Defference Between a Small Business Loan and A Merchant Cash Advance

Business Loans

A business loan goes through an underwriting process that can take a few weeks before you are notified if you are approved or denied. Depending on the loan size, the funding bank will need certain documentation such as personal tax returns, business returns and financial statements. The underwriting process will determine if the business or business owner has a good credit history and the ability to pay back the loan which will involve a personal guarantee from the business owner. Usually there will be a stipulation that the business can’t open up any new debt during the term of the loan.

Repayment Terms

A business loan will usually have a maturity or payoff deadline of 3 to 10 years and the interest rates are usually fixed. The payments however can be amortized over a longer period of time making the payments more affordable. In this case, the loan will have a balloon payment due at maturity so the business owner will want to make sure they have a plan to payoff this balance at maturity or they may have to request a renewal or extension.


Depending on the loan size, the bank may require collateral which can be in the form of property or assets. This can include real estate if they own the property, business assets and in some cases accounts receivables.

There are express type loans with loan amounts up to $50,000. These are usually based on the owners credit and personal guarantee and do not require collateral. Since it is unsecured, rates are usually higher and can come in the form of a revolving line of credit or a fixed term loan. The processing of these types of loans can be done usually within three to five days.

Merchant Cash Advances

A merchant cash advance can be processed much quicker and may be more convenient depending on the need for the funds. Since these types of loans are based on credit card volume, the business owner must have a merchant account for credit card transactions. Usually an approval can be done within 24 hours and since the documentation is limited, can fund within 72 hours. In some cases a business owner will use a merchant cash advance as a bridge loan while they are in the process of a business loan application.

Repayment Terms

A merchant cash advance is a short term solution for funds needed for business purposes such as inventory, expansion, upgrades or temporary cash flow. The repayment terms are based on a factor rate depending on the term of the loan. This loan will also have a balloon payment so the business owner will want to have a plan to payoff the note or will have to renew the loan.


These types of loans base their approval on the monthly volume the business owner does in monthly credit card transaction. The collateral is basically the business owner agreeing to use future credit card sales for the repayment of the loan. Documentation is limited so this type of financing can fund quicker than a traditional business loan. Typically there is no personal guarantee and will not effect the business owners personal credit.

Ambertemplates Banner

Related posts