Line of Credit vs. Cash Advance: Which Is Right for You?

Two of the most popular business funding products look similar from the outside — you apply, get approved, and receive capital. But under the hood, a business line of credit and a merchant cash advance work very differently. Choosing the wrong one can cost you money or limit your flexibility.

Here's the plain-English breakdown.

The cash advance: lump sum, fixed repayment

A merchant cash advance gives you a lump sum today. You pay it back through daily or weekly ACH payments over a set period — typically 6 to 18 months. The total amount you repay is fixed from day one (funded amount × factor rate).

What you give up: flexibility. You can't draw more if you need it. Payments are fixed regardless of how business is going.

What you get: speed. Most cash advances fund same-day or next-day. And approval is driven primarily by revenue, not credit history.

Best for: One-time, specific needs. Equipment purchase. Expansion project. A payroll gap while waiting on a large receivable.

The line of credit: revolving, draw-what-you-need

A business line of credit works more like a credit card. You're approved for a credit limit (e.g., $75,000) and can draw from it as needed. You pay interest only on what you draw. When you repay, the credit becomes available again.

What you give up: speed. Lines of credit typically take longer to approve and often have stricter credit requirements than cash advances.

What you get: flexibility. Draw $10K this month, another $25K next month, pay down the balance, draw again. No new applications.

Best for: Ongoing working capital needs. Seasonal businesses that need to draw during slow periods and repay during peak periods. Businesses with unpredictable capital needs month to month.

Which one should you choose?

Choose a cash advance if:

• You know exactly how much you need and why
• You need money within 24 hours
• Your credit score is below 650
• You're funding a specific opportunity with a clear return

Choose a line of credit if:

• Your capital needs vary month to month
• You want to draw and repay repeatedly over time
• You have slightly stronger credit and a longer business history
• You want the lowest possible total cost

Still not sure? That's exactly what Luma's advisors are for. They'll look at your situation and tell you which product makes sense — without pressure to choose the more expensive option.