Cash Advances vs. Business Lines of Credit | Fora Financial Blog
How a Merchant Cash Advance is Different from a Business Line of Credit
January 19, 2018

How a Merchant Cash Advance is Different from a Business Line of Credit

Evaluating financing options can be stressful, especially when you consider all the choices that are available to business owners. Due to this, it can be challenging for business owners to decide on which product is right for them.
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In this post, we’ll break down the differences between two popular financing products; merchant cash advances and business lines of credit. Keep in mind these general definitions:

  • Merchant Cash Advance: With merchant funding, you receive a lump sum of cash in exchange for a portion of your future credit sales. You generally make daily or monthly payments, which are based on a percentage of your credit card transactions.
  • Business Line of Credit: If you receive a business line of credit, you have a certain amount of credit that you can draw down as often as you like, if you continue to make your payments on time.

The Structure

The most glaring distinction between the structures of merchant funding and lines of credit is that one is considered a loan (the line of credit) and the other (the cash advance) isn’t.

Because a business line of credit is a loan, it comes with more stringent qualifications and a longer application process than a merchant cash advance. You’ll generally need to be operational for at least a year or more with a relatively high level of annual revenue to qualify for a line of credit. In addition, traditional business lines of credit will require extensive documentation. This includes financial statements, personal and business tax returns, business registration documents, among other forms.

NerdWallet points out that lines of credit from online lenders tend to have less strict requirements, but even so, a business line of credit will still be more difficult to qualify for than a merchant cash advance.

A merchant cash advance doesn’t have as strict of qualifications when compared to a line of credit. You’ll likely be asked for some basic identification information about your business and the funder will want to see records of your credit card sales. If you can show them records of a certain amount of credit card sales each month, you can get approved quickly.

The Businesses that Use Them

Because of the differences between these two financing options, some businesses will benefit from one more than the other. For example, a landscaper who is usually paid in cash would not necessarily be well-suited for a merchant cash advance because he would have fewer credit card transactions. Instead, he might want a business line of credit to help him meet payroll when business is slow during winter months.

Still, despite their differences, a business line of credit and a cash advance can both be a great fit for certain businesses, like retail stores. For example, let’s say you own a retail store and you need a lump sum of cash to fix damage to your storefront, but you also need cash to bridge the gap between payroll cycles.

Assuming you make a relatively high number of credit card transactions and can qualify for a business line of credit, these two finance options could efficiently solve both your problems. The business line of credit could act as a stopgap measure anytime you need help meeting payroll and the cash advance would ensure that you have cash on hand necessary to make a large, one-time investment.


At the highest level, a line of credit and merchant funding differ in three main ways: qualifications, how you receive funds, and how you remit those funds. If you’re evaluating these two options, it’ll be helpful to break your comparison down into these three categories. That way, you can understand how each financing option fits into your individual businesses based on their immediate and long-term impacts.

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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].