Key points
- A line charges only on what you draw and frees up again as you repay; an MCA is one lump sum with a fixed cost.
- Repaying fast makes a line cheaper, but leaves an MCA's cost unchanged unless there is a written discount.
- For $30,000 over about 3 months, a line at 3% a month costs $1,800, while a 6-month MCA at a factor rate of 1.25 costs $7,500.
- Lines win for recurring gaps and quick repayment; MCAs can win when you cannot qualify for a line or sales swing hard.
- Ask every line provider about draw fees, repayment rules, variable rates and limit freezes.
How a line of credit works
You are approved for a limit, say $50,000, and take money out in draws when you need it. Interest or fees accrue on the drawn balance, not the full limit. As you repay a draw, that room opens up again, so the same line can cover payroll in March and inventory in September.
Published terms show the range. Credibly advertises a business line of credit of up to $300,000 with a monthly interest rate of 3% to 5%, weekly or monthly repayments and terms of 3 to 24 months, and says you pay interest only on the amount you draw. Fora Financial offers lines of up to $100,000 with terms of up to 12 months and fixed monthly repayments of principal and interest.
Lines vary most in the details. Credibly notes that some lines charge a fee on each draw and some have variable rates, so the payment can change. Others, like Fora's, set fixed repayments instead of letting you repay whenever you choose.
How an MCA differs
With a merchant cash advance, you receive the full amount on day 1 and the payback is set at the advance times the factor rate. The cost does not fall if you finish early unless the contract has a written discount. When you need money again, you sign a new advance or a renewal, which is priced as a new deal.
That makes the MCA a single-use tool. It suits a single purchase or a single gap. It fits poorly when needs come and go through the year, because each new advance brings a new fixed cost.
Pricing per month vs per deal
A monthly rate of 3% on the drawn balance works out to 36% a year (3% × 12), and 5% a month to 60% a year. Those are high for credit, but they are charged only while money is out. Repay a draw in 30 days and you pay about 1 month of interest on it.
An MCA works the other way. Its cost is fixed, so an advance you repay quickly carries a higher estimated APR, not a lower cost. For the math behind that, see our guide to early payoff and prepayment discounts.
Worked comparison: $30,000 for Q4 inventory
The need. A retailer buys $30,000 of holiday inventory in September and expects to sell through it by December.
| Option | Payments | Dollar cost | Yearly rate |
|---|---|---|---|
| Line at 3% a month, $10,000 repaid at the end of each month | $10,900, $10,600, $10,300 | $1,800 | 36% (3% × 12) |
| Same line at 5% a month | $11,500, $11,000, $10,500 | $3,000 | 60% (5% × 12) |
| Line at 3% a month, draw repaid over 6 fixed payments | $5,537.93 a month | $3,227.55 | 36% |
| Line at 5% a month, draw repaid over 6 fixed payments | $5,910.52 a month | $5,463.14 | 60% |
| MCA at a factor rate of 1.25 over 6 months | $297.62 per business day | $7,500 | Estimated APR about 92% |
The line figures assume no draw fee and, in the first 2 rows, that the line lets you repay the draw early at no charge. The MCA figure is the same whether the inventory sells in 6 weeks or 6 months, unless the contract gives an early payoff discount.
Even the most expensive line in the table costs $2,036.86 less than the MCA, and the fastest-repaid line costs less than a quarter of it. The line also stays open for the next gap. What the MCA offers in return is speed and access: it may be available when the line is not.
Why reuse changes the math
Worked example: a payroll gap that repeats. A staffing agency pays workers every Friday but collects from clients about 10 days later, so it needs $15,000 for roughly 10 days each month.
- Line of credit at 3% a month, assuming interest accrues daily on a 30-day month: $15,000 × 3% × 10 ÷ 30 = $150 per draw. 6 months of draws: $900.
- MCA of $15,000 at a factor rate of 1.25: a fixed cost of $3,750, repaid through daily debits. Once it is repaid, the next month's gap needs a new advance and a new fixed cost.
Check how your line actually charges before you rely on numbers like these. A full month of interest charged on each draw, a draw fee, or a rule that each draw be repaid over a set number of weeks would each raise the cost of short, repeated draws.
How underwriting differs
A lender extending a revolving limit is taking a risk that lasts as long as the line is open. That is one reason published line criteria can ask for more time in business, higher credit scores and more revenue, and why a line agreement may let the lender reduce or freeze the limit if your deposits fall. An MCA funder looks at your last few months of bank statements, sizes one advance, and is done until you ask for another.
If an MCA is the only option today, treat it as a bridge. Steady deposits, no returned payments and a clean payment record over the following months are the same things a line lender will read on your statements later.
When the line of credit wins
- Recurring gaps. Payroll that lands before customer payments, or a seasonal build every fall, are what reusable credit is for.
- Fast repayment. If the cash comes back within weeks, a monthly-priced line charges you for weeks.
- Standby money. An open line with nothing drawn can cost little or nothing to keep, so it doubles as insurance for the cooler that dies on a Friday. Ask whether the line charges anything on the unused limit.
The catch is qualification. Fora Financial's line, for example, asks for 6+ months in business, $240,000+ in annual revenue and a 570+ FICO score.
When the MCA wins
- Credit or history below line thresholds. Openbook Capital reviews every credit profile, and most MCA funders look for a personal score of 500+.
- Volatile sales. A true holdback shrinks in a slow month. A line's fixed payment does not.
- A single urgent need. A one-time repair or opportunity with a clear payback can justify a fixed cost, if you have checked the dollars.
If both are on the table, the line is usually the cheaper tool for a short need. Put the offers side by side in our compare offers tool before you decide.
Questions to ask about any line
- Is the rate monthly or annual, fixed or variable?
- Is there a fee on each draw, or a maintenance fee on the limit?
- How is each draw repaid: on your schedule, or in fixed payments over a set term?
- Can you repay a draw early without a fee?
- Can the lender reduce or freeze the limit, and on what notice?
- Is there a personal guarantee or a UCC lien, and what does it cover?
Questions
Is a line of credit cheaper than an MCA?
For short needs, usually yes, because a line charges only while money is drawn. In our $30,000 example, a line at 3% a month repaid over 3 months cost $1,800, against $7,500 for a 6-month MCA at a factor rate of 1.25.
Do I pay interest on the unused part of a line?
Typically not; Credibly, for example, says you pay interest only on the amount you draw. Ask whether the line has a maintenance fee on the limit or a fee on each draw, since those change the real cost.
Can I get a line of credit with lower credit?
It can be harder. Published line criteria can be higher than for MCAs; Fora Financial's line asks for a 570+ FICO score, 6+ months in business and $240,000+ in annual revenue. Openbook reviews every credit profile and can show which options fit.
Can I have both a line of credit and an MCA?
Possibly, but read both contracts first. An MCA's daily or weekly debits reduce the cash available to repay draws, and some agreements restrict additional financing without consent.
Have an offer on the table?
Decode it before you sign, or let us bring back offers from funders that fit, each with its full cost.
Sources
- Business line of credit — Credibly (checked 2026-09-30)
- Business line of credit — Fora Financial (checked 2026-09-30)
- Merchant cash advance — Credibly (checked 2026-09-30)
- FAQ — Fora Financial (checked 2026-09-30)
This guide is general information, not legal, tax or financial advice. Figures are examples worked with the method in our disclosures.