MCA vs term loan: what actually costs less?
Reviewed by Turan Zeynal, Managing Partner, Outset Funding Partners ·
A term loan is a fixed lump sum repaid monthly at a stated APR (usually 8–30%). An MCA is a purchase of your future card sales at a factor rate (1.15–1.50), repaid daily. Term loans are 3–10x cheaper per dollar. MCAs win on speed (24–72 hrs vs 1–4 weeks) and credit access (500+ vs 660+ FICO).
Quick facts
- Term loan cost
- 8% – 30% APR
- MCA cost
- Factor 1.15 – 1.50
- Term loan speed
- 1 – 4 weeks
- MCA speed
- 24 – 72 hours
- Term loan credit
- 660+ typical
- MCA credit
- 500+
- Term loan repay
- Fixed monthly
- MCA repay
- Daily % of sales
The 60-second answer
A term loan is what most people picture when they think "business loan" — you borrow $100,000, get a stated rate and a stated term, and pay a predictable amount every month. An MCA is legally a different animal: a purchase of your future receivables at a discount, with no stated APR and no fixed payment.
The trade is simple. A term loan will save you money if you can qualify — usually a 660+ FICO, a year or more in business, and time to wait 2–4 weeks. An MCA is faster and more forgiving on credit but pays for that flexibility with a materially higher effective cost. The mistake to avoid is stacking multiple MCAs instead of refinancing into a term loan once your profile qualifies.
Pros and cons
- ✓Term loan is significantly cheaper for qualified borrowers
- ✓Term loan has predictable monthly payments
- ✓Term loan builds business credit and prepayment saves interest
- ✓MCA funds in 1–3 days when speed is the constraint
- ✓MCA approves on revenue, not FICO
- ×Term loan rejects most sub-660 files
- ×Term loan requires documentation and often takes 2–4 weeks
- ×MCA is 3–10x more expensive per dollar
- ×MCA daily debit continues even in slow weeks (up to the % agreed)
- ×MCA has no meaningful prepayment savings
Side-by-side
| Option | When to use | Watch out for |
|---|---|---|
| Cost basis | Term loan: interest / APR | MCA: factor rate, no APR |
| Repayment | Term loan: fixed monthly | MCA: daily % of card sales |
| Speed | Term loan: 1–4 weeks | MCA: 24–72 hours |
| Credit floor | Term loan: 660+ typical | MCA: 500+ |
| Collateral | Term loan: sometimes required | MCA: none — PG only |
| Early payoff | Term loan: saves interest | MCA: little/no discount |
| Best fit | Term loan: planned expansion, refi | MCA: cash-flow gaps, emergencies |
Frequently asked questions
What's the real difference between a term loan and an MCA?
Legal structure. A term loan is regulated as a loan — principal, interest, APR, usury caps. An MCA is a purchase of future receivables, which is why it has no stated APR and is exempt from most state usury laws.
Is a term loan always cheaper than an MCA?
For any given loan size, yes. A $75,000 term loan at 15% APR over 3 years costs about $18,600 in interest. A $75,000 MCA at 1.35 factor costs $26,250 in fees, typically inside 12 months — effective APR north of 60%.
Can I refinance an MCA into a term loan?
Yes, and it's one of the most valuable financial moves for a small business. Once your revenue and credit stabilize, refinancing MCA balances into a term loan can save tens of thousands and end the daily debit cycle.
Does a term loan or MCA show up on my personal credit?
Term loans typically involve a hard credit pull and may report to consumer or commercial bureaus depending on lender. Most MCA funders do a soft pull and don't report to consumer bureaus.
Which one is better if I don't need the full amount?
Neither — you should look at a business line of credit. A LOC lets you draw only what you need and pay interest only on what you use. Term loans and MCAs both fund the full amount up front.
Sources
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