MCA vs Term Loan: Which One Actually Fits Your Business?
MCA vs term loan: which one actually fits your business?
Merchant Cash Advances (MCAs) and term loans are the two most common products we place at DADDYS BANK, and they're built for very different situations. Picking the wrong one costs money — sometimes a lot of it. Here's the honest breakdown.
The one-sentence version
- Term loan: fixed amount, fixed monthly payment, fixed payoff date. Cheaper. Harder to qualify for.
- MCA / revenue-based financing: lump sum repaid as a percentage of daily or weekly deposits. Faster. More expensive. Easier to qualify for.
If you can qualify for a term loan, you almost always want one. Most of our clients can't — that's why MCA volume dominates the industry.
How each one actually works
Term loan
You borrow, say, $100,000 at a fixed APR over 24–60 months. Payments are the same every month. The lender pulls credit, reviews financials, and often wants time in business (2+ years is typical for competitive pricing), decent personal credit (usually 650+), and healthy cash flow.
Best for: established businesses with strong financials making a planned investment — new location, equipment, refinancing higher-cost debt, acquisitions.
Merchant cash advance (MCA)
A lender buys a portion of your future receivables. You get a lump sum today; they collect a fixed percentage of daily or weekly deposits until a fixed total is repaid. Instead of an APR, MCAs quote a factor rate (e.g., 1.30 means you repay $130,000 on $100,000). Term is typically 4–18 months.
Best for: businesses that need capital fast, don't qualify for bank/SBA products, have strong deposits but limited credit or time in business, or need funding tied to revenue instead of fixed payments.
Cost, in plain numbers
Rough industry ranges — actual pricing depends on the lender and your file:
| Product | Typical cost | Term | Payment cadence |
|---|---|---|---|
| Bank term loan | 8–15% APR | 3–7 years | Monthly |
| SBA 7(a) | Prime + 3–6% | Up to 10 years | Monthly |
| Non-bank term loan | 15–30% APR | 1–5 years | Monthly/weekly |
| MCA / revenue-based | 1.15–1.49 factor | 4–18 months | Daily/weekly |
An MCA at a 1.35 factor over 9 months works out to a much higher effective APR than a term loan at 20%. That's the trade-off for speed and looser underwriting.
When an MCA is the right call
- You need capital in days, not weeks
- Personal credit is under 650
- Under 2 years in business
- Cash flow is strong but the balance sheet is thin
- You're funding a short-term opportunity with a fast ROI (inventory turn, filling a big contract, bridging to a receivable)
When a term loan is the right call
- 2+ years in business, personal credit 680+
- You can wait 2–6 weeks for funding
- You want predictable monthly payments
- You're financing something long-term (build-out, equipment with a long useful life, refinancing)
The trap to avoid: stacking
If you take an MCA and then take a second one before paying off the first, you're stacking. Daily payments compound, cash flow craters, and future lenders see it in your bank statements and decline you. If you already have one advance and need more capital, the right move is usually a consolidation or refinance, not another position.
How we approach it
We're a brokerage, not a lender, so we don't push one product over another for our own book. When your file lands with us, we shop it and lay out the real options — what you'd qualify for on each product, at what price, with which lender. You choose. Final terms come from the lender's underwriting, not from us.
Want us to run your numbers? Start a deal and we'll come back with matched options within one business day.