Advance vs. term loan vs. line of credit: the honest math

By the Sullivan Financing team Updated June 2026 8 min read

Most owners compare financing offers by the monthly payment or by a number a salesperson called "the rate." Both comparisons are traps, because the three most common products price money in three different languages. Here's how to translate.

The three products in one table

	Revenue advance (MCA)	Term loan	Line of credit
You receive	Lump sum	Lump sum	A limit you draw on
Pricing language	Factor rate (e.g. 1.32)	Interest rate / APR	APR on drawn balance
Payback	Fixed total, daily/weekly payments	Amortizing monthly payments	Pay on what you use
Speed	Hours–days	Days–weeks	Days–weeks
Typical term	3–18 months	1–10 years	Revolving
Credit dependence	Low — revenue-based	High	High

Factor rates are not interest rates

An advance priced at a 1.32 factor means you repay 1.32× what you received: take $50,000, repay $66,000, period. The cost is fixed up front — it does not compound, and paying on schedule neither grows nor shrinks it.

The trap is comparing "1.32" to a bank's "8% APR" as if they're the same kind of number. They aren't, because of time. $16,000 on $50,000 over 9 months is a very different annualized cost than the same $16,000 over 3 years. Shorter term = higher effective annual rate, even at the same factor.

Quick translation: for a fixed-total payback, the rough APR-equivalent is (factor − 1) ÷ term in years × ~1.8 (the ~1.8 adjusts for the declining balance as you pay down). A 1.32 factor over 9 months ≈ (0.32 ÷ 0.75) × 1.8 ≈ 77% APR-equivalent. That's not a hidden fee — it's the honest translation, and it's why advances only make sense when the money earns more than it costs.

When each product actually fits

A revenue advance fits when…

The opportunity or problem is now — a supplier discount, a broken machine, a payroll gap — and waiting weeks costs more than the capital does
The money has a clear, near-term return: inventory you'll turn in 60 days, a contract you'll invoice in 90
Your credit file wouldn't survive bank underwriting, but your revenue is real and consistent

A term loan fits when…

You're financing something long-lived — a build-out, a vehicle, an acquisition — and want the payback matched to the asset's life
You can wait out the process and clear the credit bar

A line of credit fits when…

Your need is recurring and variable — seasonal inventory, lumpy receivables — and you mainly want standby capital
You're disciplined about paying it down; a permanently maxed line is just an expensive term loan

The math that matters more than the rate

Whatever the product, the real question is the same: does the money make you more than it costs? A 1.35 factor on inventory you mark up 60% and turn twice during the term is profitable. A 7% bank loan to cover losses with no plan is not. Run the use of funds, not just the price tag.

And one rule that holds everywhere: never stack. Adding a second and third advance on top of the first multiplies the daily withhold faster than revenue grows, and it's the single most common path to default. If payments are already tight, consolidating into one position — not adding another — is the move.

Curious how an underwriter sizes a payment your cash flow can carry? See how lenders actually read your bank statements.