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Business line of credit vs merchant cash advance
Compare a business line of credit with a merchant cash advance: how each is repaid, what it really costs per year, and when each makes sense.
The short answer
A line of credit lets you draw what you need and pay interest only on what you use, usually at a much lower annual cost. A merchant cash advance is faster and easier to qualify for, but you repay a fixed amount set by a factor rate through daily or weekly payments — often a far higher cost per year. If you can qualify for a line, it is usually the cheaper way to cover short-term gaps.
Side by side
| Feature | Line of credit | Merchant cash advance |
|---|---|---|
| What it is | A revolving credit limit you draw from and repay | Cash now in exchange for a share of future sales |
| Cost | Interest on the amount drawn, plus any draw or maintenance fees | A fixed payback set by a factor rate (often 1.1–1.5), whatever the timing |
| Repayment | Monthly or weekly payments on what you've drawn | Daily or weekly debits, or a percentage of card sales |
| Time to funding | Days to a few weeks to open; draws are quick after that | Often within days |
| Qualification | Credit, time in business and steady revenue matter | Mostly based on sales volume; more flexible on credit |
| Paying early | Usually lowers the interest you pay | Usually doesn't lower the cost unless the agreement offers a discount |
Choose line of credit if…
- You have recurring or uneven cash needs
- Your credit and revenue history are reasonably strong
- You want to pay only for what you use
- You can wait a little to open the line
Choose merchant cash advance if…
- You need cash within days and other options aren't available
- Your sales are strong but your credit history is limited
- The money funds something that pays back quickly
- You've checked the payment fits a slow week
What it costs on the same amount
Needing $50,000 for about six months. Illustrative terms only.
Line of credit
Line of credit draw at 18% with a 1% draw fee, repaid over 6 months
- Payment
- $8,776.26 a month
- Repaid over
- 6 months
- Total cost (interest + fees)
- $3,157.56
- Yearly cost (APR)
- 21.6%
Merchant cash advance
Merchant cash advance at a 1.30 factor over 126 business days
- Payment
- $515.87 a business day
- Repaid over
- about 6 months (126 business days)
- Total cost (interest + fees)
- $16,000.00
- Yearly cost (APR)
- ~118.1%
Both clear in about six months, but the advance costs several times more because the factor rate sets a fixed cost and repayment starts immediately.
Questions owners ask
Is a merchant cash advance a loan?
Usually not, legally: it is typically structured as a purchase of future sales. That is why it is priced with a factor rate rather than an interest rate — and why comparing it on an estimated APR helps.
Can I have both?
Yes, but be careful. Stacking an advance on top of other debt can strain cash flow, and many agreements restrict additional financing. Check every payment against your slowest weeks.
How do I compare the two fairly?
Put both on a yearly scale. Use the factor rate calculator to estimate the advance's APR and compare it with the line's rate plus fees.
Terms on this page
APR (annual percentage rate)DrawFactor rateHoldbackLine of creditMerchant cash advance
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Comparisons and examples are for education only, use illustrative terms, and are not an offer or commitment to lend. Actual rates, fees and terms depend on each provider’s review. ScaleKit Financing is operated by Arch Ventures LLC and is not a lender.