# Line of credit vs term loan vs invoice factoring for contractors > Match the product to the problem: revolving short gaps, term purchases, or selling invoices. Do not treat them as interchangeable. By Elie Mendlow · Published November 11, 2026 Section: Business Funding › Term Loans & Credit Lines · Series: Contractor Desk (https://mcafax.com/notebook/series/contractor-desk) Canonical: https://mcafax.com/notebook/contractor-loc-term-loan-factoring Source: MCAFax, The Broker's Notebook (https://mcafax.com/notebook). MCAFax is not a lender or a law firm. --- A business line of credit, a term loan, and invoice factoring solve different contractor cash problems. Use a revolving line for repeating short gaps, a term loan for a defined purchase or longer need, and factoring only when selling specific invoices fits the customer and margins. Match the tool to the job before you sign. This is general information, not legal or financial advice. ## What is a line of credit best for? Repeating short gaps such as materials due before draws. You draw, repay, and redraw within a limit if the lender renews the facility. It still requires discipline so the line does not become permanent shadow equity. ## What is a term loan best for? A defined amount with a set repayment schedule, such as consolidating a known gap or financing a purchase that is not leased equipment. Poor fit for a two-week hump that will not recur. ## What is invoice factoring, carefully scoped? A factor advances against specific invoices and collects from the account debtor under the factoring agreement. Fees and notice rules vary. It is not automatically the same as an MCA, which generally buys future receipts. Compare shapes using https://mcafax.com/notebook/construction-business-loans and [SBA loan vs merchant cash advance](https://mcafax.com/notebook/sba-loan-vs-merchant-cash-advance). ## Where do SBA and equipment products sit in the menu? SBA 7(a) may cover eligible working capital or equipment; 504 targets major fixed assets. See https://www.sba.gov/funding-programs/loans/7a-loans and https://www.sba.gov/funding-programs/loans/504-loans (SOP 50 10 8.1). Equipment loan versus lease detail belongs in the equipment cluster, not jammed into factoring. ### Worked example All names and numbers are made up. Pioneer Roofing hits a $120,000 membrane deposit every spring before draws catch up. A $150,000 line covers the hump if repaid after draws. A $120,000 term loan would keep amortizing in winter. Factoring a single slow GC invoice might help one month but adds fees and customer-notice issues Pioneer does not want. They kept the line discussion, screened callers via [stop MCA broker calls](https://mcafax.com/notebook/stop-mca-broker-calls), and used https://mcafax.com/notebook/where-to-get-business-funding for the wider map. ## How do you choose in one meeting? - Name the cash problem in one sentence - Decide if the need revolves or is one-time - Price fees and repayment shape on paper - Separate equipment needs from payroll bridges - Reject products you cannot explain back in plain English Field note: shops under draw pressure often grab the first fast offer. Naming the problem first prevents paying long-term for a two-week gap. Before you act, align the cash dates, the written quote or program page, and the next payroll. Keep equipment loans and leases separate from any offer that buys future receipts. Use https://mcafax.com/notebook/construction-business-loans for contractor context and https://mcafax.com/notebook/where-to-get-business-funding when you compare funding paths. ## Questions readers ask **Is factoring the same as an MCA?** No. Factoring typically advances against specific invoices. An MCA generally buys a portion of future receipts. Read each contract. **When is a term loan a poor fit?** When the need is a short revolving gap. A term loan keeps amortizing after the hump ends. **Where does equipment financing fit?** Equipment loans and leases are tied to a machine. They are not a general payroll bridge. **Can SBA products overlap these categories?** SBA 7(a) can include working capital or equipment uses subject to underwriting. CapLines and 504 have distinct purposes. Confirm SOP 50 10 8.1.