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Line of credit vs Merchant cash advance: which is right for your business?
The main difference between a business line of credit and a merchant cash advance is how they are secured and repaid: a business line of credit suits seasonal or project-based businesses managing cash-flow timing, while a merchant cash advance suits card-heavy retail and hospitality businesses with seasonal swings and an urgent, short-term need.
Line of credit vs Merchant cash advance at a glance
| Business line of credit | Merchant cash advance | |
|---|---|---|
| What it is | A business line of credit is an approved limit you can draw on, repay and redraw as needed, paying interest only on the amount used. It suits businesses whose funding needs rise and fall through the year. | A merchant cash advance is a lump sum advanced against your future card sales, repaid by taking an agreed percentage of each day’s card takings until a fixed total is repaid. It is priced with a factor rate rather than an interest rate, and it is one of the most expensive forms of business funding. |
| Amount | $10,000 – $500,000 | $5,000 – $300,000 |
| Term | 6–24 months | 3–18 months |
| Indicative rate | 11.5% – 24% p.a. | 25% – 60% p.a. |
| Rate type | Variable | Factor rate |
| Security | Unsecured (guarantee may apply) | Unsecured (guarantee may apply) |
| Repayments | Weekly or monthly minimums on the drawn balance | A set percentage of daily card settlements |
| Typical speed | 1–3 business days | 24–48 hours |
| Best for | Seasonal or project-based businesses managing cash-flow timing | Card-heavy retail and hospitality businesses with seasonal swings and an urgent, short-term need |
| Consider the other if | A single large purchase you will repay over years | Businesses paid by invoice or bank transfer, or anyone who would qualify for a conventional term loan |
| Tax | Interest and line fees on business use are generally deductible. | The cost of a business-purpose advance is generally deductible. Confirm the treatment with your accountant. |
Rates shown are indicative ranges observed across our lender panel for the period stated. They are not an offer or quote. Your rate depends on your business, the lender, the amount, the term and the security offered. The lender makes the final credit decision.
When to choose a business line of credit
A business line of credit is usually the better fit for seasonal or project-based businesses managing cash-flow timing. Its main advantages are pay interest only on what you draw, redraw without reapplying, buffer against slow-paying customers. Consider the alternative if a single large purchase you will repay over years.
When to choose a merchant cash advance
A merchant cash advance is usually the better fit for card-heavy retail and hospitality businesses with seasonal swings and an urgent, short-term need. Its main advantages are repayments fall automatically in quiet trading periods, fast funding with minimal documentation, no property security required. Consider the alternative if businesses paid by invoice or bank transfer, or anyone who would qualify for a conventional term loan.
Business line of credit
A business line of credit is an approved limit you can draw on, repay and redraw as needed, paying interest only on the amount used. It suits businesses whose funding needs rise and fall through the year.
Merchant cash advance
A merchant cash advance is a lump sum advanced against your future card sales, repaid by taking an agreed percentage of each day’s card takings until a fixed total is repaid. It is priced with a factor rate rather than an interest rate, and it is one of the most expensive forms of business funding.