Merchant Cash Advance vs. Business Line of Credit
Both put working capital in the account quickly, but they are priced and repaid in completely different ways. A line of credit is cheaper and reusable. A merchant cash advance is faster and far more forgiving on credit. The right answer depends on how fast you need the money and what your deposits look like.
| Factor | Merchant cash advance | Business line of credit |
|---|---|---|
| Cost | 1.15–1.50 factor rate (fixed payback) | 12–30% APR non-bank; Prime + 2–8% bank |
| Interest on unused funds | N/A — full amount advanced | None — you only pay on what you draw |
| Speed to funding | Same day to 48 hours | 2–5 days non-bank; 2–4 weeks bank |
| Minimum credit | ~500 FICO | 600 non-bank, 680 bank |
| Time in business | 3–6 months | 6–24 months |
| Repayment | Daily or weekly, % of revenue | Monthly, revolving |
| Reusable | No — new advance each time | Yes — draw, repay, redraw |
| Best for | Urgent cash, bruised credit, strong deposits | Ongoing cash-flow gaps and seasonality |
What an MCA really costs
A $50,000 advance at a 1.30 factor rate means $65,000 of total payback. If that repays over six months, the effective annualized cost is well above 50% — the shorter the term, the higher the effective rate. That is not automatically a bad deal: if the cash produces more than $15,000 of margin inside six months, the advance paid for itself. It is a bad deal when it funds routine operating shortfalls month after month.
What a line of credit really costs
A $50,000 line at 18% APR with $20,000 drawn for three months costs roughly $900 in interest. Nothing accrues on the undrawn $30,000. That structure is why a line is the better standing tool for seasonality and uneven receivables — it sits there unused and costs nothing until you need it.
The common upgrade path
Plenty of Northwood clients start with an advance because they need funds this week, repay it cleanly, and then qualify for a line of credit at a fraction of the cost six to twelve months later. If you are currently stacked in multiple advances, consolidation into a single lower-cost facility is usually the first move.
Compare both on your file
Read the full program details for merchant cash advances and business lines of credit, or send three months of bank statements through the apply page and we will quote both side by side.
Frequently asked questions
- Is a merchant cash advance cheaper than a line of credit?
- No. A line of credit is almost always cheaper. Non-bank lines run roughly 12–30% APR and you only pay interest on what you draw, while merchant cash advances carry factor rates of 1.15–1.50 with the full cost baked in on day one. An MCA wins on speed and credit flexibility, not on price.
- Which funds faster?
- A merchant cash advance. MCAs commonly fund the same day or within 48 hours off bank statements alone. A non-bank line of credit takes two to five business days, and a bank line takes two to four weeks.
- Can I get a line of credit with bad credit?
- Non-bank lines generally start around 600 FICO. Below that, revenue-based products approve down to about 500 when the business has steady daily deposits. Many owners take an MCA first, build a repayment history, then refinance into a line of credit.
- Can I pay off a merchant cash advance early?
- You can pay it off early, but most advances carry a fixed payback amount, so early payoff saves less than it would on an interest-bearing loan. Ask specifically about early-payoff discounts before signing — some funders offer them and many do not.
See Both Offers Side by Side Before You Sign Anything.
Speak with a Northwood funding specialist today. Most decisions in 24–48 hours.
- ✓ $25K–$5M available
- ✓ Funded in 2–5 business days
- ✓ All credit profiles considered
- ✓ No upfront fees, no prepayment penalties