Merchant cash advanceA form of finance where a provider advances a lump sum in return for a fixed percentage of the company's future card takings until an agreed total is repaid. vs business loan comes down to one trade-off: flexibility against cost. A merchant cash advance takes an agreed share of your card sales until a fixed total is repaid, so repayments shrink in a quiet month, while a business loan charges interest and takes the same instalment every month. For a company that can comfortably meet fixed payments, a loan is usually cheaper; an MCA earns its higher cost only when uneven card takings make fixed payments a real risk.

This comparison sets the two side by side, works through the same €50,000 both ways, and shows how to turn a factor rateA pricing method used mainly for merchant cash advances and some short-term finance, expressed as a multiplier such as 1.2 rather than an interest rate. into an annual rate you can compare with a loan. For how an MCA works in detail, see our merchant cash advance guide.

How is each one repaid?

An MCA is repaid automatically from card settlements, usually daily, as a fixed percentage known as the holdbackThe agreed percentage of each card sale, or of total revenue, that a merchant cash advance or revenue-based finance provider takes until the total repayable is cleared. or split. 365 Finance, for example, says its repayments are typically 5% to 15% of card sales. There is no fixed monthly amount and usually no fixed end date.

A business loan is repaid in fixed instalments, usually monthly by direct debit, over an agreed term. The amount is the same whether your card terminal had a record week or a quiet one.

How is each one priced?

Because a factor rate ignores time, the same factor rate can be cheap over two years and expensive over six months. That is why you need an annualised figure to compare the two. Our guide to flat rate, APR and total cost explains the different rate types.

Merchant cash advance vs business loan: side by side

Worked example

The same €50,000 two ways

Illustrative example only. The numbers are round figures chosen to show the maths, not quotes from any lender. A Dublin restaurant company needs €50,000 for a kitchen refit. It takes about €50,000 a month by card.

Option A: merchant cash advance

  • Advance €50,000 at a factor rate of 1.20, so the total repayable is €60,000 and the cost is €10,000.
  • Holdback 10% of card sales: about €5,000 a month at current takings.
  • Time to repay: about 12 months.
  • Annualised equivalent: about 45% a year when collected every business day (about 41% if repaid monthly).

Option B: 12-month business loan

Over the same year, the MCA costs about €5,370 more. What the restaurant buys with that extra cost is repayments that track its takings. Whether that is worth paying depends on how likely a quiet spell is, and how well the company could cope with a fixed payment if one came. A company with healthy cash reserves can usually absorb a slow month and take the cheaper loan.

How the annualised figure is worked out

We treat the €50,000 as received today and the €5,000 collections as arriving at the end of each month. We then find the monthly rate at which the 12 payments are worth exactly €50,000 today (an internal rate of return) and compound it over 12 months: annual rate = (1 + monthly rate)^12 − 1. That gives about 2.9% a month, or about 41% a year. Real MCA collections are usually made every business day: the same calculation on 261 business-day payments a year gives about 0.14% a business day, or about 45% a year. Fees, VATA tax charged on most goods and services supplied in Ireland, collected by VAT-registered businesses and paid to Revenue. and seasonality are ignored.

Try your own figures with our factor rate calculator, which turns a factor rate and repayment period into an equivalent APR.

What if the loan ran for two years instead?

A longer loan changes the picture. The same €50,000 over 24 months at the same illustrative 18% APR costs about €2,464 a month, with a total cost of about €9,140. That is close to the MCA’s €10,000, but spread over twice as long and with a fixed payment about half the MCA’s typical monthly collection. If your company’s problem is the size of the monthly payment rather than its unpredictability, a longer loan may help more than an MCA.

What happens in a slow month?

This is where the MCA earns its keep. Suppose roadworks cut the restaurant’s card takings to €30,000 a month for three months, in months three to five.

  • MCA: repayments fall to about €3,000 in each slow month, about €1,550 less than the loan instalment. Repayment stretches to about 14 months, the cost stays at €10,000, and the annualised equivalent falls to about 35%.
  • Loan: the €4,552 instalment is due each month regardless, so the company must find it from reserves, an overdraft or delayed supplier payments.

