Business Line of Credit vs Merchant Cash Advance

A credit line lets you draw what you need when you need it. A cash advance gives you one amount up front. Here is how each works, what each costs, and the questions to ask before you sign.

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5 min read

Published On

Oct 28, 2026

Read: 6 minutes

Last updated: November 6, 2026

In this guide

How a business line of credit works
How a merchant cash advance works
How to compare the cost
Which one fits which need
Questions to ask before you sign

How a Business Line of Credit Works

A line of credit gives your business a limit you can draw from when you need to. You apply once, you take only what you need, and what you have not drawn stays there for later. Providers can change a limit, so check when yours can.

At a bank, a line of credit usually charges interest on the balance, and the rate can move. Other providers charge a fixed cost on each draw instead. The structure matters more than the name, so read how yours is priced.

It fits needs that repeat or are hard to size in advance, like seasonal stock, a slow month, or a job you need to staff before it pays.

How a Merchant Cash Advance Works

A merchant cash advance gives you one amount up front in exchange for a share of your future sales.

Instead of an interest rate, the cost is usually a fixed amount, often shown as a factor rate. For example, $10,000 at a factor rate of 1.15 means you repay $11,500 in total, and the cost is $1,500.

Repayment depends on the agreement. Some take a percentage of daily sales, so payments rise and fall with revenue. Others use set, regular payments, so you know each amount in advance.

It fits a single, known need, like a piece of equipment or a large order.

How to Compare the Cost

An interest rate and a factor rate cannot be compared directly. A fixed cost repaid over a few months is a very different thing from the same percentage charged yearly.

The fairest comparison is in dollars and in time:

What is the total you will repay?
What is the total cost, including every fee?
How much is each payment, and how often?
How long do you really have the money?

That last one is easy to miss. With equal payments you hand the money back as you go, so on average you hold about half of what you took. Repaying $11,500 over 26 weeks is about $442 a week. Over 13 weeks it is about $885 a week. The dollars are the same, but the shorter term gives you the money for half as long and doubles the strain on every week.

The Slate View

Price is the second question. The first is whether the payments fit your tightest weeks. Read it the way an underwriter would: funding often hurts not because of the price on the page, but because payments land in weeks with no room for them.

So add the money and every payment to your 13-week forecast, because payments build up week after week. If any week closes under your minimum, the amount or the term is wrong, whatever the price. Then ask whether the money earns back more than it costs. Funding a sold-out product line can pay for itself. Funding a gap with no plan to close it usually makes the next gap bigger.

Which One Fits Which Need

Choose a credit line when

You will need money more than once
You do not know the exact amount yet
You want it in place before you need it

Choose a cash advance when

You have one purchase with a known price
You want a single amount, repaid in set payments

If you are not sure how much you need, start with your working capital and your cash runway.

Questions to Ask Before You Sign

What is the total I will repay, in dollars?
Are there fees on top of that?
How much is each payment, and how often is it taken?
What happens if my sales drop?
Do I save anything by paying early?
Is a personal guarantee required?
Who else sees my financial data?

A provider that will not answer these clearly before you sign is telling you something.

How Slate Does It

Slate funds both kinds of product. Slate's credit line works like this: you apply once, then draw what you need. Each draw carries one fixed cost, shown before you take it, and is repaid in set, regular payments. It is available in the US and Canada. So a draw behaves much like a small advance with set payments, on a line you only apply for once.

If your bank offers a line that costs fewer dollars and its payments fit your forecast, that may be the better choice. To see where your business stands first, ask Slate Signals in Claude or ChatGPT.