You need to enable JavaScript to run this app.
By Travis Yule — CEO & Founder, Full Send Funding
Published 2025-07-22 · Updated 2026-09-30
One accrues interest on a declining balance; the other fixes its total on day one. That structural difference, not the headline rate, is what should decide it.
In one sentence: A term loan charges interest on a declining balance and an advance fixes its total at signing, so the same $100,000 costs $6,618.55 or $30,000 over twelve months — and the premium buys a payment that can fall when revenue does, where the agreement grants a reconciliation right.
The short answer: a merchant cash advance is faster and far easier to qualify for, costs more, and its payment can fall when your sales do, where the agreement grants a reconciliation right; a term loan costs less, wants a stronger profile, and holds you to a fixed schedule regardless of what the month looks like. Most funding questions eventually reduce to this one, and picking the wrong side of it costs real money.
Both products put working capital in the account. They behave very differently once repayment starts, and the difference is structural rather than a matter of degree. What follows works it in dollars: the same $100,000 under both structures, what each does to the account when revenue falls by a third, what early payoff is worth on each, and the four cases where the cheaper product is the wrong one.
A term loan is a loan. A lender advances a principal amount and you repay it with interest on a fixed schedule over a set term. Full Send Funding does not make term loans itself: where one fits, we arrange it with a direct lending partner, only if you choose to and at no fee to you. Interest accrues on a declining balance, so paying early genuinely saves money, and the total cost depends on how long you take.
A merchant cash advance is not a loan. It is the purchase of a fixed amount of your future receivables at a discount. You receive a lump sum and remit a fixed amount on a set schedule — or, at some funders, a percentage of card sales taken at the processor — until the purchased amount has been delivered. The cost is expressed as a factor rate: $50,000 at a 1.30 factor means $65,000 of total payback, set on day one and not changing with time.
That last clause is the crux. On a loan, time costs money. On an advance, time is already priced in — which means a longer term does not cost more, it just presses less hard on each week.
Three consequences follow, and every practical difference below is one of them. The total is known on day one for the advance and only estimated for the loan, because the loan's total depends on how long you keep it. The term is a forecast on the advance and a contractual fact on the loan. And the payment can legitimately fall when revenue falls on the advance, where the agreement grants a reconciliation right, while a loan's schedule is the schedule. How an advance works from the inside sets out that mechanism in full, including the case law on what makes the purchase characterisation real; this page is about choosing between the two.
Take a business doing $100,000 a month in revenue — which puts $100,000 of funding squarely inside our published sizing range of 80% to 150% of monthly revenue — and price the same money under both structures. The rates below are illustrations chosen to show the arithmetic. They are not quotes.
$100,000 at a 1.30 factor is $130,000 of total payback. The cost is $30,000, which is 30% of the amount funded. That is what cost of capital means here: a total cost on the money advanced, fixed at signing, not a rate per year. Our published band runs from 4.5% to 45% depending on the qualifications and the term length, so on $100,000 the two ends of that band are $104,500 and $145,000 of payback — a $40,500 spread on the same advance, which is why a funder quoting one number for every file is quoting a number that cannot be true for all of them.
Over a twelve-month expected term, $130,000 comes back as $2,500 a week, or $515.87 on each of roughly 252 banking days, or $10,833.33 a month. Those are three descriptions of one obligation, and which cadence you take is a separate decision from price.
$100,000 over twelve months at 12% annual interest — 1% a month, the same illustrative loan rate the line-of-credit comparison prices against — amortises at $8,884.88 a month. Total paid across the twelve is $106,618.55, of which $6,618.55 is interest.
Watch where that money goes, because it is the whole mechanism. The first payment carries $1,000 of interest, being 1% of the $100,000 still outstanding, and $7,884.88 of principal. The last payment carries $87.97 of interest, because by then only $8,796.91 is still outstanding. Interest is charged on what you still owe, so the interest share of every payment falls whether you do anything about it or not.
The advance's $30,000 does none of that. It was attached to the money at signing, and it does not shrink, because there is no balance for it to be charged against.