The opposite also applies. If a strong summer lifted card takings to €62,500 a month, the MCA would clear in about 10 months, and the annualised equivalent would rise to about 53%, while the loan cost would not change. Use the merchant cash advance calculator to model quiet and busy months.

What does each cost if you repay early?

This is one of the clearest differences between the two.

  • MCA: with a fixed cost, settling after six months normally still costs the full €10,000, unless the provider offers a settlement discount. Ask before you sign and get the answer in writing.
  • Loan: interest is charged on the balance, so repaying early usually cuts the cost. In our illustrative 12-month loan, settling after six months would bring the total cost down to about €3,350, assuming no early repayment charge.

If you expect a large payment soon, such as a grant, an R&D tax creditA corporation tax credit for companies carrying out qualifying research and development in Ireland. refund or the sale of an asset, a loan with no early repayment charge is usually the cheaper bridge.

When does each one suit?

A merchant cash advance may suit you if

  • Most of your revenue comes through a card terminal.
  • Trading is seasonal or uneven, and a fixed monthly payment would strain cash flow in quiet periods.
  • The money is for a short-term purpose that should pay for itself quickly, such as stock before a busy season.
  • Your accounts or credit history make a term loan hard to get, but your card takings are strong.

A business loan may suit you if

  • Your company has steady income and can comfortably meet a fixed payment.
  • You want the lowest total cost, or may repay early.
  • Much of your income arrives by bank transfer or invoice rather than card.
  • You need a longer term than an MCA would realistically give, for example to spread a large purchase over several years.

If your company sells mostly online or by invoice, an MCA may not fit at all. Our comparison of revenue-based finance vs merchant cash advance covers an option that takes repayments from total revenue.

What do lenders look at for each?

The application is different, because each lender is relying on something different.

  • MCA provider: mainly your card terminal history, usually several months of merchant statements, plus business bank statements, ID for directors and basic company checks. 365 Finance says no business plan or collateral is needed.
  • Term lender: your company’s overall finances. Linked Finance, for example, lends to companies with turnover over €100,000, asks for filed accounts, business bank statements and a tax clearance certificateConfirmation from Revenue that a company's tax affairs are in order., and runs credit and fraud checks.

This is why a company with strong card takings but weak or late accounts may find an MCA easier to get, and why a company with good accounts but modest card sales usually gets a better deal from a loan. Our checklist of documents for a business loan application covers the loan side in detail.

Does either show on your company’s CCR report?

It depends on the provider. Loans of €500 or more are reported to the Central Credit RegisterA database operated by the Central Bank of Ireland holding information on loans of €500 or more. by lenders that report to it, and lenders that search the register leave a record of the enquiry. Some MCAs are structured as a purchase of future card sales rather than a loan, and not every non-bank provider reports to the CCR. 365 Finance, for example, says it runs a soft credit check. Ask each provider what it searches and what it reports before you apply.

Questions to ask both providers

  1. What is the total amount repayableThe full sum a company will pay over the life of a loan or finance agreement, including the amount borrowed, interest and all fees. in euro, including every fee?
  2. For the MCA, what split will be taken, and is there a minimum payment or a final repayment date?
  3. For the loan, is there an early repayment charge?
  4. Is a personal guarantee or any security required?
  5. Will you search or report to the Central Credit Register? Lenders that search the CCR leave a record of the enquiry, and not every non-bank lender reports to it.
  6. Is the product regulated, and do the Central Bank’s SME Lending Regulations apply?

How Welcome Finance can help

Both merchant cash advance and short-term business loans are products our lender panel may be able to help with. Tell us your monthly card takings, total turnover and what the money is for, and we will set out the total cost of each option side by side so you can choose. Some lenders say they can decide within 24 hours of a complete application; this is not guaranteed. We are paid commission by lenders. We do not charge your company a fee and never ask for payment upfront. Welcome Finance is a commercial finance broker, not a lender, and is not regulated by the Central Bank of Ireland. We work only with companies registered in Ireland (LTD, DAC, PLC or ULC).