Term loan vs invoice finance vs MCA: which fits you
Three working-capital routes solve different problems. A term loan suits one-off needs with a clear use of proceeds, invoice finance suits B2B businesses where the cash gap is structural, and a merchant cash advance suits card-taking businesses needing fast, flexible cash. Choosing the wrong shape means paying more than necessary or carrying the wrong risk.
How a term loan works
A term loan is a fixed amount lent on day one and repaid in equal monthly instalments over a fixed period, typically six months to six years. Interest applies to the full outstanding balance through the term, whether or not the cash is being used. It fits one-off needs with a defined use of proceeds: equipment, a fit-out, a marketing push or an acquisition deposit. FundBiz routes term-loan needs to mainstream and challenger lenders depending on the profile.
How invoice finance works
Invoice finance advances most of the value of an unpaid B2B invoice, often 80 to 95 percent, within a day or two of it being raised. The customer pays the lender, which then returns the balance less its fees. It is a continuous facility rather than a fixed-term loan, and it scales naturally with the debtor book, which is why it suits B2B businesses where the structural problem is the gap between invoicing and being paid. FundBiz routes the core invoice-finance need to our sister site MarketInvoice for specialist quotes.
How a merchant cash advance works
A merchant cash advance provides a lump sum, usually a multiple of monthly card-machine takings, repaid as a fixed share of daily card receipts. The total repayment is expressed as a factor rate rather than an interest rate, so it behaves like a short-term loan whose repayments rise and fall with trade. It suits retail, hospitality and other card-taking businesses that need fast cash and value repayments that flex with takings rather than sitting as a fixed monthly burden.
The decision framework
Five questions usually settle it. Is the need one-off or ongoing, since one-off points to a term loan and ongoing to invoice finance or an MCA. Is the revenue B2B or card-based, since B2B points to invoice finance and card-based to an MCA. Is the cash issue timing or shortage, since a timing gap suits invoice finance or an MCA while a genuine shortage points to a term loan or an operational fix. How fast is the money needed, with same-week needs favouring an MCA. And how long is it needed for, with under a year favouring an MCA or short term loan and one to six years favouring a term loan. The common mistakes are using an MCA for long-term capex, where the factor-rate maths punishes long use, and using a term loan for recurring cycle gaps, where you pay interest on the full balance even when the cash is idle. Where a recent decline has narrowed the options, the post-decline routing sets out the alternatives.
Frequently asked questions
Which of the three is cheapest?
It depends on the use case. For a B2B business with consistent invoicing, invoice finance is typically cheapest per pound funded. For a one-off need, a term loan almost always beats an MCA on absolute cost. For short-term retail or hospitality cash, an MCA aligns better even at a higher absolute cost. Compare total cost over the real use period, not the headline rate.
Which is fastest to fund?
A merchant cash advance from a specialist usually decides within a day or two and funds the same week. Fintech term loans decide in a similar window and fund within one to two weeks. Invoice finance takes around a week to set up, after which individual invoices fund within a day or two.
Which is hardest to qualify for?
Term loans are typically hardest for younger or impaired-credit applicants because the underwriting leans most on credit and trading position. Invoice finance is easier early because the receivable is the underwriting question, and an MCA is accessible for retail or hospitality with six or more months of card flow.
Can I run more than one of these at once?
Yes, and many businesses do. Common combinations include invoice finance for receivables alongside a term loan for capex, or an MCA for short-term card-flow cash alongside a term loan for longer needs. Lenders aggregate the repayment burden when assessing affordability, but running complementary products is standard.
Check what you qualify for
Tell us your revenue shape and what the money is for, and we will match you to the product and lenders that fit, before any hard search.
Open the eligibility checker →Director, FundBiz
Oliver leads FundBiz's specialty finance comparison and matching engine. With a background in UK commercial finance, he oversees lender partnerships, eligibility logic and post-decline routing.
Last reviewed: 29 June 2026
This is general information, not financial advice. FundBiz works with limited companies, LLPs and partnerships of four or more. Last reviewed: 29 June 2026.