Line of Credit vs. MCA: Compare Business Funding
Business line of credit vs. MCA — compare cost, flexibility, and requirements for fast working capital access.
Business Line of Credit: A revolving business line of credit lets you draw funds as needed up to a set limit and only pay interest on what you use. Merchant Cash Advance: A merchant cash advance delivers a lump-sum advance against your future credit card or daily revenue, repaid as a fixed percentage of daily sales.
Business Line of Credit vs. Merchant Cash Advance — side by side
| Business Line of Credit | Merchant Cash Advance | |
|---|---|---|
| Typical amount | $10,000 – $500,000 | $5,000 – $500,000 |
| Typical term | Revolving (12 – 24 month draw period) | 3 – 18 months |
| Rate | 8% – 36% APR | 1.10 – 1.50 factor rate |
| Minimum time in business | 6 months | 6 months |
| Minimum credit score | 580+ | 500+ |
Which is right for your business?
- Business Line of Credit tends to fit best when you need ongoing cash flow or seasonal inventory.
- Merchant Cash Advance tends to fit best when you need inventory purchases or payroll gaps.
Frequently asked questions
Why is an MCA so much more expensive than a line of credit?
MCAs carry higher costs because they take on higher risk — approving businesses that don't meet standard credit line criteria, with no collateral and no fixed repayment commitment. The factor rate structure compensates funders for that additional default risk.
Can I pay off an MCA and replace it with a credit line?
Yes — and this is a common and advisable strategy. Once your business has 12+ months of history, improved credit, and consistent revenue, applying for a credit line and using it to pay off any existing MCA eliminates the daily debit burden and dramatically reduces ongoing cost of capital.
