Merchant Cash Advance Alternatives: 6 Routes to Compare Before Funding

With a merchant cash advance, you can usually get approved if your business has steady revenue. On the other hand, APRs on advances start at about 40%, and can be as high as 350%. If you need fast funding, try these six financing options first: short-term loans, business line of credit, working capital loans, equipment financing, SBA loans and business credit cards. Turn to MCAs only if you can’t get cheaper funding.

Very simply, a merchant cash advance is an upfront, lump-sum payment in exchange for a percentage of your credit and debit card sales. The amount that you’ll owe on an advance is not usually calculated as interest. Instead, merchant cash advances carry a factor rate; i.e. a flat fee you pay on every dollar borrowed.

With a factor rate of 1.2, a 120-day term, and a $100,000 cash advance, you could expect to pay back $120,000. A $1,000 origination fee would bring the total repaid to $121,000. That works out to an APR of 116.41%. Factor rates on merchant cash advances generally range from 1.1 to 1.5. Plus, MCAs are not legally considered loans. Some consumer protection laws don’t apply to this type of financing, and that’s another reason for the cost.

A merchant cash advance lender might take 5% to 20% of your business’s daily card sales. The time to repay depends on your card sales. If your sales are $50,000 a month, 10% is $5,000 a month. When you repay a loan early, you pay less interest. But that’s not the case with MCAs. The amount you owe is fixed, and early repayment does nothing to reduce it. In fact, those daily deductions can make it tougher to manage cash flow, which can ultimately hurt the business. MCAs don’t report to business credit bureaus.

Another downside to MCAs is where the lender puts your incoming card payments. Rather than depositing them in your bank account, the lender might create a lockbox account. Each debit and credit card sale goes into a separate account until the lender takes its cut. The remaining funds go to the business. This arrangement can squeeze cash flow, especially since funding typically doesn’t appear for another day.

An alternative to the variable repayment terms and expensive fees and factor rates that come with MCAs is a short-term business loan. Lenders that offer these products can provide you with predictable fixed payment amounts and terms that work for your business. Additionally, many lenders that offer short-term loans report repayment to business credit bureaus. Conventional loans typically have APRs from 5% to 35% and sometimes higher, but merchant cash advances, when converted to APRs, run about 40% to 100% or higher. Working capital loans are also, unlike MCAs, a less expensive way to cover everyday expenses like payroll and inventory. Working capital loans can come with longer repayment terms than most MCAs.

A business line of credit provides flexible, on-demand access to funds. With a line of credit, you draw the amount you need instead of getting a lump sum. You pay interest only on what you draw, which makes it more flexible and cheaper than a cash advance. Business credit cards are also a practical, low-cost alternative for small, everyday purchases. Like a line of credit, you pay interest only on what you spend, which makes them a cheaper option than merchant cash advances.

Equipment financing might be the way to go if you need the money for a specific equipment purchase. The equipment serves as collateral for the loan, often resulting in lower interest rates and longer terms than you would get with an MCA. For equipment, SBA 504 loans are another option; they are designed for specific purposes, like real estate and equipment purchases that will be used long-term. They do not finance working capital or inventory.

SBA loans in general are among the cheapest you can find, and can be an especially affordable option if you’re able to wait a few weeks for funds. SBA 7(a) loans can range up to $5 million. For an SBA Express loan up to $500,000, the lender decides whether to approve the loan. The SBA’s CAPLine program offers working capital loans to businesses. The loans are available for specific working capital needs, such as seasonal fluctuations and cyclical working capital needs. The term of these loans can extend up to 10 years.

Also consider microloans from community lenders to borrow $50,000 or less. The average loan size is about $13,000 and these are made by nonprofit community-based lenders. SBA says the interest rate is usually between 8% and 13%. You can also look to a CDFI, a government-recognized lender that provides loans and financial services to businesses in underserved communities. CDFIs are certified by the U.S. Treasury’s Community Development Financial Institutions Fund. There are CDFIs in every state.

Before Agreeing to an MCA

A cash advance could still make sense for you if you need funding in a couple of days; your business makes heavy daily debit and credit card sales; have limited credit or no collateral; or have exhausted other, less expensive options for financing. To minimize the impact of a MCA on your business, read the agreement, get every aspect of the repayment plan in writing, including any origination fees. Some advance providers charge origination fees, which can be as much as $3,000.

If you can’t pay back your MCA, your provider could file a lawsuit. Some MCA agreements include a personal guarantee, making you personally liable for repayment. Watch for common hallmarks of predatory lenders, like confusing contracts, undisclosed fees and high-pressure sales tactics. Some contracts restrict you from changing processors or locations. In Texas, a 2025 law requires MCA providers to reveal the total amount repaid, the finance charge and all fees up front.

Finally, compare your options against each other. Specifically, jot down how much you’ll pay with each route - the amount borrowed, plus any fees and interest.