Business Term Loan
A business term loan is a fixed-amount, fixed-rate, fixed-payment loan with a defined maturity date — typically 1-10 years — with monthly amortizing payments rather than the daily/weekly repayment structure of MCA, requiring stronger credit profiles and more thorough underwriting.
Why This Matters
Term loans are the traditional bank-financing alternative to MCA. Bank term loans typically offer rates of 6-15% APR for SMB borrowers with credit and revenue qualifications. Online lenders (OnDeck, Bluevine, Funding Circle) offer term loans at 9-30% APR with faster decisions but stricter underwriting than MCA. Term loans suit established businesses with predictable cash flow and good credit; MCA serves a broader population including newer businesses, weaker credit, and merchants needing speed-to-funding above all else. The structures fit different needs — term loans for planned investments, MCA for immediate cash flow.
Example
Established business with 750 FICO and $200K monthly revenue takes $150K SBA-backed term loan at 9% APR, 5-year term, $3,100 monthly payment. Same business could alternatively take $150K MCA at 1.30 factor, 9-month term, $700 daily payment ($14K monthly equivalent). Term loan wins on cost; MCA wins on flexibility and structure.
Frequently Asked Questions
Frequently Asked Questions
Why would a business choose MCA over a cheaper term loan?
Speed (MCA funds in 24-72 hours vs. weeks for term loans), accessibility (MCA approves credit profiles term loans reject), no fixed monthly burden (MCA repayment scales with revenue), and minimal documentation. Cost-of-capital is higher but trade-offs favor MCA for many merchants.
Can a business graduate from MCA to term loans?
Yes — many do. Strong MCA repayment history demonstrates revenue stability and discipline. Some lenders specifically refinance MCA into term loans for qualifying merchants, replacing high-cost daily/weekly payments with lower-cost monthly amortization.