There's no single best way to fund a business. The right choice depends on what you need the money for, how quickly you need it and what you qualify for. Here's an honest comparison.
| Merchant cash advance | Bank term loan | Line of credit | SBA loan | |
|---|---|---|---|---|
| How you repay | A percentage of daily card sales | Fixed monthly payments | Payments on what you draw | Fixed monthly payments, often over 10 years or more |
| How cost works | A factor rate set up front | Interest on the remaining balance | Interest on the amount drawn | Interest (prime plus a spread), plus SBA guarantee and lender fees |
| What lenders focus on | Recent sales and cash flow | Credit, financial statements, collateral, time in business | Credit, financial statements, collateral | Credit, financial statements, collateral, plus SBA eligibility rules |
| Personal guarantee | Your offer spells out exactly what is required | Often required from owners | Often required from owners | Required: full and unconditional from every owner of 20% or more |
| Paperwork | Light: statements and a short application | Heavy: tax returns, statements, projections | Moderate to heavy | Heaviest: tax returns, statements, projections and SBA forms |
| Typical timeline | Often days | Often weeks to months | Often weeks | Longest: often 60 to 90 days or more |
| Best for | Short-term, revenue-producing needs | Large, long-term investments | Ongoing, flexible working capital | Long-term growth, real estate or acquisitions |
When a bank loan fits
If you have two or more years of strong financial statements, good credit and time to wait, a bank loan usually offers the lowest cost. It's the right tool for long-term investments like real estate or major equipment.
When a line of credit fits
A line of credit works like a safety net. You draw only what you need and pay interest only on what you use. It's ideal for evening out seasonal cash flow, but banks typically want the same strong financials as a term loan.
When an SBA loan fits
SBA loans are bank loans partly guaranteed by the U.S. Small Business Administration. They can offer long terms and lower costs for real estate, acquisitions and major growth projects. The trade-offs are real, though: they usually take the longest to close, often 60 to 90 days or more, and they come with the heaviest paperwork.
What to know about personal guarantees
An SBA loan requires a full, unconditional personal guarantee from every owner of 20% or more of the business. That means if the business can't repay, you are personally responsible for the debt, and lenders may also take liens on personal assets such as real estate. Before you sign any financing, make sure you understand exactly what you're personally promising.
When a merchant cash advance fits
An advance fits when you need funding quickly for a short-term opportunity, when your financial history doesn't yet meet a bank's requirements, or when you want payments that rise and fall with your sales. It generally costs more than bank financing, so it works best when the money produces more than it costs.
Our honest advice
If a bank or SBA loan will fund you at a lower cost, you can wait, and you're comfortable with the personal guarantee, take it. If you need flexibility and speed now, an advance can be a bridge to that next stage. Our founders started with alternative financing and grew into bank loans and lines of credit, and we want to help you make the same move.
Every business is different; past results don't guarantee future outcomes.