When a small business needs working capital, two products come up most often: a working capital loan (or MCA) and a business line of credit. Both provide cash for operations, but they work very differently — and choosing the wrong one for your situation costs money and creates unnecessary risk.
Here's a complete comparison of both products so you can make the right choice.
How Each Product Works
Working Capital Loan / MCA
A working capital loan (or MCA) delivers a lump sum to your bank account, which you repay on a fixed schedule (daily, weekly, or monthly). Once you've used the capital and started repaying, you can't draw more from the same product — it's a one-time transaction. If you need more capital, you apply again.
Business Line of Credit
A line of credit gives you access to a credit limit you can draw from as needed. Borrow $20,000 on Monday, repay it in two weeks, and your full limit is available again. You only pay interest on what you've drawn, not on the full limit. This revolving structure makes lines of credit ideal for ongoing, variable working capital needs.
Cost Comparison
| Product | Typical Cost | When You Pay | Best For |
|---|---|---|---|
| MCA | Factor rate 1.10–1.50+ | Daily regardless of usage | One-time urgent capital need |
| Short-term working capital loan | 25–60% APR | Fixed monthly payments | Defined capital need with repayment plan |
| Business line of credit (alternative) | 15–40% APR | Interest on drawn amount only | Ongoing variable working capital needs |
| Business line of credit (bank) | 6–15% APR | Interest on drawn amount only | Established businesses with strong credit |
When to Choose a Working Capital Loan or MCA
- You need a specific amount for a defined purpose (buy inventory, cover payroll, pay a vendor)
- You know the cash flow event that will let you repay (a project payment arriving, seasonal sales spike)
- You've been in business under 2 years or have credit below 600 (lines of credit are harder to qualify for)
- You need capital in under 72 hours
- You don't anticipate needing to draw again in the near term
When to Choose a Line of Credit
- Your capital needs are irregular and ongoing rather than one-time
- You want to borrow only what you need and pay interest only on that amount
- You have the credit history and time in business to qualify
- Your cash flow has predictable cycles where you draw in slow periods and repay in strong ones
- You want a safety net for unexpected needs rather than planned capital
Can You Have Both?
Yes, and many businesses do. An MCA or working capital loan handles an immediate one-time need. A line of credit provides the ongoing buffer for variable expenses. The products serve complementary purposes and typically don't compete with each other in underwriting.
A commercial lending broker's value in this comparison is showing you both options with actual numbers — not just the one they're most familiar with. Get competing offers from both product types before deciding, and work with a broker who represents multiple product categories.
How to Qualify for Each
Working capital loans and MCAs: 6+ months in business, $10,000+ monthly revenue, 500+ FICO. Lines of credit: typically 2+ years in business, $20,000+ monthly revenue, 580–620+ FICO depending on the lender. Bank lines of credit require the strongest profile: 2+ years, profitable financials, 650+ FICO, and often a personal guarantee.
Bottom Line
One-time capital need with urgency = working capital loan or MCA. Ongoing variable cash flow management = line of credit. Both serve real needs; neither is universally superior. Understand the cost structure of each, match it to your specific situation, and work with a broker who can access both product types simultaneously.