Merchant Cash Advance Vs. Working Capital Loan


Even the smartest small business owners may sometimes have difficulty covering operational expenses because their money is simply tied up. With a working capital loan or merchant cash advance, small businesses are able to tide themselves over. Directly into the business owner’s bank account, these financing options deliver liquid capital. One of these financing types might be considered by a small business owner if they need more cash on hand. A cash-hungry business can be kept running by these financing tools if they are handled properly. A vicious cycle of debt could be created, however, if they are misused.

Working Capital Loans Versus Merchant Cash Advance

Not exactly a “loan”, a merchant cash advance is more of a promise to a merchant. The merchant supplying the funding will receive future credit card sales percentages of a predetermined amount (possibly on a daily basis, weekly basis, etc.).

On the other hand, working capital loans basically fall under the traditional loan definition. You receive a lump sum of money when you take a working capital loan and then you need to pay it back (monthly installments are usually required).


Capital loans and merchant cash, such as invoice factoring, vary somewhat.

Money your business has yet to earn is the basis for a capital loan.

Invoice factoring is based on money you haven’t received yet, but you’ve earned, so it’s basically based on your accounts receivable.

That said, higher risk is assigned to the merchant cash advance. To cover what you’ve borrowed, you may not always be able to trust that you will bring in sufficient credit card transactions.


It’s easier to find reasonable APR when choosing working capital loans.

In the long run, merchant cash advances may be more expensive due to their high APR’s (200% is not entirely unheard of).

Use Allowances

Though there are exceptions, ordinarily, most capital loans and merchant cash loans don’t have a limit on your use of them. On the other hand, a type of working capital loan – an equipment loan – can only be used for the purchase of equipment. There are no such limits when it comes to merchant cash advances.


Working capital loans are frequently tied to credit scores, unlike merchant cash advances. If you have a poor borrowing history, obtaining a merchant cash advance may be easier than trying for a working capital loan.

Need A Working Capital Loan? Contact VIP Capital Funding

Turn to VIP Capital Funding when you need a working capital loan for your business. We work with top-tier United States investors and are a leading Fin-Tech Firm in the country. With our unrivaled business approach and working capital, you can gain a competitive advantage. When you need a working capital loan for your small to midsize business, before you turn to someone else, talk to us.

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