The Short Answer
All three are forms of revenue- or receivables-based funding: instead of leaning mainly on credit and collateral, the provider is repaid from money your business is already earning. The difference is which money. A merchant cash advance is repaid from daily sales and deposits, revenue-based financing from a share of monthly revenue, and factoring from specific unpaid invoices.
The terms are often used loosely. Some funders call a merchant cash advance "revenue-based financing," and some states use the legal term sales-based financing for both. Read how a specific offer is repaid, not just what it is called.
Side-by-Side Comparison
| Merchant cash advance | Revenue-based financing | Invoice factoring | |
|---|---|---|---|
| What you get | Lump sum for a share of future sales | Capital repaid from a share of future revenue | Cash now for unpaid invoices |
| How you repay | Fixed daily or weekly debits, or a percentage of card sales | A percentage of monthly revenue until a set total is repaid | Your customer pays the invoice; the factor keeps its fee |
| Pricing | Factor rate (fixed total payback) | Repayment cap, often a multiple of the amount funded | Discount or fee based on how long invoices stay unpaid |
| Main approval factor | Deposits and card sales | Recurring revenue and growth | Your customers' creditworthiness |
| Typical users | Restaurants, retail, service businesses with steady sales | Subscription, e-commerce, and other recurring-revenue businesses | B2B companies with net 30 to 90 invoices |
| Is it a loan? | Usually structured as a receivables purchase | Varies; some are loans, some are purchases | A sale of invoices, not a loan |
General patterns; terms vary by provider. State disclosure laws may apply to all three.
When a Merchant Cash Advance Fits
An MCA fits a business with steady card sales or deposits that needs funding quickly and can absorb frequent payments. It is usually the fastest of the three and the most expensive. See MCA requirements and how MCA pricing works.
When Revenue-Based Financing Fits
Revenue-based financing is common for businesses with predictable recurring revenue, such as subscription or e-commerce companies, that want to grow without giving up equity. Payments rise and fall with monthly revenue until a pre-agreed total is repaid. Ask how the percentage, the repayment cap, and any minimum payment work before you sign.
When Factoring Fits
Factoring fits B2B businesses that wait 30 to 90 days to get paid. Approval leans on your customers' credit, which helps newer companies with strong clients. Compare it with borrowing against your receivables in factoring vs. A/R financing, or see accounts receivable financing.
How to Choose
- Paid by cards or daily deposits? Compare an MCA with a working capital loan.
- Recurring monthly revenue? Look at revenue-based financing and lines of credit.
- Waiting on invoices? Factoring or A/R financing is usually the better fit.
- Comparing offers? Convert each to total dollars and an estimated APR with the MCA calculator.
Not sure which structure fits?
One 60-second form, soft check only. A specialist matches your revenue pattern to the right program.
Frequently Asked Questions
What is the difference between a merchant cash advance and revenue-based financing?
An MCA is usually repaid from daily sales or deposits through fixed debits or a share of card sales, and priced with a factor rate. Revenue-based financing is repaid from a percentage of monthly revenue until a set total is reached. Some funders use the terms interchangeably, so check how payments actually work.
What is the difference between a merchant cash advance and factoring?
An MCA is repaid from your future sales overall. Factoring is a sale of specific unpaid invoices, and repayment comes when your customers pay them. Factoring approval depends mainly on your customers' credit.
Which is cheapest: MCA, revenue-based financing, or factoring?
It depends on the offer and how quickly you repay. MCAs are often the most expensive on an annualized basis. Compare the total dollar cost and estimated APR of each offer.
Is revenue-based financing a loan?
It depends on how the agreement is structured. Some revenue-based financing is a loan; some is a purchase of future revenue. State disclosure laws for sales-based financing may apply either way.
Can I use factoring and a merchant cash advance at the same time?
Sometimes, but both may claim the same receivables through UCC liens, and many MCA agreements restrict additional financing. Disclose all existing financing to any new provider.