Merchant cash advances in the UK: how they work and what they really cost

A merchant cash advance (MCA), sometimes called a business cash advance, is a lump sum paid to your business now and repaid by the provider taking a fixed percentage of your card takings until an agreed total has been paid. The price is a fixed fee set by a factor rate, typically between 1.1 and 1.5, not an interest rate. Borrow £10,000 at 1.2 and you repay £12,000 whether it takes four months or twelve. It is fast and forgiving about credit history, but it is dearer than most other business finance, and the quicker your sales clear it, the higher the true annual cost becomes. For UK businesses with steady card payments and a short, clear need, it can be worth the premium. For everything else, it usually is not.

Key Takeaways

How a merchant cash advance works

A merchant cash advance provider works out what you can borrow from your card turnover. You agree a repayment percentage, which is sometimes called the sweep, the retrieval rate or the percentage split. From then on that share of your future card sales goes to the provider, and the rest goes to you. Every card payment you take is split in the same way until the total is paid.

One high-street bank's own MCA, supplied through a referral partner, takes the share from your daily batched card transactions and pays the remainder to you. Its illustration:

• Cash advance: £10,000
• Fixed fee: £1,500 (a 15% fee)
• Purchased amount, meaning the total you repay: £11,500
• Payment percentage: 20% of all card transactions

On a day when card sales total £300, £60 goes towards the advance and £240 is settled to you. Two different numbers are in play. The £10,000 is what you receive, and the £11,500 is the total across all the repayments.

There are no fixed monthly instalments. A busy Saturday repays more, and a dead Tuesday repays less. Each card sale carries its slice, and the advance is usually cleared in three to 18 months, depending on your sales.

The factor rate and the true cost of a merchant cash advance

The provider multiplies the advance by the factor rate to get the total repayable. The rate is set per £1 borrowed, quoted as a decimal, and it does not change once agreed. Where it lands depends on your trading history, card sales consistency, credit profile and sector.

Take £10,000 at a factor rate of 1.2:

• Total repayable: £10,000 × 1.2 = £12,000
• Fee: £2,000, whatever the speed of repayment

A factor rate of 1.2 is not a 20% annual rate, even though subtracting 1 gives you 20%. That figure is the cost as a share of the advance, with no allowance for time. The shorter the repayment period, the higher the annual rate.

Here is the working. Because repayments come out of daily takings, the balance you owe shrinks steadily as you pay. Over the life of the advance, you are on average using about half the money. So divide the fee by half the advance (£5,000) to get a rough cost for the period, then scale it to a year. This ignores compounding, so treat it as a guide, not a quoted APR.

For a café taking £20,000 a month on cards, a 15% sweep takes £3,000 a month, or about £100 a day. On a £12,000 total, that clears in four months.

Repayment period	Fee as a share of average balance	Rough annualised cost
12 months	£2,000 ÷ £5,000 = 40%	about 40%
6 months	40% in six months	about 80%
4 months (the café above)	40% in four months	about 120%

The same £2,000 fee is a much higher yearly cost when sales clear the advance quickly. A strong Christmas does not save you money. It makes the borrowing dearer per year.

Now compare a plain business loan. Suppose you borrowed the same £10,000 at 12% APR on equal monthly repayments over 12 months. The monthly payment would be about £888.49, the total repaid about £10,661.85, and the interest about £661.85. The MCA fee on the same £10,000 is £2,000. You pay roughly three times as much for the speed, the flexible repayments and the lighter credit test.

That is not a reason to dismiss it. It is a reason to be clear what the premium buys. If the money earns more than the fee within the repayment window, it can be worth paying. If it does not, it is expensive.

If you already have a quote, the factor rate calculator will do the arithmetic against your own figures.

Amounts, terms and speed

Amounts. The advance is sized from your card sales. Somewhere between half and one-and-a-half times your average monthly card takings is typical, and some funders cap at two times. Published ranges run from £1,000 up to £500,000 at the larger names, and some brokers advertise up to £1 million. You cannot count cash, invoices or bank transfers towards the figure.

Terms. There is no fixed term. Repayment typically takes three to 18 months, depending on your sales and the percentage taken.

