A merchant cash advance (MCA) and a line of credit (LOC) are both forms of financing that can be used by small businesses, but they have some key differences.
Advantages of a merchant cash advance:
- Faster approval process: MCAs can often be approved and funded more quickly than LOCs.
- No collateral required: MCAs do not require collateral, unlike LOCs which may require collateral such as property or equipment.
- Flexible repayment: MCAs are typically repaid as a percentage of daily credit card sales, so the repayment amount can fluctuate with sales.
Advantages of a line of credit:
- Lower cost: A line of credit typically has a lower cost of capital compared to a merchant cash advance, which is typically more expensive
- Revolving credit: A line of credit can be used multiple times, whereas a merchant cash advance is a one-time lump sum payment.
- Credit Building: A line of credit can help a business to build credit history, which can be beneficial for future borrowing.
It’s important to note that both MCAs and LOCs have their own set of pros and cons, and it depends on the business’ need and situation, which one will be more beneficial for them. Also, It’s always recommended to consult with financial advisors or accountant before making a decision.