Updated October 22, 2026
Quick answer
If you own equipment with equity, borrowing against it is usually far cheaper than a merchant cash advance. MCAs are priced by factor rate - commonly 1.15 to 1.50 - and collected by daily or weekly debits over a few months, while an equity loan amortizes over 24-72 months. The trade-off is speed and paperwork: an MCA can fund in days, an equity loan needs a valuation and a lien search first.
How Each One Works
| Equipment equity loan | Merchant cash advance | |
|---|---|---|
| What it is | A loan secured by machines you own | A purchase of future sales or receivables |
| Pricing | Interest rate over a term | Factor rate on the amount advanced |
| Repayment | Fixed monthly payments | Daily or weekly debits |
| Typical term | 24-72 months | A few months to about a year |
| Collateral | The equipment, by UCC-1 | Usually none specific; often a blanket UCC |
| Speed | Days to a few weeks | Often days |
The cost difference comes from the term as much as the price. An advance repaid over a few months concentrates the whole cost into a short window; an equity loan spreads a lower cost over years.
What a Factor Rate Costs
A factor rate is a multiplier, not an interest rate. A $50,000 advance at a 1.35 factor means $67,500 is repaid. Because it is repaid over months rather than years, the equivalent annual cost is far higher than the factor suggests - see factor rate vs APR for how to convert one to the other.
The daily or weekly debits are the other cost. On a contractor's uneven cash flow - big draws, then weeks waiting on the next one - a fixed daily debit can drain the account between progress payments.
When an MCA Still Makes Sense
- You need money in days and there is no time for a valuation.
- You do not own equipment with meaningful equity.
- The need is small and short, and you know exactly where repayment comes from.
Outside those cases, a contractor who owns paid-off machines is usually paying for speed with an MCA, not for access to capital.
What Each One Needs Before It Funds
Most of the speed difference comes from the paperwork, and most of it can be prepared before you need the money:
| Equipment equity loan | Merchant cash advance | |
|---|---|---|
| Bank statements | Usually the last 3-6 months | Usually the last 3-4 months |
| Collateral details | Make, model, year, hours, serials, photos | Not needed |
| Valuation | Desktop or on-site appraisal | Not needed |
| Lien search | UCC search on the business | Often, to see other advances |
| Existing debt | Payoff letters for anything on the machines | A list of current advances |
A contractor who keeps a current equipment list with serials, hours and photos, and knows what liens are on file, can close an equity loan far closer to MCA speed. The valuation is usually the longest step, and a desktop valuation from good photos is often enough on smaller amounts.
Using Equipment Equity to Get Out of MCAs
If you are already carrying one or more advances, the equity in your equipment can sometimes pay them off and replace daily debits with one monthly payment. Two cautions:
- Check the advance providers' UCC filings first. Many MCAs file blanket liens that already cover your equipment, which has to be resolved before a new lender can take first position.
- Make sure the cash flow problem is fixed. Refinancing advances with equipment debt only helps if the business can carry the new payment without taking another advance.
See MCA consolidation secured by asset equity for how that payoff is structured.
Red Flags in Either Offer
- A cost quoted only as a factor rate or a "low daily payment", with no total repayment amount.
- Large fees deducted from the funds you receive but left out of the contract amount.
- A confession of judgment, or pressure to sign the same day.
- Claims of government affiliation or guaranteed approval.
The Federal Trade Commission has brought cases over exactly these practices in small-business financing.
Frequently Asked Questions
Is an equipment equity loan cheaper than an MCA?
Usually much cheaper. MCAs are priced by a factor rate repaid over a few months, which works out to a far higher equivalent annual cost than a secured loan amortized over two to six years.
Can I use my equipment to pay off merchant cash advances?
Often, if the equipment has enough equity and any blanket liens from the advance providers can be released or subordinated. The new loan pays the advances off and replaces the debits with one monthly payment.
Why does an MCA fund faster?
Because it is underwritten mostly on bank deposits and does not need a valuation of collateral or a lien search. An equity loan does, which adds days to the process.
Does a merchant cash advance put a lien on my equipment?
Many advance providers file a blanket UCC-1 covering all business assets, which includes equipment. Check the filings before assuming a machine is free and clear.
Sources & Further Reading
- CFPB Small Business Lending Research — Research and rulemaking on small business credit, including how cost is disclosed to borrowers.
- FTC: Protecting Small Businesses Seeking Financing — The FTC's guidance to lenders, brokers and merchant cash advance providers on misrepresented costs, unlawful collection and false claims of government affiliation.
Figures above describe ranges commonly seen across lenders and reflect published guidance as of the date on this page. Confirm current terms with the cited source or your lender before acting.