Term Loan vs. SBA Loan vs. Line of Credit vs. Merchant Cash Advance
Most small businesses choose between four kinds of funding. Picking the right one can cut your cost of capital significantly, and picking the wrong one can squeeze your cash flow for months. Here's how they compare.
The short version
| Term loan | SBA 7(a) loan | Line of credit | Merchant cash advance | |
|---|---|---|---|---|
| What it is | Lump sum, fixed payments | Lump sum, partially government-guaranteed | Revolving credit you draw from | Purchase of future receivables (not a loan) |
| Typical speed | 1–3 weeks | Several weeks or more | 1–2 weeks to set up | Often 1–3 business days |
| Typical cost | Moderate | Lowest | Moderate (on what you draw) | Highest |
| Typical term | 1–10 years | Up to 10 years (25 for real estate) | Revolving | Usually 3–18 months |
| Credit importance | High | High | Medium–high | Lower; deposits matter most |
| Best for | Planned growth, refinancing | Big projects, acquisitions, real estate | Seasonal swings, short gaps | Urgent needs when others don't fit |
All figures are typical ranges for illustration. Actual terms depend on each funder's underwriting.
Business term loans
A term loan gives you a lump sum repaid in fixed installments. It suits planned investments with a clear payoff: a renovation, new equipment, a marketing push, or replacing expensive debt. Funders typically want a couple of years in business, solid revenue and decent credit.
SBA 7(a) loans
SBA loans are made by participating lenders and partially guaranteed by the U.S. Small Business Administration. That guarantee allows long terms and comparatively low rates for qualified businesses. The trade-off is paperwork and time. They're excellent for acquisitions, real estate and large projects when you can plan ahead.
Business lines of credit
A line of credit works like a business credit card with better terms: draw what you need, repay, and draw again. You generally pay only on what you use. It's ideal for seasonal businesses, inventory purchases and short cash-flow gaps.
Merchant cash advances
A merchant cash advance provides fast capital in exchange for a share of future sales or fixed daily or weekly remittances. It's priced with a factor rate (typically about 1.15–1.50). Because the term is short, the effective cost is usually the highest of the four. It fits urgent needs, or businesses with strong deposits that don't yet qualify for cheaper options. Avoid stacking several advances at once.
How to choose
- Can you wait a few weeks? Look at SBA and term loans first.
- Is the need recurring or seasonal? A line of credit usually beats repeated short-term funding.
- Is it equipment? Equipment financing is often cheaper than general working capital.
- Is it urgent and nothing else fits? A merchant cash advance can bridge the gap. Compare the total payback and the payment frequency.
Not sure which fits? SafeSpay compares options from multiple funders with one short application and a soft credit inquiry to start.
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