Comparison
Merchant cash advance vs. a business line of credit
A merchant cash advance gives you a lump sum in exchange for a fixed payback collected daily or as a percentage of sales, and it is typically faster to get but more expensive. A line of credit lets you draw and repay as needed, paying interest only on what you use, and usually costs less but requires stronger credit and a longer approval.
By Truidian · Updated
The key differences
Specific terms vary by provider.
- Pricing: a merchant cash advance uses a factor rate fixed at the start; a line of credit charges interest on the amount drawn.
- Repayment: advances are usually repaid daily or weekly from sales or deposits; lines of credit have scheduled payments on the balance drawn.
- Speed: advances can fund in a day or two; lines of credit often take longer to approve.
- Qualification: advances weigh card sales and deposits heavily; lines of credit weigh credit scores, revenue and time in business.
- Reuse: a line of credit can be drawn repeatedly; an advance is a single funding.
Where to be careful
The fixed cost and frequent repayments of a merchant cash advance can strain cash flow if sales dip. Because the cost is not tied to the repayment period, quick repayment can make the annualized cost very high. Work out the total payback and the repayment schedule before accepting, and compare it with every other option available to you.
FAQ
Common questions.
Is a merchant cash advance a loan?
Typically it is structured as a purchase of future receivables rather than a loan, so it is priced and regulated differently. That structure is one reason costs are quoted as a factor rate rather than an interest rate.
Which is easier to qualify for?
A merchant cash advance usually has looser credit requirements and faster funding. A line of credit generally requires stronger credit, revenue and time in business, but typically offers lower cost.
Can I get a line of credit with a merchant cash advance outstanding?
It may be harder. Existing advances with daily repayments reduce cash flow, which lenders review, and some agreements restrict additional financing.
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Truidian is a business solutions company, not a lender, factoring company or payment processor. Services are offered by participating third-party providers and are subject to their approval and terms. Figures shown are general ranges, not offers or quotes. This content is general information, not legal, tax, accounting or financial advice.