Updated · LoanHelp editorial team · Educational, not financial advice
Invoice factoring, a business line of credit, and a merchant cash advance are priced differently — a fee on the invoice for as long as it is outstanding, interest only on what you draw and for how long, and a factor rate on the whole advance regardless of how fast it is repaid. The only fair comparison is total dollar cost and a Regulation Z nominal APR on the same amount and time, using the same method for each row in the tool below. Merchant cash advance content here is education only; LoanHelp does not offer or arrange MCAs.
How each is priced (plain words)
Invoice factoring advances against an approved invoice and charges a fee that usually grows with how long the invoice stays open. A line of credit lets you draw up to a limit and pay interest (and sometimes fees) on the balance you use. A merchant cash advance delivers a lump sum repaid from future card or bank sales using a fixed factor rate on the full advance — see our MCA overview for mechanics only, not an offer from LoanHelp. Working capital term options are a separate shape (fixed schedule on a set amount) — compare quotes on total cost, not product labels alone.
Turn each quote into total cost
- Factoring: fee ≈ invoice × (fee % per 30 days ÷ 100) × (days outstanding ÷ 30). Reg Z nominal APR on the advance ≈ (fee ÷ advance) × (365 ÷ days).
- Line of credit: interest ≈ draw × (APR ÷ 100) × (days ÷ 365); stated APR is the Reg Z nominal figure when interest accrues on the draw only. Add origination, draw, or unused-line fees from your term sheet.
- MCA (education): payback = advance × factor; cost = payback − advance; equal remittance payments over the term you choose; Reg Z nominal APR = unit-period rate × 260 (weekday daily) or × 52 (weekly), matching NY 23 NYCRR 600.3.
What changes the answer
Repayment speed, how long you keep a LOC draw open, recourse vs non-recourse factoring, and fees you should ask about in writing (origination, draw, wire, or unused-line fees) all change total cost. Slow-paying customers point toward factoring; recurring short gaps may fit a line of credit or working capital; emergencies tempt daily-remittance products — stacking MCAs on top of each other can squeeze cash flow.
Check the math on the same amount
Illustrative example: use the calculator with numbers from a quote you received. For factoring on $50,000 at 2% per 30 days for 90 days: fee = $50,000 × 0.02 × (90 ÷ 30) = $3,000. For a $50,000 LOC draw at 12% APR for 90 days: interest = $50,000 × 0.12 × (90 ÷ 365) = $1,479. For an MCA advance of $50,000 at a 1.25 factor over 90 days with 65 weekday payments: cost = $50,000 × (1.25 − 1) = $12,500.
Illustrative example — not a quote or a typical rate. Change inputs to match a quote you received.
MCA math (education only)
- Payback = $50,000 × 1.25 = $62,500; cost = $12,500.
- Payments = 65 weekday Mon–Fri payments over 90 calendar days; each payment = $62,500 ÷ 65 = $962.
- Reg Z nominal APR = unit-period rate from those cash flows × 260 = 183.3% — same basis as NY 23 NYCRR 600.3.
On $50,000 for 90 days: invoice factoring costs about $3,000 (Reg Z nominal APR 27.0% on the advance); a line of credit drawn for the same period costs about $1,479 (stated 12% APR); a merchant cash advance at a 1.25× factor over 90 calendar days costs about $12,500 (Reg Z nominal APR 183.3% with 65 weekday payments). These are illustrative only — use your own quote.
Invoice factoring
How priced: Fee on the invoice for days outstanding (2% per 30 days in this example)
Total cost: $3,000
Reg Z nominal APR: 27.0%
Watch out: Recourse, notification, and reserve terms change what you keep if a customer pays late
Line of credit
How priced: Interest on the draw for days outstanding (stated 12% APR in this example)
Total cost: $1,479
Reg Z nominal APR: 12.0%
Watch out: Unused-line, draw, and renewal fees are not in this simple interest math
Merchant cash advance (education only)
How priced: Factor 1.25× on $50,000 → $62,500 payback; 65 weekday Mon–Fri payments over 90 calendar days; $962 each
Total cost: $12,500
Reg Z nominal APR: 183.3%
Watch out: Daily remittance and stacking can compress cash flow; LoanHelp does not arrange MCAs
Questions to ask any provider
- Total cost in dollars over the life of this specific offer
- How APR or annualized cost was calculated, and whether it includes fees
- Prepayment or early-payoff terms
- All fees beyond the headline rate (origination, draw, maintenance, wire)
- For factoring: recourse, notification, and what happens if the customer pays late
Official sources (verify your offer)
The FTC guidance on shopping for small business financing covers vetting lenders and understanding non-traditional products. SBA.gov describes loan programs made by participating lenders — LoanHelp is not affiliated with the SBA. The Federal Reserve Small Business Credit Survey publishes research on how firms use credit; we do not quote survey statistics here. CFPB Regulation Z (12 CFR §1026.22) describes how nominal APR is determined from unit-period rates. Some states require commercial financing providers to disclose an estimated APR — for example California DFPI commercial financing rules and New York DFS disclosure regulation (23 NYCRR 600). Coverage and exemptions vary by state and product — read your offer.
Documents to gather
- Your quote or term sheet showing fees, factor rate, or APR and how it was calculated
- Invoice aging or sales history if you are comparing factoring or sales-based remittance
- Bank statements showing average daily balance when remittance is daily or weekly
- List of existing financing and advances (balances and payment schedules)
- Questions in writing about prepayment, renewal, and any origination or draw fees
Ready to describe your timing and amount to a financing partner?
LoanHelp is an independent referral service, not a lender or broker. We pass one financing inquiry with context from this guide — not an MCA product.
Submit a financing inquiryFAQ
- Why compare factoring, a line of credit, and an MCA on the same dollar amount?
- They are priced differently — a fee on an invoice for time outstanding, interest on what you draw from a line, and a factor rate on a full advance repaid from sales — so total dollars and a Reg Z nominal APR on the same amount and period is the fairest comparison. LoanHelp is a referral service, not a lender or broker.
- Is invoice factoring interest?
- Factors usually quote a fee tied to how long the invoice is outstanding, not a traditional APR on a loan. You can still estimate total cost and a Reg Z nominal APR from the fee and advance using (fee ÷ advance) × (365 ÷ days). Some states require providers to disclose an estimated APR on commercial financing offers — coverage and exemptions vary.
- Does a line of credit charge interest on the full limit?
- Generally you pay interest (and sometimes fees) on the amount you draw, for as long as it stays outstanding — not on the unused portion of the limit. Origination, draw, and inactivity fees can add to total cost; ask for them in writing.
- How is MCA APR calculated on this page?
- We use the Regulation Z nominal APR method: solve the unit-period rate from equal remittance payments (advance in, equal payments out), then multiply by 260 for weekday daily remittance or 52 for weekly — the same approach described in New York’s 23 NYCRR 600.3. Payment count and frequency are shown in the tool. Merchant cash advance content is education only — LoanHelp does not offer or arrange MCAs.
- Can LoanHelp help me get a merchant cash advance?
- No. LoanHelp does not accept merchant cash advance inquiries. We explain MCAs for comparison and can refer working capital, lines of credit, factoring, equipment, and SBA-related inquiries to one partner.
- What should I ask before signing any of these?
- Ask for total cost in dollars, how APR was calculated (including payment count and frequency), prepayment terms, and all fees (origination, draw, maintenance, or wire fees). In some states, commercial financing providers must give standardized disclosures — check your offer against what your state requires.