There are a few key differences between an MCA and a business term loan.

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A merchant cash advance is a type of business financing that provides a business with a lump sum of money in exchange for a percentage of the future credit card and debit card sales. Payments are usually taken out of the daily or weekly transactions. Since the business is selling a percentage of future sales it is technically not a loan.

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A term loan is a fixed amount of money provided by a bank. This type of loan has a set repayment schedule of a specified amount.

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The main differences between an MCA and a term loan are the qualification requirements and repayment.

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Application and Qualification Process

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Merchant cash advances are provided by alternative financing companies, such as online lenders. This means that the qualifications aren’t as strict and less documentation is required. Only basic business identification information and records of credit card sales is asked for. The process can take as little as a few hours and businesses can receive the money within days.

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Business term loans are provided by a bank. This means that there are stricter guidelines in place. Banks have more stringent qualifications such as minimum credit score requirements and a high annual revenue. Sometimes collateral is required. Businesses must also be able to provide extensive financial records such as financial documents, tax returns, and more. Term loans take much longer to get approved and funded than a merchant cash advance.

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Repayment

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Instead of making one fixed payment every month for a set period of time, a merchant cash advance is repaid by a set percentage of the transactions in daily or weekly payments, plus fees. This is useful for businesses that need to manage their cash flow.

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Business term loans are repaid at scheduled intervals in predetermined set amounts. These loans also come with interest and origination/processing fees.

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MCAs can be beneficial because they allow you to pay back the lender relatively fast. They are typically paid back in less than a year, while term loans take years of set payments. Term loans are also subject to early repayment penalties.