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 technically a loan, MCA providers are largely exempt from usury laws and aren't required to disclose an APR.

Instead, MCAs use a factor rate — a multiplier applied to the advance amount. A $50,000 advance at a 1.3× factor rate means you owe $65,000 total. The provider takes a daily percentage of your credit card or bank account receipts until the full $65,000 is repaid.

The critical detail: MCAs don't have a fixed term. If your sales are strong, repayment happens faster — which dramatically increases the effective APR. A $50,000 MCA repaid in 4 months (not 12) 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.