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LOC vs. MCA True Cost Calculator

Enter your financing need to see the real dollar difference between a business LOC and a merchant cash advance.

Business LOC

Total interest cost

Merchant Cash Advance

Total cost (factor fee)

How MCAs Actually Work (And Why They're Expensive)

A merchant cash advance is not a loan. It's a purchase of your future receivables at a discount.

This legal distinction matters: because it's not a loan, MCA providers are exempt from usury laws. They aren't required to disclose an APR.

Instead, MCAs use a factor rate: a multiplier applied to advance amount. A $50,000 advance at 1.3× factor means you owe $65,000.

The provider takes a daily percentage of receipts until fully repaid.

The critical detail: MCAs don't have fixed terms. If your sales are strong, repayment accelerates.

This dramatically increases the effective APR. A $50,000 MCA repaid in 4 months has an effective APR over 90%.

Head-to-Head Comparison

FactorBusiness LOCMerchant Cash Advance
True Cost (APR)9–25% APR40–150%+ effective APR
Repayment StructureMonthly payments, flexibleDaily % of sales, accelerates with revenue
Credit Score Required620+ typically550+ or even lower
Time to Fund1–5 business days24–48 hours often
Revolving?Yes, repay and redraw anytimeNo, each advance is a new transaction
Impact on Cash FlowPredictable monthly paymentDaily deduction disrupts cash flow planning
Tax Deductible InterestYes, interest is deductibleFactor fee deductibility is more complex
Regulatory ProtectionSubject to lending regulationsLargely unregulated in most states
Stacking RiskLowHigh, easy to stack multiple MCAs dangerously

When Each Makes Sense

✓ Choose a Business LOC When:

  • You have 1+ years in business
  • Personal credit score is 620+
  • You need ongoing revolving access to capital
  • You want predictable repayment terms
  • You'll use the credit line multiple times per year
  • You want the lowest total cost of capital

△ Consider MCA Only When:

  • You've been declined for every LOC option
  • Business is under 6 months old
  • Credit score is below 550
  • You need funds in 24 hours and LOC isn't possible
  • Very short-term bridge (30–60 days max)
  • Revenue is very high, payback will be rapid

Frequently Asked Questions

Is a merchant cash advance or business line of credit better? ▼
A business LOC is almost always cheaper and more flexible. MCAs carry effective APRs of 40–150%, while LOCs run 9–25%. The only advantage of an MCA is qualification speed and lower credit thresholds, if you can qualify for a LOC, you almost certainly should take it instead.
What is the true cost of a merchant cash advance? ▼
MCAs use factor rates (e.g., 1.35×). A $50,000 advance at 1.35× means you repay $67,500 total. If paid in 6 months, the effective APR is approximately 70%. If paid in 3 months due to strong sales, APR exceeds 140%. Use our calculator above to see your specific numbers.
Who should consider an MCA instead of a LOC? ▼
MCAs may make sense for businesses with less than 6 months in operation, credit scores below 550, or a critical short-term need that no LOC lender will fund. If you can qualify for a LOC, you almost always should take it instead.
Can you use both an MCA and a LOC? ▼
Technically yes, but stacking multiple cash advances is extremely risky and can lead to a debt spiral. If you have an existing MCA, focus on paying it off before adding a LOC. Many LOC lenders will decline applications with active MCAs due to cash flow concerns.
Are merchant cash advances regulated? ▼
MCAs are technically a purchase of future receivables, not a loan, so they're largely unregulated and not subject to usury laws in most states. This is why effective APRs can legally exceed 100%. Some states (CA, NY, UT) now require MCAs to disclose APR-equivalent rates.