In our data covering every 7(a) loan funded since FY2010, the median borrower in FY2025 paid 10.25% in interest, plus an upfront guaranty fee scaled to loan size. A merchant cash advance skips interest and fee labels entirely and instead sells a factor rate, typically 1.1 to 1.5, meaning you repay $1.10 to $1.50 for every dollar advanced. Annualized, that commonly works out to 40% to 350% or higher, per NerdWallet’s July 2026 market survey. California’s financial regulator now requires MCA providers to disclose an APR-equivalent before a business signs; applying that required calculation method to a representative deal, a $50,000 advance at a 1.35 factor rate repaid over roughly 120 days comes out to an annualized cost of 106% to 110%. Set that next to SBA’s 10.25% median and the gap is not close.
How MCA pricing hides the true cost
A factor rate is not an interest rate. Multiplying $50,000 by 1.35 gives a total repayment of $67,500, a $17,500 cost that sounds like a flat fee. Annualizing that cost against the actual repayment period, usually a few months of daily or weekly debits from card sales, is what turns a “1.35” into a rate north of 100%. Before disclosure laws like California’s, and now New York’s, that annualized figure was rarely shown to the borrower at all, which is part of why the Federal Reserve’s 2025 Small Business Credit Survey found that borrowers from online and cash-advance lenders were far more likely than bank borrowers to say their actual costs ran higher than expected.
A shorter estimated repayment period pushes the annualized cost up further for the same factor rate, since the same dollar cost is being spread over fewer months. That is the opposite of how an SBA loan behaves: a longer SBA term lowers the effective annual cost relative to the payment, while a faster MCA payoff raises it. Two businesses quoted the same 1.35 factor rate can end up with meaningfully different annualized costs depending on how quickly their card volume covers the advance.
What an SBA loan costs instead
SBA’s cost structure is transparent and scheduled by rule, not negotiated deal by deal. The upfront guaranty fee runs 2% of the guaranteed portion on loans of $150,000 or less, 3% from $150,001 to $700,000, and 3.5% to 3.75% on the guaranteed portion above that, and it can usually be financed into the loan rather than paid in cash upfront. On the same $50,000 example used above, an SBA loan’s guaranty fee would land in the low hundreds of dollars against the roughly $17,500 total cost of the MCA’s 1.35 factor rate. Estimate the fee for your loan size with the guaranty fee calculator, and see the full rate mechanics in how the SBA guarantee actually works. The trade-off for that lower cost is time: SBA underwriting runs weeks, not the same-day funding an MCA provider markets.
The repayment mechanics matter too
An MCA is typically repaid through a fixed daily or weekly debit from card sales or bank deposits, sized to a percentage of revenue rather than a flat installment. On a slow week, the debit can still pull cash a business needs for payroll or inventory, a structural risk on top of the annualized cost. An SBA loan repays on a fixed monthly schedule set at closing, predictable regardless of a given week’s sales. Among the broader category of online lender applicants tracked in the Federal Reserve’s 2025 Small Business Credit Survey (the classification that includes most cash-advance providers), “unfavorable repayment terms” was the second most common complaint after high interest rates, consistent with what a revenue-based daily debit can do to a business’s cash flow.
Why the gap is this wide
An SBA lender underwrites against a government guarantee that lowers its downside risk, which is part of why SBA rates stay capped even for borrowers a conventional lender might decline. An MCA provider carries the full risk of a volatile, receipts-based repayment on a business it often has not deeply underwritten, and prices for that risk, and for the daily-repayment convenience it is selling, accordingly. There is no SBA-style guarantee softening the provider’s downside, so nothing caps the price.
Where an MCA is honestly the better, or only, option
If a business genuinely cannot wait weeks, or its credit and time in business rule out SBA and most bank financing outright, an MCA can be the only source of capital available on short notice. For a small, short bridge with a clear, near-term payoff, the dollar cost can be tolerable even at a high annualized rate. That is a real use case, not a reason to default to it for anything longer-term.
Where it isn’t
An MCA is a poor substitute for financing you would otherwise carry for years: equipment, real estate, a buyout, or general growth capital. Taking a second or third advance to cover the daily debits from an existing one, sometimes called stacking, compounds the annualized cost further and is a pattern worth recognizing before it starts, not after. Compare the two head-to-head against a conventional loan too in SBA loan vs. conventional loan, and before signing an MCA contract, get a shortlist of SBA lenders that actually fund businesses like yours, built on funded-loan track records rather than who pays for placement, through get matched. A week or two spent checking SBA eligibility can be worth avoiding a triple-digit annualized rate.