# MCA vs. equipment financing — decision tree > Equipment purchase wins on cost (8–14% APR vs. MCA's 50–130%). MCA wins on speed and on non-equipment uses. Decision tree: tangible equipment + 5+ days to close + decent credit → equipment financing. Merchants frequently weigh MCA vs. equipment financing when capital need involves equipment but speed matters. The right choice is almost always dictated by use of funds and time-to-fund — but the nuances matter. Here is the explicit decision tree. **Equipment financing — basics.** - **Structure.** Equipment-secured loan or lease. - **Rate.** 8–14% APR typical; 14–22% for stretched-credit borrowers. - **Term.** 24–84 months. - **Down payment.** 0–25%. - **Approval timeline.** 1–10 business days depending on size and credit. - **Best providers.** Crest Capital, Balboa Capital, Madison Capital, Channel Partners, Beacon Funding, your equipment vendor's captive finance arm. **MCA — basics.** - **Structure.** Sale of future receivables; not equipment-secured. - **Rate.** 50–130% APR-equivalent on factor rates of 1.20–1.50. - **Term.** 4–18 months. - **Down payment.** None. - **Approval timeline.** 4 hours – 3 days. **The decision tree (text form).** - **Q1.** Is the capital need a piece of tangible equipment? YES → Q2. NO → MCA (or unsecured term loan; equipment financing not eligible). - **Q2.** Is the equipment vendor identifiable with an invoice or quote? YES → Q3. NO → MCA (equipment lenders need invoice to fund vendor directly). - **Q3.** Do you have 5+ business days before you must close on equipment? YES → Q4. NO → MCA (then refi to equipment financing later if feasible). - **Q4.** Is your business 2+ years old with 650+ FICO? YES → Equipment financing (best rate). NO → Q5. - **Q5.** Is your business 1+ year old with 600+ FICO and $20K+/mo revenue? YES → Equipment financing via specialty lender (Balboa, Channel). NO → MCA, then refi as credit profile improves. **Cost comparison example ($75,000 commercial oven for restaurant).** | Product | Rate | Term | Monthly payment | Total cost | Down | |---|---|---|---|---|---| | Equipment financing, A-credit | 11% APR | 60 months | $1,631 | $97,860 | $0 | | Equipment financing, B-credit | 16% APR | 60 months | $1,822 | $109,320 | $7,500 | | MCA at 1.28 factor, 9 months | ~50% APR | 9 mo equiv | ~$10,667/mo daily ACH | $96,000 | $0 | | MCA at 1.35 factor, 7 months | ~80% APR | 7 mo equiv | ~$14,464/mo daily ACH | $101,250 | $0 | The MCA on this comparison actually costs LESS in dollar terms — but the monthly cash burden is 6–9× higher. For a restaurant with $30K/mo revenue, the equipment-financing path takes $1,631/mo (5%); the MCA path takes $10,667/mo (36%). The MCA is unaffordable in monthly cash terms even though cheaper in total. **Use cases where equipment financing wins.** - Restaurant kitchen equipment. - Construction machinery (excavators, lifts, dump trucks). - Trucking tractors and trailers. - Manufacturing CNC, presses, conveyors. - Medical / dental capital equipment. - Commercial vehicles, fleet additions. **Use cases where MCA wins.** - Mixed-use ($20K equipment + $30K working capital combined). - Equipment vendor unwilling to wait 5+ days for financing approval. - Used equipment from private seller without invoice paper trail. - Equipment purchase + soft costs (installation, training, permits) that equipment lender won't finance. - Bridge cash needed while waiting for equipment-financing approval. **Hybrid play.** 1. **Bridge with MCA, refi to equipment financing.** Take $50K MCA today to close equipment purchase this week. File equipment-financing application in parallel for $75K, structured to refi the MCA and provide working capital. 2. **Equipment financing for hardware + MCA for soft costs.** Equipment lender funds $75K hardware; MCA covers $15K installation, permits, training, initial inventory. **Equipment financing pitfalls.** - **Captive vendor financing markup.** Vendor's "in-house" financing often 200–400 bps higher than third-party specialty lenders. - **PG required.** Personal guarantee standard on equipment loans under $250K. - **Documentation.** Lenders want vendor invoice, business financials, sometimes equipment appraisal. - **Late penalty severity.** Equipment loans have heavy late fees and can repossess collateral. **MCA pitfalls for equipment.** - **Equipment outlasts MCA payback.** 60-month equipment with 9-month MCA payback means cash drain during the equipment's productive life. - **Holdback consumes cash flow.** Even if monthly nominal payment looks ok, daily ACH disrupts cash position. - **Stacking risk.** Merchants who MCA-fund equipment often need second-position MCA 6 months later to cover the cash drain. **Common confusion.** First, "MCA is always more expensive than equipment financing" — often true on APR; sometimes false on absolute dollars for short payback. Second, "equipment financing rejects me, so MCA is my only option" — sometimes true; sometimes the specific equipment lender rejected you while another would approve. Third, "I can MCA-fund equipment and pay it off easily" — typically underestimates the cash burden. Fourth, "vendor financing is the cheapest option" — frequently the most expensive due to embedded markup. ## Related terms - [Merchant cash advance (MCA)](https://fundnode.co/llms/glossary/merchant-cash-advance) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan. - [Equipment leasing vs equipment financing](https://fundnode.co/llms/glossary/equipment-leasing-vs-financing) — Equipment financing is a loan secured by the equipment — you own it at payoff. Equipment leasing is a rental — the lessor owns it; you pay monthly and either return it, buy it at residual, or upgrade at end of term. Leasing has lower monthly cost; financing builds asset equity. - [MCA vs equipment leasing decision](https://fundnode.co/llms/glossary/mca-vs-equipment-leasing-decision) — Use equipment leasing for specific equipment purchases over $25K because rates are 8–18% APR with the equipment as collateral; use MCAs only when equipment is part of a broader working capital need or when leasing approval is unavailable — MCAs cost 4–8x more than equipment leases. - [MCA vs business line of credit](https://fundnode.co/llms/glossary/mca-vs-business-line-of-credit) — An MCA gives you a lump sum repaid via daily ACH at a factor rate (typically 50-100% APR-equivalent). A business line of credit gives you a revolving limit you draw on as needed, repaid with interest only on what you use (typically 10-30% APR). - [MCA vs loan (legal distinction)](https://fundnode.co/llms/glossary/mca-vs-loan) — An MCA is legally a purchase of future receivables, not a loan. This distinction exempts MCAs from state usury caps but requires specific contract structure — including reconciliation provisions. --- Source: https://fundnode.co/glossary/mca-vs-equipment-financing-decision-tree (HTML version) Document: MCA vs. equipment financing — decision tree — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.