Speed. A day or two is typical once your statements are in. The bank-backed offer above says funds could be in the account two working days after acceptance for its existing card customers. Compare that with a few days to weeks for most business loans.

How to apply for a merchant cash advance

The application process is shorter than for a bank loan. You typically complete an online form covering the type of business you run and what the money is for. Then you supply three to six months of card provider statements and business bank statements. For larger advances, some funders also ask for management accounts.

The lender reviews your card sales, bank activity, time trading and sector, then sends an offer setting out the funding terms, including the total repayable and the percentage taken. If you accept, the money goes into your business bank account.

Before accepting, read the offer for the pounds figure you will repay, not just the factor rate. Some funders use a broker. If you go that route, check whether the broker charges a fee for its service.

What can small businesses use a business cash advance for?

The money can go on anything that benefits the business, such as:

• emergency repairs
• new equipment or stock
• working capital
• marketing and advertising
• VAT or tax bills
• expanding or refitting premises

For small businesses, the sensible uses are those where the money pays for itself within the repayment window. That means stock for a proven seasonal peak, a refit that lifts covers, or a repair that restores full trading.

Which type of business suits a merchant cash advance?

An MCA is built for businesses that take most of their money by card payment: cafés, restaurants, pubs, shops, hairdressers and salons, gyms, e-commerce stores and trades that take cards. For many UK SMEs in these sectors, the card record is the asset.

The approval test is mostly your card sales record, not your credit file. Sole traders, partnerships and limited companies can all apply if they meet the funder's criteria. A bad credit history is not necessarily a bar, because the funder's comfort comes from your card flow.

Funders differ on the minimums. The bank-backed offer above asks for at least four months of card trading, existing status with that bank's card service and at least £1,000 a month in card payments. Brokers' panels commonly look for three to six months of card history and monthly card turnover from around £2,500 to £5,000, and some funders set the bar higher. A business trading for under three months will generally not qualify.

It suits you less well if you mostly invoice other businesses, because there is little card flow to repay from. In that case, invoice finance is the better starting point. It lets you borrow against unpaid invoices, typically up to 95% of their value. This is what people usually mean by factoring, and it is not the same product as an MCA.

It is also the wrong tool for covering ongoing losses, HMRC arrears or a structural cash gap. Those need cheaper, longer money.

Does a merchant cash advance affect your credit score?

Your credit score matters less than your card sales, but it is not ignored. Most providers run a soft check at application, which does not affect your score. One provider's own terms say that applying does not affect your credit score, but that taking out an advance may. Affordability and insolvency checks are also common.

Where it can hurt is repayment. Falling behind or defaulting can damage your credit file.

Are merchant cash advances regulated in the UK?

Generally, no. A merchant cash advance UK provider is not selling a conventional loan, because it is buying a slice of your future card receipts. The bank-backed offer above states that it is not an FCA-regulated product.

The FCA does regulate some business lending, namely where the borrower is a sole trader or small partnership borrowing £25,000 or less. Do not assume which side of that line your agreement falls on. Ask the provider in writing whether the agreement is FCA-regulated and who handles a complaint.

In practice, the contract is your protection. Read it for the total repayable, the percentage taken, any fees beyond the factor rate or fixed fee, the personal guarantee, how default is defined, and whether you are tied to your current card processor.

The risks

Cost. Covered above. It is dearer than most alternatives, and speed of repayment pushes the annual rate up.

Daily squeeze. The deduction comes off takings, not profit. A 15% sweep on every day's card sales is far easier to carry if your margins are healthy than if they are thin. A lower percentage protects margin but stretches the term.

Quiet months. Repayments fall when sales fall, and that is the main point of the product. But your rent, wages and suppliers do not fall with them. Some contracts also set a floor. The bank-backed offer above expects you to operate so that at least 3% of the total owed is repaid each month. Check whether yours has one.

Personal guarantee. The advance is unsecured, so you are not pledging property or stock. But many funders ask for a personal guarantee, which makes you personally liable if the business cannot pay. Assume you may be asked, and understand it before you sign.

Cash takings. The arrangement works on card transactions only. Steering customers to pay cash through offers can be treated as a breach of the terms, which matters for a salon or café with a cash element.

