Working Capital Loans 2026: LOC vs Term Loan vs MCA vs Factoring (Real Costs)

Working capital financing is not a single product — it’s a category with four genuinely different tools, each with a different cost structure, funding timeline, and use case. Most guides lump them together. This one separates them so you can see exactly what each costs at $50K and $100K, and which one fits your actual situation.

The short version: a business line of credit is almost always the cheapest and most flexible option. If you don’t qualify, short-term term loans are the next step. Invoice factoring solves a specific problem (slow-paying customers) better than any loan. MCAs are expensive last resorts, not a routine funding strategy.

The Four Options: Cost Comparison at a Glance

This table assumes a $50K and $100K working capital need, mid-2026 rates, and a 6-month term unless noted.

Costs are illustrative. Actual rates depend on credit profile, time in business, and revenue. “Effective APR” for MCA computed using daily IRR method (252 business days). Bank LOC assumes interest-only draws.

Option 1: Business Line of Credit

A revolving line of credit lets you draw cash up to your limit, repay, and draw again. You only pay interest on what you actually use, which makes it the most cost-effective tool for recurring working capital needs — bridging payroll cycles, covering seasonal inventory, managing payment timing gaps.

What it costs:

$50K example — Bluevine at 25% APR, 6-month draw: You draw $50,000 and repay over 6 months with weekly payments. Total interest: roughly $6,500. Not cheap, but you can draw again once repaid, and the line doesn’t disappear.

$100K example — bank LOC at 10% APR, 6-month average balance: Interest cost: roughly $5,000. This is the benchmark to beat. If you can qualify at a bank, a bank line wins on cost by a wide margin.

Best for: Businesses with recurring, variable cash flow needs — seasonal swings, payroll timing gaps, restocking cycles. The revolving feature means one approval covers multiple cycles.

Not for: One-time capital needs (a specific equipment purchase, a renovation) where a term loan’s fixed structure is cleaner.

Option 2: Short-Term Business Term Loan

A term loan gives you a lump sum upfront with a fixed repayment schedule — daily, weekly, or monthly payments over 3–24 months. Unlike a line of credit, it doesn’t revolve; once you repay, the funds are gone.

What it costs:

$50K at 35% APR, 12-month term: Monthly payment: ~$4,760. Total repaid: ~$57,100. Total interest: ~$7,100.

$100K at 30% APR, 18-month term: Monthly payment: ~$7,400. Total repaid: ~$133,200. Total interest: ~$33,200. (Note: this illustrates how longer terms on higher-rate loans compound costs significantly.)

Best for: A defined, one-time working capital gap — a specific slow season you can model, an upfront bulk-purchase discount you want to capitalize on, a project with a clear repayment timeline.

Not for: Chronic cash flow problems. If you’re borrowing to cover ongoing operating losses, a term loan doesn’t fix the underlying issue.

Option 3: Merchant Cash Advance

An MCA is not technically a loan — it’s an advance against future revenue, repaid via a daily or weekly holdback (typically 8–20% of daily card sales or total deposits). Repayment speed varies with revenue, which can feel flexible but makes the effective cost unpredictable.

What it actually costs:

The real cost of an MCA is expressed as a factor rate — multiply the advance by the factor to get total repayment. But the effective APR depends on how quickly you repay.

Effective APR computed using daily IRR method, 252 business days. Shorter repayment = higher effective APR.

$50K advance at 1.30 factor, 6-month repayment: You repay $65,000 total. Effective APR: ~105%. Compare that to a Bluevine LOC at 30% APR, where the same $50K over 6 months costs roughly $7,500 in interest.

Best for: Short-term gaps with confirmed near-term revenue (restaurant before a confirmed holiday booking rush, retail before a confirmed purchase order). Only viable when you have no LOC or term loan option and you can model repayment in 3–4 months.

Not for: Ongoing working capital. Stacked MCAs — where you take a second advance before the first is repaid — routinely push effective APR above 200%. See our MCA stacking risks guide for how this unfolds.

Option 4: Invoice Factoring

Factoring is not a loan. You sell your outstanding invoices to a factoring company (the “factor”) at a discount in exchange for immediate cash. The factor collects from your customers directly. There’s no debt on your balance sheet, no fixed payment, and qualification depends primarily on your customers’ creditworthiness, not yours.

How it works:

1. You issue an invoice to a customer (net 30, 60, or 90).
2. You sell that invoice to a factor for 85–95% of face value (the “advance rate”).
3. The factor pays you within 24–48 hours.
4. Your customer pays the factor on their normal terms.
5. The factor releases the held reserve (5–15%) minus their fee.

What it costs:

$50K invoice example (recourse, 85% advance, 2.5% per 30 days, customer pays in 45 days): You receive: $42,500 upfront ($50K × 85%). Fee: $50K × 2.5% × 1.5 (45 days / 30) = $1,875. Reserve released: $50K − $42,500 − $1,875 = $5,625. Net received: $48,125 out of $50,000. Total cost: $1,875 for 45 days of cash acceleration.

Best for: B2B businesses with creditworthy customers on net-30 to net-90 terms. A services firm, staffing agency, or manufacturer waiting on Fortune 500 payments is a textbook factoring use case. Also works when your own credit is damaged — factors care about your customers, not you.

Not for: B2C businesses (no invoices), businesses with customers who pay in under 30 days (the benefit is too small to justify the fee), or businesses with a concentration risk (one customer = 80%+ of AR).

Which Working Capital Option Fits Your Situation?

What to Check Before You Apply

1. Calculate your real need. Don’t borrow based on a round number. Model your actual cash gap: when does money go out, when does it come in, and what’s the maximum deficit during that window?
2. Run the total repayment math. Rate alone is misleading for daily-payment products. Multiply the loan amount by the factor (MCA) or compute total interest (LOC, term loan) to get a single comparable number.
3. Confirm your revenue baseline. Most lenders require 3–12 months of bank statements. MCAs typically want $10K–$15K/month in deposits; online LOC lenders want $100K+ in annual revenue.
4. Check for UCC-1 liens. If you’ve had prior MCAs or term loans, a lender may have filed a blanket lien on your assets. New lenders see this and may decline or subordinate — run a UCC search before applying.
5. Understand your holdback exposure (MCAs). A 15% daily holdback on $50K/day in card volume means $7,500/day going to repayment. Model what happens to your operations in a slow week.

Rates verified June 2026 against published lender terms and the rates cited in this site’s individual lender reviews. The effective APR calculations for MCAs use the daily IRR method (252 business days). All figures are representative ranges — your actual rate will depend on your credit profile, time in business, and revenue.