Same business, same $100,000, same twelve months: $30,000 of cost against $6,618.55. The advance costs $23,381.45 more — about four and a half times.
There are exactly two honest readings of that gap, and which one applies to you is not a matter of opinion.
If the loan was genuinely available to you, the gap is the price of not taking it, and it is very hard to justify. If it was not — because the file is four months old, or the season is wrong, or credit rules it out today — then the comparison is not between two offers at all. It is between the advance and not doing the thing, which is a margin question rather than a rate question. A product you cannot get is not cheaper than one you can.
The margin question has an arithmetic answer, and most people get it wrong in the conservative direction, which costs them deals they should have done.
Suppose the $100,000 buys inventory at 30% off list. The instinct is that a 30% discount against a 30% cost of capital is a wash. It is not, because the discount is measured against list and the cost is measured against the cash. $100,000 buys $142,857.14 of goods at 30% off, so the saving is $42,857.14 against a $30,000 cost — $12,857.14 ahead, not level.
Run it the other way and the break-even is a discount of about 23%, not 30%. A 23.1% discount means paying 76.9% of list, and 23.1 divided by 76.9 is 0.30, which is the cost of capital. Every point of discount above that is money made.
Two caveats, both real. The arithmetic assumes the goods sell at list inside the term, so a slow-moving buy fails it and a buy that ties up the shelf for a year fails it badly. And it says nothing about whether the remittance fits, which is the next section and the one that actually decides.
Price the same advance over eighteen months instead. Term length moves the factor as well as the file does, so an eighteen-month structure prices at 1.35 rather than 1.30: $135,000 of payback, or $7,500.00 a month — 7.5% of a $100,000 deposit month. The twelve-month loan is $8,884.88 a month.
So the structure that costs $28,381.45 more takes $1,384.88 a month less out of the account.
That is not a trick and it is not always a trap. If the business genuinely cannot clear $8,884.88 in its weakest normal month, the loan is the riskier deal at the lower price, because the consequence of missing it is a default rather than a slow month. But it is the most common route by which a business ends up in the expensive structure believing it chose the affordable one. Compare the total and the monthly number. Never one without the other.
Price is a guess about a future you have not had yet. This is the test that matters, and it is the one most comparisons skip.
Keep the same business — $100,000 a month in revenue — and put it under each of the two twelve-month obligations above in turn. The advance takes $10,833.33 a month, which is 10.8% of deposits. The loan takes $8,884.88, which is 8.9%.
Now revenue falls 30%, to $70,000 a month. A bad quarter, not a catastrophe.
The loan's payment does not move. $8,884.88 is now 12.7% of deposits, and if the slow patch lasts six months, $53,309.28 falls due across those six months whatever happens. There is no clause to invoke. The schedule is the schedule, and the only lever is a conversation you are now having from a position of weakness.
The advance's fixed remittance does not move on its own either — $10,833.33 is now 15.5% of deposits, which is worse. What moves it is the reconciliation right, and only if the agreement grants a usable one. Reconciled properly, a remittance sized at 10.83% of revenue falls to $7,583.33 a month: $3,250 a month of relief, arriving in exactly the months that need it.
Then comes the part that makes the structure coherent rather than merely lenient. The total does not change. If the drop lands at month six, $65,000 has been delivered and $65,000 remains; at $7,583.33 a month that takes another 8.6 months instead of six, so the term runs about 14.6 months rather than twelve if revenue stays down for the rest of it; a drop that lifts after six months lands closer to 13.8. You still pay $130,000. You pay it more slowly, out of a smaller business.
That is the whole argument for the premium, stated in numbers rather than adjectives. It is also why the reconciliation clause deserves to be read before the rate, and why an advance with no usable reconciliation is a loan payment with a different title and a worse price. Reading that clause line by line is a page of its own, and the three questions it turns on are whether relief is available on request or at the funder's discretion, what you must produce to get it, and whether a correctly reconciled slow period counts as a default.
