Merchant cash advance vs term loan
A merchant cash advance (MCA) and a term loan both give you a lump sum now, but they collect it back in completely different ways. An MCA takes a percentage of your future card takings; a term loan takes fixed instalments on set dates. If your business runs on card sales, the choice between flexible and predictable repayment is the heart of the decision. This article explains how each works and where each fits.
How a merchant cash advance works
With an MCA, a provider advances you a sum and you repay it as a fixed percentage of your daily or weekly card takings until the agreed total is cleared. The defining feature is that repayments flex with trade: on a strong sales day you repay more, on a quiet day you repay less. There is no fixed instalment and often no fixed end date — how fast you clear it depends on how busy you are. That makes an MCA naturally suited to businesses with steady card income, such as shops, cafés and restaurants, whose revenue is seasonal or uneven.
How a term loan works
A term loan is the opposite shape. You agree a fixed amount over a fixed term and repay in set instalments, regardless of how trade goes that week. Our live product is a short-term Business Bridging Loan of £50 to £500 over 14 to 84 days, repaid weekly or fortnightly. You know the amount, the instalments and the end date from the outset, which makes budgeting straightforward. You can see what we currently offer, with the real amounts, terms and costs, on our business loans page.
Predictability vs flexibility
This is the core trade-off. An MCA's flexibility is genuinely useful when income is lumpy: a slow week automatically means a smaller repayment, easing pressure when you most feel it. But that flexibility cuts both ways. Because there is no fixed end date, a long run of quiet trading stretches the advance out, and the total cost can be hard to compare with a fixed loan precisely because the repayment amount keeps moving. A term loan gives you certainty instead: the instalments do not change, so you can plan around them — but you must meet them even in a poor week. Neither is simply better; they suit different revenue patterns and different temperaments.
Comparing the cost
On cost, both can be an expensive way to borrow, and we will not pretend our short-term loan is cheap when expressed as an annual rate — the fixed cost of arranging a small, short advance is spread over only a few weeks. What we commit to is showing the cost plainly before you sign: the amount, term, total amount payable, total cost of credit, a simple annualised rate and the full repayment schedule on your Key Information Sheet (KIS) and in your Business Loan Agreement. We do not quote a consumer APR, and we charge no early repayment fee, so settling early saves you money. An MCA's pricing is usually expressed as a factor on the advance rather than an interest rate, which makes a like-for-like comparison harder — read the provider's figures carefully.
On regulation, our lending to a company is outside FCA consumer-credit regulation under Article 60B FSMA RAO 2001, so it is not covered by the Financial Ombudsman Service or the FSCS. An MCA provider's regulatory position may differ; check theirs rather than assuming.
Which to choose
If your income arrives mostly through card payments and varies week to week, an MCA's repayment flexibility may genuinely fit better. If you want a defined sum, a fixed end date and instalments you can plan around, a short term loan may suit. And if the underlying problem is ongoing rather than a one-off bridge, more borrowing can deepen it — we set out steadier routes in our guide to alternatives to short-term lending.