12 Best Merchant Cash Advance Alternatives for Small Businesses

For many small business owners, fast funding is crucial to seizing new opportunities and navigating cash flow challenges. While merchant cash advances (MCAs) are a popular choice for merchants with regular credit and debit card sales, they are not always the most cost-effective or flexible option. Let’s explore 12 alternatives to merchant cash advances that may better suit your business’s financial needs.

Merchant Cash Advance Alternatives

1. Online Small Business Loan

Online lenders provide a convenient way for obtaining a small business loan. Because many online funding options are unsecured, they appeal to some of the same businesses as merchant cash advances. Online small business loans also often come with a straightforward application process, and approval times are usually much faster than traditional banks. This can make them a great choice for businesses that need fast funds. If approved, the business receives an upfront lump sum of money and repays in installments over a specific period of time. Online small business loans can be utilized for a wide variety of purposes, such as purchasing inventory, funding expansion or bolstering working capital.

2. Line of Credit

A business line of credit is a flexible business financing option that enables you to borrow up to a predetermined limit as needed, similar to a credit card. This flexibility is particularly advantageous for businesses that may experience fluctuating cash flow situations. Generally, you only pay interest on the amount borrowed, which can make it a more cost-effective solution compared to other types of financing. Lines of credit can be used for a variety of needs, including unexpected expenses, seasonal inventory purchases, or any immediate cash requirements. Similar to merchant cash advances, lines of credit may appeal to businesses that experience highs and lows (perhaps due to seasonality), because you can keep funds on hand for when you need them.

3. Bank Loan

Traditional bank loans can be a solid option for businesses with a strong credit history that are seeking competitive interest rates and favorable terms. Although the application process of a traditional lender can be time-consuming, the benefits can merit the effort. Banks typically provide various types of loans tailored to specific business needs, from short-term loans to long-term financing options for expansion. Additionally, establishing a relationship with your bank can lead to better terms in future financing endeavors, creating a reliable basis for your business’s financial health. That aspect of this type of funding can be an especially appealing alternative to working with a merchant cash advance provider.

4. SBA Loan

Backed by the U.S. Small Business Administration (SBA), these loans offer an attractive financing option for small businesses that might not qualify for conventional business funding. That’s part of what makes them appealing to the same type of business owner that may seek an MCA. With an SBA loan, the SBA does not actually lend money, but rather guarantees the repayment, which allows lenders to offer more favorable terms. SBA loans often feature lower interest rates and longer repayment periods, making them a cost-effective solution. However, the approval process can be rigorous and requires detailed financial documentation, so it’s advisable to prepare thoroughly.

5. Equipment Loan

Similar to MCAs, equipment loans appeal to specific types of businesses. For businesses that require new or upgraded equipment, an equipment loan can provide the necessary financing. These loans are a type of equipment financing generally secured by the equipment itself, which can lead to more favorable terms, including lower interest rates. And equipment loans can often be structured to align with the depreciation schedule of the assets, allowing for manageable payments over time. Keep in mind that by using the equipment as collateral, however, the equipment may be repossessed by the lender if you fail to make payments.

6. Business Credit Card

Business credit cards present a versatile financing option that can assist in managing short-term expenses. Many business credit cards come with rewards, cashback opportunities and other perks, making them an attractive solution for covering operational costs. Unlike traditional loans, credit cards allow you to borrow up to your limit with more flexibility than a term loan with a fixed monthly payment schedule. This can aid in navigating cash flow issues effectively, though it’s crucial to manage the balance responsibly to avoid high-interest charges. Business credit cards are fairly easy to get approved for compared to other types of business funding. That makes them appealing to the same type of business owner that may be looking for a merchant cash advance.

7. Crowdfunding

In recent years, crowdfunding has emerged as an innovative way to finance a business by raising funds from a large number of people through platforms such as Kickstarter and Indiegogo. This method not only allows you to secure the capital needed, but it also serves as a valuable marketing tool by validating your business idea and building a community of supporters. It’s essential to craft a compelling campaign, as potential backers will often look for persuasive narratives and tangible incentives. While it can be competitive, success in crowdfunding can provide your business with both funding and exposure.

8. Invoice Factoring

Invoice factoring involves selling your unpaid invoices to a factoring company at a discount. This alternative financing solution can provide businesses with immediate cash flow, allowing them to meet financial obligations without delay. The factoring company will then take on the responsibility of collecting payments from your customers. This can be particularly useful for businesses that have a significant amount of outstanding invoices, as it can revitalize cash flow while decreasing the burden of account receivables management. Invoice factoring can be somewhat similar to a merchant cash advance in that the provider or factoring company gets paid when the borrower’s customer pays. In that regard, it has a built-in repayment process.

9. No Credit Check Business Loan

For businesses with less-than-stellar credit history, no credit check business loans can present a viable funding solution. These loans generally have low eligibility requirements but higher interest rates. They are typically designed to provide a lifeline for businesses needing quick cash, especially in emergencies or when other financing options are unavailable. However, it’s essential to carefully evaluate the terms before committing, as the high cost can escalate rapidly.

10. Bad Credit Business Loan

Similar to no credit check loans, bad credit business loans are tailored for applicants with poor credit scores. These loans may come with higher interest rates and less favorable terms, but they can still provide essential funding to support business growth. Many lenders specializing in bad credit financing understand the unique challenges faced by these businesses and may offer flexible repayment plans. Before proceeding, it’s advisable to explore multiple types of business lenders to find the best possible terms.

11. Investors

Attracting private investors or venture capitalists can significantly enhance your business’s financial resources. While accepting investment often involves giving up a portion of your company’s equity, the capital can allow for substantial growth opportunities. Moreover, investors frequently bring valuable expertise, mentorship and networking connections that can contribute to the long-term success of your business. A solid business plan and clear financial projections are critical when seeking investment, as they help demonstrate future sales and the potential return on investment.

12. Grants

Grants represent a unique opportunity to secure funding without the obligation of repayment. They are often awarded by governments, foundations or nonprofit organizations to support businesses that align with specific criteria or initiatives. While the competition can be fierce and the application process demanding, securing a grant can provide a significant boost without adding to your debt burden. It is important to research available grants within your industry to identify feasible opportunities and polish your applications to meet requirements.

Why a Merchant Cash Advance May Not Be Right for Your Business

Merchant cash advances can offer quick access to cash, but they frequently come with high fees and annual percentage rates (APRs) that can escalate quickly. The repayment terms, which are often tied to daily credit card sales, can put additional strain on your cash flow, particularly during slower sales periods. Thus, small business owners should weigh these risks carefully against their financial needs.

Choosing the Right Merchant Cash Advance Alternative

Selecting the right financing alternative requires a thorough understanding of your business’s financial health, needs, and goals. Evaluating factors such as interest rates, repayment terms, and the potential impact on cash flow is crucial when determining which option best suits your business. It may also be beneficial to consult with a financial advisor or accountant to assess the potential impact on your overall financial strategy. With careful consideration and research, you can find the right financing solution that supports your business’s growth and success.

The Bottom Line

Small businesses often need access to reliable funding options to support their operations and growth. While traditional loans from banks may not always be attainable, there are various alternative financing solutions available. From credit cards and crowdfunding to invoice factoring and grants, each option offers unique benefits for different situations. However, it’s essential to carefully evaluate the terms and weigh the risks before committing to any financing option.