A side-by-side comparison of three common small business financing options in Canada, and how to pick the right one.
A term loan gives you a lump sum that you repay on a fixed schedule over a set period. A line of credit gives you a revolving limit you can draw on and repay as needed, paying interest only on what you use. A merchant cash advance gives you upfront cash in exchange for a share of your future sales, repaid automatically as you earn. In short: term loans suit one-time investments, lines of credit suit recurring cash-flow gaps, and merchant cash advances suit businesses that need fast funding and have strong card or sales volume, usually at a higher cost.
| Feature | Term loan | Line of credit | Merchant cash advance |
|---|---|---|---|
| How you receive funds | One lump sum | Draw any amount up to your limit, as often as needed | One lump sum |
| How you repay | Fixed instalments (monthly, weekly or daily) | Pay down the balance used; the limit becomes available again | A percentage of daily or weekly sales, or fixed withdrawals |
| How cost is expressed | Interest rate plus any fees | Interest on the drawn balance, plus any fees | A fixed total amount to repay, often shown as a factor rate |
| Payment predictability | High | Varies with how much you draw | Varies with sales if based on a percentage |
| Main focus of approval | Revenue, credit, time in business | Credit, revenue, banking history | Sales volume and consistency |
| Speed | Days to weeks, depending on the lender | Days to weeks to set up, then instant draws | Often among the fastest options |
| Relative cost | Moderate; lowest with banks when you qualify | Often low to moderate if used and repaid quickly | Usually the highest of the three |
| Best for | One-time investments with a clear payback | Recurring or unpredictable gaps | Urgent needs with strong, steady sales |
A term loan is the most familiar form of business financing. You borrow a set amount, then repay principal and interest on a fixed schedule until the loan is paid off. Banks, credit unions, BDC and alternative lenders all offer term loans, with bank loans generally requiring the longest track record and alternative lenders offering shorter terms and faster decisions.
A line of credit works much like a credit card for your business, without the card. The lender approves a limit, and you draw funds as needed, repay, and draw again. You pay interest only on the amount outstanding. Lines of credit are typically reviewed periodically, and the lender can adjust the limit.
A merchant cash advance (MCA) provides a lump sum in exchange for a portion of your future card or sales receipts. Repayment happens automatically, either as a fixed percentage of daily or weekly sales (sometimes called a holdback) or as fixed withdrawals from your bank account. MCAs are often structured as a purchase of future receivables rather than as a traditional loan, which is why the cost is usually expressed as a fixed amount to repay instead of an annual interest rate.
A restaurant replacing its dining room furniture has a one-time cost and a long payback, so a term loan matches the need. A landscaping company that pays crews weekly but invoices clients monthly has a recurring gap, which a line of credit handles well. A busy retail shop facing an urgent repair, with strong daily card sales, might consider a merchant cash advance after comparing its total cost with the alternatives.
We are a referral service, not a lender. After a short pre-qualification, which does not affect your personal credit score, we connect eligible businesses with lending partners that offer financing of up to $100,000 CAD. Partners typically look for at least 12 months in business, around $30,000 CAD or more in monthly revenue, a location outside Quebec, and an industry other than transportation and trucking. Each lender sets its own products and terms, so review every offer with the questions above in mind.
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Check my options →Merchant cash advances are often structured as a purchase of a business's future sales or receivables rather than as a traditional loan. In practice, you receive money upfront and repay a fixed total through a share of sales or regular withdrawals. Because the structure differs from a loan, read the agreement carefully and compare offers by total dollars repaid.
It can be, because you only pay interest on the amount you actually draw. If you draw the full limit and carry the balance for a long time, the cost can be similar to or higher than a term loan. For a single planned purchase, a term loan is often simpler; for recurring gaps, a line of credit usually costs less.
Merchant cash advances and short-term loans from online lenders are generally the quickest to fund. Bank term loans and lines of credit tend to take longer because of fuller underwriting. Once a line of credit is set up, however, each draw is almost immediate, which is why many businesses arrange one before they need it.
Yes, many businesses use both: a term loan for a specific investment and a line of credit for day-to-day cash flow. Lenders will look at your combined payments when reviewing any new application, so make sure total repayments fit comfortably within your monthly revenue and avoid stacking several short-term products.