Take the same $100,000 as a three-year term loan at 12%. It amortises at $3,321.43 a month, and running it to term costs $119,571.52 in total, of which $19,571.52 is interest.
Now pay it off at month twelve instead. You will have paid $39,857.17 and the balance will be $70,558.44, so the whole thing costs $110,415.61 — $9,155.91 less than running it to term. Nothing was negotiated and no discount was granted. The unearned interest simply never accrued, because there was no balance left for it to accrue on.
Do the same on a $130,000 advance and, absent a clause that says otherwise, you owe $130,000. It is a price, not a balance. Paying it early does not reduce it; it compresses the same cost into less time, which raises the effective annual rate rather than lowering it — the arithmetic of that conversion is worked in full in the factor rate article.
At Full Send Funding, early payoff is structured deal by deal rather than by a standard schedule: some agreements forgive all of the remaining cost, some half of it, some carry a custom prepayment step-down, on some renewals the outstanding balance is forgiven, and some carry no saving, so paying early settles the full remaining balance. There is never a prepayment fee: paying early never costs more than paying on schedule. None of the savings is automatic, which is exactly why it belongs in the document before signing rather than in a conversation afterwards.
The practical consequence is worth stating plainly. If you expect a large receipt inside the term, that expectation is worth more on a loan than the headline gap suggests. A contractor who knows a retention releases in month nine is looking at $6,618.55 against $30,000 on paper and at something much closer on the money actually spent, because the loan's cost falls when the balance does and the advance's does not.
Both files are read from the same evidence — four months of business bank statements — but they are read for different questions, and an applicant almost never hears which question their file failed.
On a term loan the term is something you and the lender choose, and the payment is computed from it. On an advance the term is an estimate that falls out of your own revenue: underwriting reads the deposit stream, sizes a remittance it believes the account can carry week after week, and divides the purchased amount by it. The term is the answer, not the question.
That has a consequence worth internalising. When the revenue forecast turns out to be wrong on an advance, the term moves and the total does not. When it turns out to be wrong on a term loan, the term cannot move — so what moves instead is whether you are in default. The two structures put the forecasting error in different places, and that is closer to the real difference between them than the price is.
The structure decision usually happens before the price decision, and it turns on things applicants do not think of as disqualifying.
A file with strong average deposits and ten negative days will be offered the advance rather than the loan — not because the advance is more profitable, but because a fixed monthly obligation against an account that touches zero ten times a quarter is the structure most likely to end badly for both sides. The same goes for a file whose deposits are lumpy rather than thin: a contractor billing three times a month can service a remittance that moves and choke on a payment that does not. What four months of statements actually shows an underwriter is the same evidence read for cushion rather than for size, and how an offer gets sized and priced covers the rest of the file.
Existing positions weigh more heavily than anything else here. Another advance already debiting the same account does not merely reduce what you can carry; it changes which structure is safe to offer at all, and it is the most common reason a file that looks fine to its owner comes back smaller and dearer than expected.
The last piece is rarely said out loud by either side. On a term loan the lender holds a debt: a fixed schedule, an acceleration right, and a claim that survives the business's failure. On a properly written advance the funder has bought a contingent stream, and if the business fails without diverting receipts there is no absolute right to repayment. That is one of the three things courts look at when deciding whether a purchase is really a purchase, and it is set out with the case law in the article on how advances are structured.
The funder is therefore carrying a risk the lender is not, and the factor prices it. Knowing that does not make the advance cheaper. It does make the premium comprehensible, and it tells you what you are actually buying: not only speed, but a structure that bends when the business does.
The differences above are real. The floor you have to clear to apply is not one of them, and comparison articles routinely imply otherwise. Clearing it is not the same as being offered both: which structures a file supports is decided after that, and the advance is the easier of the two to be offered.
