The short answer
Last updated: October 13, 2026. SBA figures checked on SBA.gov on October 13, 2026. General information, not legal advice.
If you can qualify, a business line of credit is almost always the cheaper choice in 2026: you pay interest only on what you draw, and paying early cuts the cost. A merchant cash advance is faster and easier to get, but its cost is fixed the day you sign and comes out of daily sales. Try for the line first.
| Business line of credit | Merchant cash advance | |
|---|---|---|
| What it is | A revolving limit you draw from, repay and draw again | A lump sum bought against a share of your future sales |
| How you pay | Interest on what you've drawn, on a set schedule | A fixed payback taken as daily or weekly debits |
| Paying early | Cuts the interest | Usually doesn't cut the cost, unless the contract has a written early-payoff discount (MCA contract clauses) |
| What it costs | Interest on the balance, usually much lower | A factor rate; about 126% APR in our $50,000 example (an example, not a quote) |
| How fast | Days to weeks, fastest if you set it up before cash is tight | Often within days, with little paperwork |
| How you qualify | The lender looks at credit, time in business and deposits; the lender decides | Approves easily because it collects from daily sales, and that ease is priced in |
| Best for | Recurring or uneven cash-flow gaps you can plan for | A short, one-time need that clearly earns back more than it costs, when nothing cheaper funds in time |
How a business line of credit works
A line of credit is a revolving limit. You draw what you need, repay it, and draw again. You pay interest only on the drawn balance, and the lender may review or renew the line from time to time. Start with your own bank or credit union, since they already see your deposits. Then try SBA lenders. The SBA 7(a) Working Capital Pilot offers monitored lines of credit up to $5 million, and SBA says to consider it if your business has at least one year of operating history (SBA 7(a) loans). Lender Match connects you with participating SBA lenders.
How a merchant cash advance works
An MCA is a purchase of a share of your future sales. It's priced with a factor rate instead of interest, and it's repaid by daily or weekly debits. For the "is it a loan?" Question, see the MCA questions merchants actually ask.
What each really costs (an example, not a quote)
This is the same example used on our MCA alternatives page. In our example, $50,000 at a 1.35 factor rate means paying back $67,500 ($50,000 x 1.35). That's roughly 126% APR, and more if fees come off the top or the term is shorter.
A line charges interest only while money is drawn. A balance you repay in a few weeks costs a fraction of that. Run a real offer through the cost of capital calculator.
When a line of credit is the better pick
- Your gaps are recurring or seasonal.
- You're waiting on customers to pay invoices.
- You want a cushion before you need it.
- You want early repayment to save money.
Apply while cash flow is healthy. It's much harder once cash is tight.
When an MCA might be the only option
Here's a hypothetical. Juniper Lantern Bakery, a made-up business, lands a one-time catering order but needs ovens fixed this week. No cheaper money funds in time. Before signing, the owner runs these checks:
- The need is short and one-time.
- The order clearly earns back more than the total cost.
- The daily debit, divided by average daily deposits, still leaves payroll covered in a slow week.
Read is a merchant cash advance a good idea first. Already in one? See how to refinance a merchant cash advance.
Other options to compare before either
Where to get business funding, cheapest options first.
If a broker is pitching you an "MCA line"
Some offers are called lines but are priced like advances. Ask for the total payback in dollars, the debit amount and frequency, every fee, and early-payoff terms in writing. Check your state's commercial financing disclosure rules. Cold calls usually mean a broker; see why brokers call you and how to stop MCA broker calls.
Sources
- SBA, 7(a) loans (Working Capital Pilot): https://www.sba.gov/loans/7a-loans/
- SBA, Lender Match: https://www.sba.gov/loans/lender-match/