MCA vs business line of credit: which one is right for you?
Reviewed by Turan Zeynal, Managing Partner, Outset Funding Partners ·
A business line of credit is cheaper (8–25% APR), takes 1–3 weeks to set up, and needs ~650+ credit. An MCA costs more (effective 40–90% APR), funds in 24–72 hours, and approves down to 500 FICO on revenue alone. Use a LOC for planned cash-flow smoothing; use an MCA when speed or credit access is the constraint.
Quick facts
- LOC cost
- 8% – 25% APR
- MCA cost
- Factor 1.15 – 1.50
- LOC speed
- 1 – 3 weeks
- MCA speed
- 24 – 72 hours
- LOC min credit
- 650+
- MCA min credit
- 500+
- LOC repayment
- Interest on drawn balance
- MCA repayment
- Daily % of sales
The 60-second answer
These are the two most common short-term funding products in US small business — and they solve completely different problems. A line of credit is a revolving facility you draw against on demand and repay as you go. An MCA is an upfront lump sum that gets pulled back automatically as a slice of your daily card revenue.
The rule of thumb: if you have the credit and the time, a LOC is almost always the cheaper answer. If you need money this week or your FICO is under 650, the MCA exists precisely to fill that gap. The mistake we see most often is business owners taking an MCA when they had 3 weeks and a 700 FICO — that's an expensive mistake worth avoiding.
Pros and cons
- ✓LOC is dramatically cheaper for qualified borrowers
- ✓LOC is reusable — you only pay for what you draw
- ✓MCA funds in 1–3 days when speed is the constraint
- ✓MCA approves on revenue, not FICO — 500+ works
- ✓MCA won't debit your bank account when sales are slow (percentage of daily card revenue)
- ×LOC rejects most sub-650 credit files
- ×LOC requires financials and can take weeks
- ×MCA is significantly more expensive per dollar
- ×MCA locks up a percentage of every future card sale until paid off
- ×MCA prepayment usually doesn't save you money — the factor is fixed
Side-by-side
| Option | When to use | Watch out for |
|---|---|---|
| Cost basis | LOC: interest / APR on drawn balance | MCA: fixed factor rate, no APR |
| Repayment | LOC: monthly interest + optional principal | MCA: daily % of card sales |
| Speed to funding | LOC: 1–3 weeks | MCA: 24–72 hours |
| Credit floor | LOC: 650+ typical | MCA: 500+ accepted |
| Revenue floor | LOC: $15k+/mo | MCA: $10k+/mo |
| Reusable? | LOC: yes — revolving | MCA: no — single advance |
| Early payoff | LOC: only pay interest on what you used | MCA: usually no meaningful discount |
Frequently asked questions
Is an MCA cheaper than a line of credit?
No — a line of credit is almost always cheaper. A LOC at 15% APR on a $50,000 draw over 6 months costs about $2,200. An MCA at a 1.35 factor on $50,000 costs $17,500 in fees regardless of how fast you repay it.
Can I use a business line of credit to pay off an MCA?
Yes — and it's one of the most common uses of a LOC. Refinancing an MCA into a line of credit is a legitimate path once your revenue stabilizes and your credit qualifies. It's how most owners escape the MCA cycle.
Why would I take an MCA if a LOC is cheaper?
Two reasons: speed and credit access. Banks and most LOC issuers won't approve a business owner with a 580 FICO or one who needs cash inside a week. MCAs are priced for that risk and time compression.
Does an MCA or LOC affect my personal credit?
Most MCA funders do a soft pull and don't report to consumer bureaus. LOCs typically involve a hard credit pull at approval and may report ongoing balance and payment history to business credit bureaus.
Which one is safer if my revenue drops?
Neither is a free pass, but the MCA daily debit scales with your card sales — if you have a slow week, the debit shrinks. A LOC still requires the minimum monthly payment regardless of how sales performed.
Sources
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