What Full Send Funding funds in house is the advance. It is underwritten off four months of business bank statements, from four months in business and $10,000 a month in revenue, with a soft credit pull only, which leaves no mark on your score. It carries a decision within 24 business hours and, on deals up to $2 million, funding within 24 hours of approval — one to three business days end to end, and same-day funding is possible on a clean file submitted before 2pm ET — inside a published range of $5,000 to $10 million, priced at a cost of capital of 4.5% to 45% over terms of four months to three years. On deals up to $2 million, we approve 90% of complete applications that meet our requirements.
A term loan we arrange with a direct lending partner, only after talking through the options with you and only if you choose to, never through a broker, and at no fee to you. The same floor applies to the application, since it is our floor for every file; the loan's amount, rate, term, timeline and any collateral or filing are the partner's, set out in writing before anything is signed.
Two things are absent from our advance on deals up to $2 million, and they are worth asking any funder about directly: we file no UCC-1 lien against the business, and our agreements contain no confession of judgment. What a UCC-1 filing and a confession of judgment actually do sets out why both are common in this industry and how much each changes what a bad outcome looks like. The advance requires no collateral either — on a partner's loan, read its agreement for all three. Equipment financing is arranged through a direct lending partner, only after talking through the options with you and only if you choose to, at no fee to you; the partner's terms, including any filing on the equipment, are set out in writing before anything is signed.
Not "which is cheaper". What shape is the need?
A one-time, known expense with a forecastable payback — a build-out, a vehicle, a hire that pays for itself in month four — is a term loan's natural shape. Fixed cost, fixed schedule, budgetable, and cheaper still if you retire it early.
A timing gap in an otherwise healthy cycle — a large order to fund before it pays, a seasonal ramp, a contract requiring mobilization — is where an advance earns its premium. The money is needed now, the return is defined, and the cost is a line item in a specific piece of arithmetic rather than a general burden.
A recurring need you cannot schedule is neither, and the honest answer is usually a third product: a line of credit, which is priced on the balance you draw rather than on the amount you were given.
A structural loss is none of them. If a normal month spends more than it earns, both products make it worse, one faster than the other, because the next shortfall is larger by exactly the new debt service. The test for telling a structural loss from a timing gap in your own statements is worth running before either conversation, and an honest funder will raise it before you do.
Four cases where "take the cheaper one" gives the wrong answer.
The loan is cheaper and you should still not take it. Its payment sits above what the business clears in its worst normal month. A cheaper obligation you cannot always meet is not cheaper; it is a default with a discount attached. Run the proposed payment against the worst month of the last year rather than the average one, and if it does not clear with room, the price is not the problem.
The advance looks cheaper and is not. A 1.20 factor over four months is $120,000 of payback on $100,000 — a cost of $20,000, against the $35,000 an eighteen-month structure at 1.35 costs. But the four-month version pulls $30,000 a month out of an account seeing $100,000, against $7,500.00 for the eighteen-month one: four times the monthly strain for the lower total. And $30,000 a month is 30% of every dollar deposited, a heavier share than an account like this can carry, which is the most common reason a file is declined — so at that size it is an offer we would not write, and the four-month price only exists on a file whose deposits are far larger than the advance. In dollars the short one is genuinely cheaper; annualised it is the dearer of the two, and both statements are true because they answer different questions. Converting a factor rate to an annual figure settles the second one.
You qualify for both and you intend to keep using capital. Advance pricing improves on the second and third round with the same funder — a renewal that retires the existing position and replaces it, never a second position stacked on top of it — because by then the file contains performance rather than promises. If the plan is to fund repeatedly, the first advance is an entry price rather than the price, and how renewal terms actually improve is the arithmetic to run before comparing first offers.
You are borrowing partly to build a credit file. Most advance providers do not report payment history at all, so retiring one cleanly builds nothing. A reporting term loan does. If a commercial file is part of the objective, that is a legitimate reason to prefer the loan even at similar cost, and the sequence for building a commercial credit file sets out what counts toward one and what does not.
"The factor rate is like an interest rate." It is not, and the difference is not small. A factor rate applies once to the whole amount; an interest rate applies over time to a declining balance. A 1.30 factor repaid over twelve months is not "30% a year" — the conversion is arithmetic and we show every step. New York[1] and California[2] now require providers of sales-based financing to disclose an estimated annual rate beside the factor, which is the comparison this paragraph is making.
