Business Line of Credit
A business line of credit is a revolving credit facility allowing businesses to draw, repay, and re-draw funds up to a credit limit — providing flexible access to capital with interest charged only on amounts drawn — distinct from MCA's lump-sum advance structure.
Why This Matters
Lines of credit offer flexibility MCA cannot match. A $100K line lets a merchant draw $30K when needed, repay it, then redraw later — paying interest only on outstanding balances. Bank lines of credit run 7-15% APR but require strong credit and revenue qualifications. Online lender lines (Bluevine, Kabbage, Fundbox) run 15-50% APR with more accessible underwriting. Lines suit businesses with intermittent capital needs (seasonal inventory, cyclical receivables); MCA suits businesses with discrete capital deployment plans (equipment purchase, expansion, debt consolidation). Many businesses use both products for different purposes.
Example
Business secures $75K line of credit at 12% APR. Draws $25K in March for inventory ($300/month interest), repays $15K in May, draws $20K in June for equipment, repays full balance by year-end. Total interest paid: roughly $1,800. Equivalent MCA structure would have cost $5,000-$8,000 in factor margin for similar capital deployment.
Frequently Asked Questions
Frequently Asked Questions
How does a line of credit differ from MCA?
Lines of credit are revolving (draw, repay, redraw); MCA is a single lump-sum advance. Lines charge interest on outstanding balance; MCA charges flat factor regardless of repayment timing. Lines suit ongoing intermittent needs; MCA suits discrete capital deployment events.
Can a business have both an MCA and a line of credit?
Yes — many businesses use both. MCA for immediate large capital needs; line of credit for ongoing working capital flexibility. Some MCA agreements include covenants limiting additional debt — review agreement terms before stacking financing products.