10 MCA Alternatives in 2024

MCAs provide fast access to capital with minimal requirements, but that comes with higher costs and shorter repayment terms. If you’re looking for merchant cash advance alternatives that may offer lower costs and longer repayment terms, or if you don’t meet the minimum credit card sales volume to qualify for an MCA, then this article gives you 10 possible alternatives to consider.

What Are Alternatives To A Merchant Cash Advance?

Below is a table highlighting the 10 most common alternatives of MCAs:

Alternative 1. Business Lines of Credit

A business line of credit is an alternative you might want to consider over an MCA. Unlike an 

MCA, where you receive a lump sum and repay it through your credit card sales over a period of 3 to 18 months, a business line of credit allows you to borrow up to a set limit of funds each month but you only pay interest on the amount you’ve used in that month.

By paying interest only on what you’ve used from your business line of credit each month in a given month, a business line of credit can be a more affordable alternative to MCAs. Plus, you can access the same amount of funds the following month. It’s an excellent credit facility if you need regular short-term financing to cover cash flow shortfalls during the month. 

Traditional banks, online lenders, fintech companies, and alternative lenders all offer business lines of credit. 

Interest rates typically range between 8% to 60%.

To qualify for a business line of credit, you generally need a 600+ FICO credit score and often something to secure the credit line, such as asset collateral or a personal guarantee. 

Alternative 2. Business Loans – from Traditional Lenders

Business loans from traditional lenders like banks should be high on your list as an alternative source of finance instead of MCAs, especially if your credit score is 670+ FICO or above and you can provide collateral to guarantee the loan. Unlike MCAs which offer quick but often expensive capital, bank loans are generally more affordable, with interest rates ranging from 6% upwards depending on your credit worthiness. They also offer longer repayment terms, typically between 3 to 10 years, giving you the ability to spread out your loan over a longer period of time.

Getting a bank loan can also be a good strategic move for your businesses long term growth, not just a quick fix for cash needs.  Establishing a good relationship with a bank can pay off down the line as your financing needs evolve. By borrowing and repaying your bank loan on time, you’re not just accessing funds, you are building a financial history that can make future borrowing from banks much easier and potentially more affordable.

So, if you have a strong financial track record and can offer collateral to secure a loan, a bank loan is a more cost-effective and good strategic alternative to an MCA.

Alternative 3. Business Loans – From Alternative Lenders

Business loans, provided and alternative lenders and fintech companies, are another alternative to MCAs. They share a key similarity with MCAs as they have more lenient eligibility criteria.

If you’re struggling to secure funding because you do not meet traditional lenders minimum requirements, business loans from alternative lenders could be a good option because they also have high approval rates like MCAs due to their lenient requirements. Many of these alternative lenders only require a FICO credit score of 580 or higher for you to qualify, which is considered just a fair credit rating.

Keep in mind that most alternative lenders do charge higher interest rates for these types of business loans. The reason is that alternative lenders are taking on more risk, so they charge higher interest rates to offset that risk.

Interest rates for these loans can vary widely, from 8.5% to 45%, depending on factors like your creditworthiness and your business’s financial stability. Despite the higher rates, these loans may offer a valuable alternative to MCAs if you have less than a perfect credit history and do not meet the minimum creditworthiness requirements or credit card sales requirements to apply for an MCA.

Alternative 4. Invoice Factoring

If your business often waits on unpaid invoices, invoice factoring could be a cost-effective alternative to MCAs. Unlike MCAs, invoice factoring allows you to sell your outstanding invoices to a factoring company at a discount, giving you immediate access to cash. This is especially useful if your business operates on credit terms with clients. Factoring companies typically charge a fee of 1% to 5% of the total invoice value per month. You don’t need to undergo any credit checks, and there are no minimum credit score requirements. So, if your business relies on invoicing clients, invoice factoring could be a good MCA alternative for your business.

Alternative 5. Revenue Based Financing

Revenue-based financing (RBF) involves obtaining capital from a lender, and in exchange, the lender takes a portion of your future monthly revenue until the agreed-upon amount is fully repaid.

This portion typically ranges from 2% to 10% of your monthly revenue.

Lenders primarily consider your overall monthly business revenue when providing funding. This makes it a viable alternative to MCAs, which solely rely on your total credit card sales as a key determining factor. So, if your credit card sales are low or don’t meet the minimum sales threshold, but you have a steady monthly income, RBF can be a suitable MCA alternative.