"Paying an advance off early saves money." Usually not, unless the agreement explicitly provides for it. The purchased amount was fixed at signing. Ask before signing whether early payoff reduces the payback, get the answer in the document rather than in conversation, and treat a vague response as a no.
"A daily debit means the funder takes a share of my sales." Often it does not. The most common structure today is a fixed daily or weekly ACH sized against an estimate of revenue, not a true percentage of receipts taken at the processor. In a good month the two behave identically, which is why the distinction goes unnoticed at signing. In a bad month they are completely different products, and the clause that decides which one you signed is reconciliation.
Yes, and it is a common structure: a term loan for the asset, an advance for the working capital cycle around it. What matters is that total debt service fits comfortably under real cash flow, which is exactly what underwriting is checking.
Put a number on it rather than a feeling. The two obligations above together are $10,833.33 plus $8,884.88, which is $19,718.21 a month against $100,000 of deposits — just under 20% of everything coming in, before payroll, rent or inventory. Whether that is survivable depends on gross margin and on what else already debits the account, but the arithmetic is the first thing to run, not the last.
What does not work is a second obligation taken in order to service the first. The stacking trap — a second, third or fourth position against unchanged revenue, each with its own remittance — is the mechanism that does the most damage in this industry, and from the inside, on the day it happens, it never looks like that.
It cannot tell you your price. That comes out of your own statements, and any figure quoted before somebody has read them is a guess with a logo on it.
It cannot tell you whether a particular agreement's reconciliation right is usable. That is a question about a specific document and, if real money turns on it, for a lawyer reading that document rather than for an article about the category.
It cannot tell you how either structure is treated for tax. A purchase discount and loan interest are not the same thing on a return, and that is a question for your accountant.
And it cannot tell you whether a term loan will be offered to you at all. That is the file's answer rather than the article's, which is why the useful next step is to let underwriting price every structure you qualify for instead of choosing the product first.
Apply once and we will look at both paths: the advance we fund ourselves and, where a term loan fits better, one arranged with a direct lending partner at no fee to you and only if you choose to. If you qualify for the cheaper structure we will tell you, because funding that works is what brings clients back — and renewals, not first advances, are the business model. That is not a slogan; it is the reason the incentive runs this way.
Qualification for either starts at the same floor, set out above. If you want the sizing arithmetic first, start with how much a business can actually borrow, put two real offers side by side in the offer comparison tool, or compare the structures side by side.
The factor rates and interest rates in this article are illustrations chosen to show the arithmetic across a realistic range. They are not quotes. Actual pricing depends on the business, and every offer we make states the total payback in plain dollars before signing.
The comparison table sets the two structures against each other as each generally works, stated directionally; the firm funds the advance in house and arranges a term loan with a direct lending partner. Every dollar figure in the text is worked from stated illustrative prices applied to $100,000 for a business depositing $100,000 a month: an advance at a 1.30 factor over twelve months and at a 1.35 factor over eighteen, and an amortising term loan at 12% a year, which is the same illustrative loan rate the line-of-credit comparison uses. They show the arithmetic and are not quotes, because both products are priced off the file. The revenue-drop case assumes a 30% fall held for the rest of the term, with the remittance reconciled to the same share of revenue. The disclosure point is stated from the two statutes cited.
A term loan is a loan: principal repaid with interest on a fixed schedule, where interest accrues on a declining balance, so time costs money and early payoff saves it. An advance is the purchase of a fixed amount of future receivables at a discount, set by a factor rate and fixed on day one, collected as a daily or weekly remittance. The consequence is that on an advance a longer term does not cost more — it only lowers the remittance.
Dollar for dollar, a term loan of the same size almost always costs less, and anyone in this industry who tells you otherwise is selling something. What the advance premium buys is speed and access: advance underwriting leans almost entirely on revenue, so businesses that are young, seasonal or rebuilding credit routinely qualify when a term loan is not available at any price. A product you cannot get is not cheaper than one you can.
