Merchant Cash Advance vs. Cash Flow Loan?

Which is Better Financing Solution for Your Business?

When it is time to purchase equipment for your business, deciding on the right payment strategy is a critical as making sure the equipment you are procuring meets your needs.  The last two posts discussed the pros and cons of merchant cash advances and cash flow loans. Today’s article compares the two products to help you get a better understanding of which lending solution may be best for your company.Loan Maze Image

At first glance, merchant cash advances and cash flow loans might look very similar. Neither requires a lot of credit, both of them are based (at least in part) on your daily revenue, and neither has a monthly payment. Both of them involve making daily payments instead of monthly payments, and both of them can provide you with a cash infusion for your business on short notice.

But that might be where the similarities end.

Let’s take a closer look at the differences between the two.

Payment Structure

Merchant cash advances are basically cash advances against future credit/debit card sales. Instead of making a monthly payment as you would with a bank loan, a small amount (generally 1% to 18% depending upon the terms of the advance) is deducted from every debit/credit card transaction. This is continued until the advance (and the interest) is paid off. There is no due date—just a percentage subtracted from every electronic transaction.

Floating Dollar Sign ImageA cash flow loan, however, is different. It does have fixed payments, though they are based on the expected cash flow of your business and are made daily instead of monthly. Many cash flow loan companies also offer a few payment-free months as a bonus.


Merchant cash advances are not technically ‘loans’. Instead, they are categorized as ‘a purchase of a percentage of future profits’. Still, with that being said, you will need to pay back a larger sum than was advanced—which is where you get the ‘interest’ amount. These types of advances can sometimes have equivalent interest rates that range from 60 to 200% APR.

Cash flow loans, however, offer much more affordable interest rates. These rates are typically somewhere between 12 and 15%, depending upon the term of the loan.


Payments for merchant cash advances are not fixed and they have no due date. Repayments are accomplished whenever you process a credit/debit card transaction. Of course, some merchant cash advance companies might be willing to take a lower percentage from businesses with lower profit margins, such as grocery stores—though for the most part the amount deducted from electronic transactions will be based upon the amount of the advance and how many transactions you make each day.

Cash flow loans, on the other hand, have a fixed daily repayment plan and a set due date. Most of these loans are available in 6 and 12 month terms and operate a lot like a bank loan in most other respects—albeit without the difficulty associated with getting approved.

Fast Funds with Payment Plans for the Way You Do Business

Fast Funds ImageBoth of these options can provide you with much-needed capital on short notice, though there are definitely a few differences between them. If you are considering one of these options to finance that new oven for your restaurant or lift for your auto repair shop, it is probably because you have had some credit and/or collateral challenges that are keeping you from acquiring a bank loan. If so, then you are definitely on the right track. Another reason why you might be considering these options is because you need the capital sooner rather than later. Again, if this is the case, then you are on the right path by considering these options, though it is important that you really investigate and do your research before making a choice.

Figuring out which is better for you will really depend upon your situation, though there are a few things to keep in mind as you contemplate both where your business is now and where you want it to be. One very obvious difference between these two is in the equivalent interest. You are going to pay much, much less in the long run for a cash flow loan than you will for a merchant cash advance, which is why a cash flow loan is usually recommended first.

Of course, a merchant cash advance does not hold you to a regular repayment plan. But then again, if you have a particularly good month in terms of sales, you will also end up paying more. This will help to pay off the advance sooner, but it won’t give you much of a choice in how you allocate your extra funds.

A cash flow loan, on the other hand, gives you a small daily payment plan that is fixed. You know what it is going to be, and it won’t change. This makes it easier to allocate extra funds to different parts of your business without it effecting your loan repayments.

Some businesses find that merchant cash advances will simply put them into a loss situation due to the higher interest rates. Losing money is not good for any business, though you should also keep in mind that your situation might be different than that of other businesses—even in your same market or sector.

In the end, there is no substitute for some thorough research and self-evaluation. Keep your goals at the forefront of your mind and ask yourself which option fits more in line with your plans for the future.

One thought on “Merchant Cash Advance vs. Cash Flow Loan?

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