LOC APR vs MCA APR: True Cost Comparison

Comparing LOC (Line of Credit) APR to MCA (Merchant Cash Advance) costs requires understanding different pricing models. Here's how to make an apples-to-apples comparison.

Line of Credit (LOC) APR

• Pricing: Annual Percentage Rate (APR)
• Range: 6-25% APR typically
• Calculation: Interest + fees ÷ principal ÷ time
• Payment: Monthly interest + principal
• Flexibility: Use only what you need, pay interest only on used amount

Merchant Cash Advance (MCA) Cost

• Pricing: Factor rate (e.g., 1.30 = pay back 130%)
• Range: 1.20-1.50 factor rate typically
• Calculation: Factor rate converted to approximate APR
• Payment: Daily/weekly percentage of sales
• Flexibility: Fixed total payback regardless of usage

Cost comparison example

$50,000 for 6 months:

• LOC at 12% APR: ~$3,000 total interest
• MCA at 1.30 factor: $65,000 total payback ($15,000 cost)
• MCA effective APR: ~60% APR

When to choose LOC

• You have good credit and banking history
• Need flexibility in usage and payments
• Want the lowest total cost
• Can wait for approval (1-2 weeks)

When to choose MCA

• Need funding quickly (24-72 hours)
• Have seasonal or irregular revenue
• Don't qualify for traditional credit
• Can handle higher cost for speed

Hidden costs to consider

• LOC: Origination fees, annual fees, unused line fees
• MCA: Processing fees, wire fees, renewal fees
• Both: Late payment fees, early payoff penalties

Making the decision

Compare total cost over the same time period, consider your cash flow needs, and factor in approval speed requirements. Often, LOC is cheaper but MCA is faster.