When the opportunity is time-boxed and the margin clears the cost — a 30%-off inventory buy funded at a 30% cost of capital is not a wash but about $12,857 ahead on $100,000, because the discount is measured against list and the cost against the cash. When sales swing seasonally and a structure with a reconciliation right beats a fixed monthly obligation in a slow month. When credit rules out cheaper products today and the advance is a bridge, used once and retired cleanly. And when the money is genuinely needed inside a week.
When you qualify for it — the lower total cost is hard to argue with. When the need is a single known expense with a forecastable payback, such as a build-out or a hire that pays for itself. When the purchase has a long useful life, in which case equipment financing is worth pricing too, since the asset itself usually improves the terms. And when one predictable monthly payment matters more to how you run the business than flexibility does.
No, and the difference is not small. A factor rate applies once to the whole amount: $50,000 at 1.30 is $65,000, full stop. An interest rate applies over time to a balance that declines as you repay. So a 1.30 factor repaid over twelve months is not "30% a year" — converting between the two is arithmetic, and any funder unwilling to show you that arithmetic is telling you something.
The term loan, generally, and only if the lender reports to a commercial bureau — worth asking before signing rather than assuming. Most advance providers do not report payment history at all, so retiring an advance cleanly builds nothing, and applying with us uses a soft credit pull only, which leaves no mark either way. If establishing a commercial credit file is part of why you are borrowing, that changes which structure is worth paying for, and it is a legitimate reason to prefer the loan even at similar cost.
Yes, and it is a common and sensible structure: a loan for the asset, an advance for the working capital cycle around it. What matters is that total debt service fits comfortably under real cash flow, which is exactly what underwriting checks. What does not work is taking a second obligation in order to service the first — that is the mechanism that does the most damage in this industry.
Ask what shape the need is rather than which product is cheaper. A one-time known expense with a forecastable payback is a term loan’s natural shape. A timing gap in an otherwise healthy cycle — a large order to fund before it pays, a seasonal ramp, a contract requiring mobilization — is where an advance earns its premium. A structural loss, where a normal month spends more than it earns, is neither, and both products make it worse.
Because the structure decision is made before the price decision, and it turns on things that do not feel disqualifying. A file with strong average deposits and ten negative days will be offered the advance, since a fixed monthly payment against an account that touches zero that often is the structure most likely to end badly for both sides. Lumpy deposits do the same thing: a contractor billing three times a month can service a remittance that moves and choke on one that does not. Existing positions already debiting the account weigh most heavily of all, and they change which structure is safe to offer rather than only how much.
Read for four things rather than the title on the cover page. Is the cost stated as an interest rate against a balance, or as a factor rate applied once to the whole amount? Is there a maturity date, or an expected term derived from your revenue? Does early payoff reduce what you owe, or leave the purchased amount intact? And is there a reconciliation clause letting the payment fall when revenue falls? A document with a fixed schedule, a maturity date and no reconciliation is functioning as a loan whatever it is called, which matters because it is the reconciliation right that makes an advance behave differently in a bad month.
Five numbers, on one page. What actually lands in the account after every fee deducted at funding. What is repaid in total. What leaves the account each month, which is not the same comparison as the total and often points the other way. What the payoff figure would be at a stated point, say month four, in dollars. And what relief exists if revenue drops a third — a reconciliation right on one, usually nothing on the other. An offer that will not answer all five in writing has told you something useful about the funder.
While it is outstanding, yes, in the ordinary sense that its remittance is already consuming the cash flow any new payment would come out of, and every underwriter reads existing positions straight off the bank statements whether or not they are disclosed. Once it is retired cleanly the picture is different: the file now contains performance rather than promises, and that is the normal path by which terms improve. What genuinely damages the next application is stacking a second position on top of the first rather than retiring or renewing it.
Travis Yule worked in business funding before starting Full Send Funding in 2021, and has more than five years in business funding in all. He leads the company from Middle Grove, New York, and writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.