,000 a month asks for $40,000 for seasonal inventory. At a 1.25 factor the payback is $50,000, a cost of $10,000. Over roughly 6 months that is about $397 per business day, or close to 14% of monthly deposits.

Total payback on the advance: $50,000.
Cost: $10,000.
Roughly $397 per business day, or about 14% of monthly deposits.

Every figure on this page is illustrative arithmetic in Canadian dollars. It is not an offer, a quote or a promise of approval.

How to decide

If you can wait three to six weeks and qualify, the loan is normally the cheaper money.
If a supplier deal or repair closes this week, the advance may be the only practical option.
If your revenue swings month to month, a payment that flexes with sales is easier to live with than a fixed instalment.
If you are unsure, compare total dollars repaid and the time it takes to get the money.

Where people go wrong

Comparing a factor rate directly to an APR. They measure different things.
Ignoring how long each takes to reach your account.
Choosing on the rate without looking at the repayment period.

Common questions

Is an advance always more expensive?

In total dollars it usually is. It is also faster, easier to qualify for and does not require security.

Can I use both?

Possibly, but having an open advance changes how a lender reads your file, so tell each one about the other.

Which is better for a new business?

Newer businesses are often reviewed on deposits, which can favour an advance. A loan generally wants a longer track record.