When you’re looking to boost your business’s cash flow, it’s easy to feel overwhelmed by the funding options available. Two of the most popular choices for UK businesses are business loans and merchant cash advances, but they work quite differently and choosing the wrong one could cost you more than you think. So, in the debate of business loans vs. merchant cash advances, which is better for your business? Let’s explore both options so you can make an informed decision.
What Is a Business Loan?
A business loan is probably the most traditional form of financing. You borrow a lump sum and pay it back over an agreed period, usually through monthly payments that include both the loan amount and interest.
The repayment stays the same each month, which makes budgeting easier and keeps surprises to a minimum.
Best for you if:
- Your business has stable revenue
- You’re looking to invest in equipment, stock or expansion
- You prefer predictable repayments
Pros of Business Loans:
- Fixed interest and repayment terms
- Usually lower rates than more flexible finance options
- Can help build up your business credit
- Ideal for long-term plans
Considerations:
- There’s typically more paperwork involved
- You’ll have to stick to fixed monthly repayments, even if your revenue dips
What Is a Merchant Cash Advance?
A merchant cash advance (MCA) works a little differently. You still get a lump sum upfront, but instead of making set monthly payments, you repay it through a percentage of your daily card sales.
So if business is booming, you’ll pay more during that period. If it’s quiet, your repayment will be smaller.
Best for you if:
- Your business has strong card sales (like retail, e-commerce or hospitality)
- You need fast access to capital with flexible repayment
- Your income is a bit seasonal or up and down
Pros of Merchant Cash Advances:
- Repayments flex with your revenue
- You can often get approved and funded within 24-48 hours
- No fixed monthly bills hanging over your head
- Minimal paperwork
Considerations:
- It’s usually more expensive than a loan over time
- Not great if you don’t take many card payments
- Because repayments are daily, it can eat into your cash flow quickly if you’re not prepared
Quick Look: Business Loans vs. Merchant Cash Advances
| Feature | Business Loan | Merchant Cash Advance |
| How you repay | Same amount each month. Easy to budget | A percentage of your daily card sales |
| Ideal for | Growing your business steadily over time | Solving short-term cash flow gaps quickly |
| How fast you get funds | Usually takes 2-7 days | Often within 24-48 hours |
| Overall cost | Lower interest rates, more affordable in the long run | Can be more expensive overall |
| Flexibility | Less room to adjust once terms are set | Very flexible. Payments adjust with your sales |
| Credit check needed? | Yes, lenders will check your credit | Often not required |
Which One Is Better?
It really depends on how your business works.
- A business loan is great if you want structure, predictability and a lower overall cost. You’ll know exactly what you’re repaying and can plan for it.
- A merchant cash advance, on the other hand, gives you fast access to funds with much more flexible repayments. Ideal if your sales vary from month to month or you need to move quickly.
There’s no one-size-fits-all answer when it comes to business loans vs. merchant cash advances. Instead, it comes down to what your business needs today and where it’s heading tomorrow.
Choosing between a business loan and a merchant cash advance really comes down to how your business operates and what kind of funding structure will help it thrive, not just now, but in the long run.
Speak to Business Finance House today for honest, tailored advice that puts your business first.
