How each one charges you: on the draw vs on the whole amount
A line of credit is a limit you can draw against. NerdWallet describes it simply: you pay only on the money you withdraw, and as you repay you can borrow up to the limit again [5]. If you never draw, you pay only whatever fees the line carries.
A merchant cash advance is a lump sum in exchange for a fixed amount of your future sales. The cost is the advance times the factor rate, typically 1.1 to 1.5 [2], set on the day you sign. Leave half the cash sitting in your account and the cost does not change.
The "unused cash" trap
You expect a $20,000 gap, take a $20,000 advance at 1.30, and the gap turns out to be $8,000. You still deliver $26,000 of sales to the funder. With a line, the same surprise means you drew $8,000 and paid only on $8,000.
Getting approved: the line is harder, the MCA is faster
This is where the MCA earns its place. Lines of credit want more from you. NerdWallet says some online lenders accept a score of 600, while banks and credit unions typically want a score close to 700 or higher [1]. Fundera's past MCA customers had scores around 600 and just six months in business [4], and many MCA funders weigh sales more than credit.
| Merchant cash advance | Online line of credit | Bank line of credit | |
|---|---|---|---|
| Credit score | About 600 among Fundera's past customers [4] | About 600 at some lenders [1] | Close to 700 or higher [1] |
| Main test | Steady card or bank deposits | Credit, revenue and time | Credit, revenue, time and often a relationship |
| Typical cost | Factor rate 1.1 to 1.5 [2] | 10% to 99% APR across the market [1] | Often lower than online lines [1] |
Where you apply matters too. In the Federal Reserve's 2024 Small Business Credit Survey, applicants at small banks were the most likely to be fully approved, at 54% [6]. If you have a business account at a community bank, ask there before you take an advance.
Payment rhythm: daily debits vs monthly or weekly payments
MCA collection usually comes every business day or every week. Lines vary: NerdWallet notes that lines of credit may require daily, weekly or monthly repayment [1], so ask before you assume a monthly bill. A weekly line payment is still easier to plan around than a daily debit, and it ends when the draw is repaid.
- Ask a line lender: Is the rate fixed or variable? Is there a draw fee, a monthly fee or an annual fee?
- Ask an MCA funder: Is the debit a true split of sales or fixed? How do I request reconciliation?
- Ask both: What is the total cost in dollars if I use the full amount for six months?
Reading the APR on each disclosure
Where state disclosure laws apply, both products may come with an APR, but they are figured differently. California's rule for open-end lines tells providers to assume you draw the full limit at the start, make no other draws and pay only the minimum on time [3]. That gives a worst-case use of the line. An MCA's estimated APR instead depends on how fast your sales are projected to pay it back.
So a line's disclosed APR is a fair ceiling, and you will usually pay less by drawing less or repaying sooner. An MCA's estimated APR can go up if your sales come in faster than projected, because the same fixed cost is paid in less time. Our factor rate to APR guide shows the math.
Fees that change the math on both sides
The headline numbers leave out fees, and both products can carry them. NerdWallet warns that origination, draw and account maintenance fees can raise the overall cost of a line of credit [1]. On the MCA side, administrative or underwriting fees add to the cost and are often taken out of the advance before you receive it [2].
| Fee | On a line of credit | On an MCA |
|---|---|---|
| Upfront | Origination fee, on the limit or the first draw | Underwriting or setup fee, taken out of the advance |
| Per use | Draw fee on each draw, at some lenders | None; you take the whole amount at once |
| Ongoing | Monthly or annual maintenance fee, at some lenders | Ask; any charge beyond the payback should be listed |
| Early payoff | Ask about prepayment penalties | Often no saving unless the contract has a discount |
A hypothetical draw fee, worked out
Say a line charges a 2% fee on each draw. Drawing $8,000 four times in a year costs $640 in draw fees on top of the APR. That is real money, but it is still far below paying a fixed MCA cost four separate times.
The 2% is an example, not a typical figure. Use the actual fee schedule from any line you are offered.
A two-step plan: bridge once, then open the line
If an advance is your only option right now, use it to bridge one gap and start building toward a line at the same time. Keep deposits in one business account, keep the balance from overdrafting, and apply for a line as soon as you have the history a lender wants. The next gap is then a draw, not a new advance.
Batch Capital can check line of credit options and advances in one pass. The quiz asks what the money is for and how soon you need it.