Understanding the Real Cost of Funding: Line of Credit vs. Unsecured Financing vs. Credit Cards

Business owners often ask the same question:

"What's the cheapest way to access capital for my business?"

The problem is that most merchants only look at the interest rate—not the structure, fees, repayment terms, or overall cost of using the money.

When you actually compare everything side by side, the answer becomes much clearer.

Here's a straightforward breakdown.

Best for: ongoing access, lower cost, strong-credit businesses

A business line of credit is traditionally the most cost-effective option if you can qualify—but qualifying is the hardest part.

Typical Requirements

• Strong personal credit (680+)
• Solid cash flow with low debt
• Clean banking + strong financials
• Collateral sometimes required
• Weeks of underwriting

Pros

• Lower cost than other capital types
• Only pay interest on what you actually use
• Can draw funds repeatedly
• Good for seasonal dips, inventory buys, and emergencies

Cons

• Hard to qualify for
• Banks can freeze or reduce the line at any time
• Requires personal guarantee
• Rate increases if you carry balances long-term

True Cost

Interest rates may look low (e.g., 8–14%), but:

• Interest compounds
• Monthly payments can jump
• Lines can be pulled when financials change

For merchants who can qualify, LOCs are great—but they aren't accessible to everyone.

Best for: fast access, flexible underwriting, and businesses with revenue but imperfect credit

This is where Spring Advance shines.

How It Works

Lenders look at:

• Revenue
• Daily/weekly deposit consistency
• Bank activity
• Time in business

Personal credit is a minor factor.

Pros

• Fast funding (same day or next day)
• No collateral
• Predictable payments
• Approvals based on business performance
• Works for businesses that banks turn away

Cons

• Cost is higher than a line of credit
• Shorter terms
• Designed for cash-flow needs, not long-term borrowing

True Cost

Unsecured working capital is structured as a flat cost, not compounding interest.

This means:

• You know upfront exactly what you'll repay
• You're not getting hit with interest every day or month
• You can save money through early payoff discounts

For merchants who need speed, simplicity, and flexibility—this is often the best solution.

Best for: short-term purchases that you can pay off quickly

Credit cards look attractive—especially with rewards—but the cost can be extremely high if a business carries balances.

Pros

• Easy to use and always available
• Rewards, points, and benefits
• Great for purchases and quick expenses
• No document requests or underwriting every time

Cons

• High interest rates (18–32%+)
• Compounding interest makes balances explode
• Cost increases every month the balance isn't paid
• Personal credit is directly impacted
• Large business expenses can max cards out fast

True Cost

The real danger is compound interest.

A $20,000 balance at 25% interest can cost more than an MCA if you let it sit for months.

And if you only make minimum payments, that balance can last years.

Credit cards are perfect for small purchases you'll pay off quickly…

But terrible for cash-flow emergencies, payroll, or inventory buys.

It depends on your situation:

If you qualify for a line of credit → it's the cheapest.

But not everyone has the credit and collateral.

If you need fast capital and have strong revenue → unsecured financing wins.

It's simple, fast, predictable, and doesn't depend on your personal credit.

If you're making small purchases you can pay off in 30 days → use a credit card.

This is where rewards actually make sense.

Many merchants combine tools:

• Credit cards for small purchases
• Lines of credit for bigger planned expenses
• Unsecured capital for fast cash-flow needs and opportunities

This balanced approach keeps funding cost-effective while protecting the business from emergencies.

We help business owners compare all three options so they can choose what's best—not just what's available.