When small businesses need financing in 2025, two options often dominate the conversation: SBA loans vs. Merchant Cash Advances (MCAs). Both provide access to capital, but they’re built for very different situations—one is a government-backed loan program with low interest rates, and the other is a fast but costly cash-flow advance tied to future sales.
Choosing between them isn’t just about interest rates—it’s about speed, cost, repayment structure, and long-term financial impact. In the comparison below, you’ll see exactly how they stack up side-by-side so you can make the right choice for your business goals.
SBA loans vs. merchant cash advances
| Feature | SBA Loan | Merchant Cash Advance (MCA) |
|---|---|---|
| Funding Speed | 30–180+ days | 1–7 days |
| Cost | 3–15.5% APR | Factor rate 1.1–1.5 → 35–350%+ APR |
| Qualification | Strong credit, documentation, and business history | Based on card/POS sales, more flexible |
| Repayment Style | Monthly amortized | Daily/weekly holdback from sales |
| Best For | Expansion, refinancing, long-term projects | Emergency or urgent cash needs |
| Main Drawback | Slow approval process | Extremely high cost, cash flow strain |
What Is an SBA Loan?
An SBA loan is government-backed financing provided through partner lenders. It’s not funded directly by the Small Business Administration but guaranteed, reducing lender risk.
Main SBA loan programs:
-
SBA 7(a)—Up to $5M for working capital, equipment, or refinancing. Rates: Prime + margin.
-
SBA 504—Fixed-asset financing (land, machinery) at long-term fixed rates linked to U.S. Treasuries.
-
SBA Microloan—Up to $50K for startups or very small businesses, with flexible approvals.
Typical costs (2025)
-
Microloan: ~8–13% APR
-
7(a): ~10–15% APR
-
504: ~5–7% APR
(FY 2025: SBA waived upfront fees for loans ≤ $1M)
Funding timeline: 30–180+ days. Requires pro forma statements, tax returns, credit checks, and possibly collateral.
What Is a Merchant Cash Advance (MCA)?
An MCA is not a loan—it’s the sale of future receivables in exchange for upfront cash. You repay via daily or weekly deductions from card/POS sales.
Example:
Borrow $20,000 at a factor rate of 1.25 → repay $25,000 automatically over weeks or months, depending on sales volume.
Key traits:
-
Fast (1–7 days)
-
Costly (factor rates → 35%–350% + APR equivalent)
-
Minimal paperwork (bank or sales statements only)
Cost Comparison: APRs & Effective Cost
| Funding Option | APR/Cost |
|---|---|
| SBA Loan | 3–15% |
| Online Term Loan | 14–99% |
| Line of Credit | 7–25% |
| MCA | Factor 1.1–1.5 → 35%–350% + APR |
Worked Example:
-
MCA: $25,000 at factor 1.3, repaid in 60 days = ~75% APR.
-
SBA Microloan: $25,000 at 9% APR over 6 years = ~$250/month interest.
Eligibility & Application Requirements
SBA Loan Requirements:
-
650+ credit score
-
2+ years in business
-
Strong revenue, viable business plan
-
Collateral or guarantees may be needed
MCA Requirements:
-
6+ months in business
-
Consistent card/POS sales (≥ $50K/month)
-
Minimal documentation
Cash Flow & Repayment Mechanics
-
SBA Loans—Predictable monthly payments, no automatic deductions. Easier to plan around.
-
MCA—Daily/weekly holdback can choke cash flow. If sales dip, repayment slows, but APR rises.
State-by-State MCA Regulations
| State | Key Regulation | Borrower Impact |
|---|---|---|
| CA | Must disclose factor rate & holdback; no rollovers without approval | More transparency |
| NY | Full APR disclosure & provider licensing required | Clearer costs |
| CT | TILA-style disclosure applied | Stronger protection |
| TX | Licensing & factor rate disclosure required | Higher compliance but clearer terms |
| FL | No specific MCA rules | High caution required |
Risks & Legal Protections
-
MCAs often fall outside the federal Truth in Lending Act (TILA) rules.
-
SBA loans are standardized, with federal oversight.
-
Watch for MCA clauses like Confession of Judgment—seek legal review before signing.
When to Choose SBA vs MCA
| Choose SBA if… | Choose MCA if… |
|---|---|
| You can wait weeks/months | You need funds within days |
| You need >$50K | You have strong sales but poor credit |
| You want a low APR & long repayment | You can handle short-term high repayment pressure |
Decision Flowchart
Need funds urgently?
Yes → MCA (only if short-term and sales are strong)
No → Qualify for SBA?
Yes → SBA Loan
No → Consider alternatives (LOC, microloan)
Worked Financial Examples
Example A: $25,000 short-term
-
SBA Microloan @ 9% → $1,300 total interest over 6 years
-
MCA @ 1.25 factor → $6,250 cost in ~60 days
Example B: $200,000 expansion
-
SBA 7(a) @ 11%, 10-year → ~$130,800 total interest
-
MCA @ 1.35 factor, 12-month → $70,000 fee
Alternatives to Consider
-
Business Line of Credit—7–25% APR
-
Short-Term Bank Loan—10–30% APR
-
Invoice Factoring—1–5%/30 days (20–100% APR equivalent)
FAQs
Q: Can I get an SBA loan with bad credit?
A: Possible but difficult; microloan lenders may be more flexible.
Q: Do MCAs get cheaper if repaid early?
A: Usually not—the factor rate is fixed.
Q: Do MCAs affect my credit score?
A: Typically not reported, but defaults can lead to legal action.
Q: Are MCAs legal in all states?
A: Yes, but regulation varies—some states require full disclosure.
Conclusion & Borrower Checklist
SBA loans are almost always cheaper but slower. MCAs are fast and easy—but costly.
If you must take an MCA, demand the factor rate, APR equivalent, and repayment schedule up front.
Checklist:
RELATED READING