Alternative 6. Asset Based Loans

It is worth considering asset-based loans if you have business assets such as inventory, equipment, accounts receivable, or real estate that you can use as collateral. The loan amount you receive is directly tied to the value of these assets, which helps reduce the lender’s risk. As the value of your assets grows or decreases, your borrowing capacity also adjusts accordingly, giving you more or less flexibility based on your current asset volume and value.

This option becomes particularly valuable when you possess business assets but may not meet the credit requirements for traditional bank loans that are also collateral backed. Asset-based loans often come with competitive interest rates, typically ranging from 5.25% to 15%, and offer longer repayment terms compared to merchant cash advances (MCAs), making them an attractive alternative for businesses with valuable assets.

Alternative 7: SBA Loans

If you possess a credit score of at least FICO 640, have collateral to secure a loan, and don’t require immediate access to funds, exploring an SBA loan could be an attractive alternative to MCAs.

SBA loans involve a government agency, the Small Business Administration (SBA), providing a loan guarantee to the lender you are applying to. This guarantee assures the lender that if you are unable to repay the loan, the government will step in to cover a portion of the lender’s losses. This arrangement reduces the risk for lenders, increasing your chances of loan approval.

One significant advantage of SBA loans over MCAs is their favorable interest rates and longer repayment periods. This translates to lower overall borrowing costs and the flexibility to repay the loan over many years, unlike MCAs with higher costs and shorter 3 to 18-month repayment periods.

The table below highlights the different interest rates for various types of SBA loans available to small businesses and how they typically offer more favorable rates than MCAs.

To secure an SBA loan, you’ll need to prepare a comprehensive business plan, maintain a credit score of at least FiCO 640+, offer collateral to secure the loan, and provide a personal guarantee. 

For an in-depth comparison between SBA loans and merchant cash advances, along with the pros and cons of each, you can refer to my article titled “MCAs vs. SBA Loans.”

Alternative 8. Business Credit Cards

Business credit cards are often an overlooked alternative to MCAs. If you were considering getting an MCA to help manage cash flow, a business credit card could be an alternative way to get funds to manage cash flow gaps with its revolving line of credit you can tap into each month.

Getting a business card can also build your business credit and boost your overall credit score. This makes it easier to access larger capital in the future with better terms, reducing the need for alternative financing like MCAs.

Keep in mind the costs associated with business credit cards. Typically, they come with interest rates ranging from 18.5 percent to 28 percent if you exceed the credit limit allocated to your business.

Remember that business credit cards are primarily tailored for small businesses with a FICO score of 670 or higher. While alternative credit cards exist for those with lower credit scores, they usually have much higher annual percentage rates (APR).

Alternative 9. Equipment Leasing

If your business requires equipment such as machinery, vehicles, or computers, equipment leasing may be a more cost-effective alternative to getting an MCA for funding these purchases. The types of equipment you can lease are diverse, ranging from manufacturing and production equipment to heavy machinery, transportation equipment, and even office furniture.

Instead of purchasing and owning the equipment outright, you make regular monthly payments. Typical interest rates for equipment leases range from 7% to 16%. This allows you to get the equipment you need with minimal upfront costs—sometimes as little as 5%. There are also many no-down-payment options available. This approach helps you manage cash flow effectively.

Equipment leasing allows you to conserve capital and eliminates the need to get an MCA for financing an equipment purchase, while still enabling you to acquire the equipment necessary to operate and grow your business.

Alternative 10. Equipment Financing

If the primary reason you’re considering an MCA is to purchase business-related equipment or machinery, equipment financing could be a more suitable alternative. Like equipment leasing, this financing option enables you to get the essential equipment your startup needs without requiring a large upfront payment. The key difference is that with equipment financing, you will ultimately own the equipment after fulfilling the financing term.

Specialized lenders offer equipment financing, with interest rates generally ranging from 4% to 30%. One significant advantage over MCAs is the repayment term. Equipment financing terms often extend over a longer period, typically between 3 to 5 years. In contrast, MCAs usually require you to repay the full amount within a much shorter time frame, often between 3 to 18 months.

This longer repayment period with equipment financing means you can make smaller, more manageable payments. This feature can be particularly beneficial for managing your startup’s cash flow effectively.