Background
Over the last decade small businesses have faced tighter bank credit and faster cash-cycle demands. Alternative short-term products evolved to close that gap: online short-term loans, merchant cash advances (MCAs), invoice factoring, business credit cards, and revolving lines of credit designed for urgent working capital. The U.S. Small Business Administration and consumer protection agencies advise comparing costs and terms before borrowing (see SBA and CFPB links below).
How these alternatives work (quick overview)
- Merchant Cash Advance (MCA): The lender buys a share of future credit‑card or receivable income and is repaid through a fixed daily/weekly percentage of sales. Fast but often costly.
- Invoice Factoring: A factoring company buys unpaid invoices (less a fee) and advances most of the invoice value immediately. The factor collects from customers.
- Short-term Online Loans: Fixed‑term loans with short maturities (weeks–months). Faster underwriting than banks; rates vary widely.
- Lines of Credit: Revolving access to funds you draw and repay as needed. Interest typically charged only on amounts used.
- SBA Short-Term Options: Programs such as SBA microloans and CAPLines can serve immediate needs with government‑backed terms in some cases (check SBA eligibility).
Real-world examples
- Retail inventory before a holiday season: A store used an MCA to buy inventory and repaid from elevated holiday card sales.
- Slow-paying clients for a service firm: The firm sold a batch of invoices to a factor, getting 70–95% of invoice value within days to cover payroll.
Who benefits and who should be cautious
- Good fits: Businesses with time‑sensitive needs, seasonal revenue, or thin credit histories that can’t get a bank term loan quickly.
- Be cautious if: Your margins are thin, sales are unpredictable, or you can’t afford higher effective interest or fees—these products can be expensive.
Pros and cons (at a glance)
| Option | When it helps | Typical trade-offs |
|---|---|---|
| Merchant Cash Advance | Fast cash based on card sales | Very high effective cost; repayment tied to sales volume |
| Invoice Factoring | Immediate cash for outstanding invoices | Fee reduces margins; customers may be contacted by factor |
| Short-term Online Loan | Quick, small-term capital | Higher rates than banks; short repayment window |
| Line of Credit | Flexible bridge for uneven cash flow | Needs discipline to avoid overuse; may have fees |
| SBA Microloan/CAPLine | Lower cost if eligible | Application time and eligibility limits apply |
Common mistakes to avoid
- Comparing only advertised rates: Look at all fees, holdback percentages, and the effective annualized cost.
- Overborrowing against optimistic sales forecasts (especially with MCAs).
- Ignoring customer‑relationship impact when using factoring—some factors notify customers.
Practical steps to choose the right option
- Quantify the cash gap: how much you need and for how long.2. Price the offers by calculating the effective interest or factor fee on an annualized basis.3. Prioritize options that preserve margins and customer relationships.4. Keep clear records and negotiate repayment cadence where possible.
Internal resources
- For help choosing a revolving option, read our business line of credit guide: business line of credit.
- To learn how to keep a credit line affordable and ready, see: small business line of credit: how to keep it ready and affordable.
Authoritative sources and further reading
- U.S. Small Business Administration: https://www.sba.gov — guidance on SBA microloans and CAPLines.
- Consumer Financial Protection Bureau: https://www.consumerfinance.gov — information on small‑business lending risks and disclosures.
In my practice as a financial educator, I’ve seen owners preserve business continuity by combining short-term options—a small line of credit for routine bumps plus selective factoring during large receivable delays—rather than relying on a single expensive advance.
FAQ
Q: Which option is fastest? A: MCAs and online short‑term loans typically fund in days; factoring also funds quickly once set up. Q: Will these options affect my credit? A: Some do (lines of credit and loans may report to credit bureaus); MCAs and factoring usually don’t report to business credit but can still affect cash flow and future lending capacity.
Professional disclaimer
This page is educational only and not personalized financial advice. For decisions about borrowing, consult your accountant or a qualified financial advisor familiar with your business.
Last reviewed: 2025
