A merchant cash advance gives you a lump sum now, repaid as a fixed daily or weekly amount, priced with a factor rate. A line of credit lets you draw what you need, repay, and draw again, with cost accruing only on what is drawn. Advances suit a specific one-off cost; lines suit a recurring gap.
How the money arrives
An advance is a single lump sum. You know the amount, the total repayment and the schedule on day one, and none of it changes.
A line is a limit rather than a transfer. Nothing is owed until you draw, and the limit replenishes as you repay — which is what makes it useful for a gap that recurs.
How they are priced
Advances use a factor rate — a fixed multiplier applied once. Simple to understand, but the cost does not shrink if you repay early unless the agreement says so.
Lines charge on the drawn balance only. An unused line costs little or nothing, and paying down a draw reduces what accrues from that point.
Which one fits
Choose an advance when there is one identifiable thing to pay for: a bulk inventory buy, an equipment repair, a payroll shortfall with a known end.
Choose a line when the shortfall is rhythmic rather than singular — slow weeks every quarter, a payables cycle that runs ahead of receivables, seasonal stock buying.
Businesses often end up holding both, using the line for the rhythm and an advance for the occasional larger move.
A worked example
A restaurant needs $30,000. If it is for a walk-in cooler that failed on Friday, an advance fits: one known cost, one lump sum, a fixed schedule, and the equipment is working again on Monday.
If instead it is because January and February run $10,000 to $15,000 light every year, a line fits better. Draw in the slow months, repay across the busy ones, and pay for only what was actually drawn — which over a full year usually costs considerably less than taking $30,000 up front and paying for all of it.
The test is whether the shortfall has an end date. One-off and identifiable points to an advance. Recurring and rhythmic points to a line.
Read next: Merchant cash advance · Business line of credit · What funding costs
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