Renewals. Funders offer top-ups as the balance falls. Taking them habitually turns a bridge into a permanent, high-cost habit. If you think a top-up is likely, agree now how it will be priced against the remaining balance.

Fees. Many providers quote one fixed cost with no extra fees. Others may add underwriting, administrative or servicing charges. Get the all-in cost in writing.

What happens if you cannot repay a merchant cash advance?

Falling behind can lead to collection action, increased fees, legal action and enforcement of any personal guarantee, and it can damage your credit file. Because repayments are tied to card sales, the provider may also seek direct access to your bank account. The sensible move is to speak to the provider as soon as takings drop sharply, before a shortfall becomes a default.

Merchant cash advance vs business loan

A traditional business loan has fixed repayments over a set period and quotes an interest rate, which makes offers easy to compare. It is usually cheaper and runs longer. The catch is access.

Am I eligible for a business loan? A traditional bank lender typically wants a strong credit history, full accounts, tax returns and often a business plan, with a hard credit check and two or more years of trading preferred. Collateral is often required. If your business meets that test and can carry a fixed monthly payment, a loan is almost always the cheaper route.

One representative loan example is 9.7% APR on £50,000 over 24 months, with a monthly repayment of £2,291.56 and £54,997.44 repayable in total. That is a different amount from our £10,000 case, so the point is the rate, not the pounds.

	Merchant cash advance	Term loan	Overdraft
How repaid	A share of daily card sales	Fixed monthly repayments	Revolving; repaid as you choose
How cost is shown	Factor rate or fixed fee	Interest rate or APR	Interest on the amount used
Speed	Typically 24 to 72 hours	A few days to weeks	Pre-approved by your bank
Best suited to	Short, clear need with seasonal or variable income	A planned purchase with predictable cash flow	A short gap between paying suppliers and being paid

An overdraft charges interest only on what you use, for as long as you use it. For a short gap, that can cost far less than a fixed fee. It is not suited to funding growth.

Many lenders also offer flexible loans and short-term loans, so it helps to see how the three differ at a glance:

	Merchant cash advance	Flexi-loan	Short-term loan
Typical use	Short-term cash flow	Longer-term investment, working capital	Bridging short-term cash gaps
Repayment	A percentage of card sales	Fixed monthly or quarterly repayments	Fixed monthly or lump sum repayment
Security	Typically unsecured, though a personal guarantee is required	Often secured against business assets	Secured or unsecured
Flexibility	Repayments tied to sales	Fixed repayment schedule	Fixed repayment schedule, some flexibility may be available

Revenue-based finance works like an MCA but takes a percentage of your total revenue, not just card sales, which suits businesses with subscriptions, online sales or invoiced income. Some providers offer up to £500,000 with a single fixed fee shown up front and funds within 24 hours.

A fixed-rate loan often looks cheaper on paper, but that only holds if your revenue can meet the fixed monthly payment. If a slow month or a seasonal dip would put that payment at risk, flexible funding such as an MCA may be worth more to you than the extra cost.

Is a merchant cash advance right for you?

A merchant cash advance offers a flexible alternative to a traditional loan, and the question is whether it fits. A clean test: does the money you are borrowing return more than the fee inside the repayment window?

• Yes: stock for a proven seasonal peak, a refit that lifts covers, or an equipment repair that restores full trading. These can support business growth, and the fixed fee is a price you can see.
• No: covering ongoing losses, paying tax arrears, or plugging a structural cash gap. Those need cheaper, longer money.

Many business owners use more than one funding option: a term loan for a planned purchase, an overdraft for the dips, and an MCA only when speed or flexibility matters more than the lowest total cost. The government-owned British Business Bank also keeps a directory of government-backed funding options, which is worth a look before you commit.

Questions to ask before you sign

• What is the total repayable, in pounds?
• What percentage of each card sale is taken, and how often?
• Is there a monthly minimum?
• Does repaying early save anything, or refund any of the fee?
• Is a personal guarantee required?
• Am I tied to my current card processor?
• Is the agreement FCA-regulated, and who handles complaints?

To see what else an MCA could be priced against, the Deplexifi UK page shows the finance we arrange.

Frequently Asked Questions

Can a sole trader get a merchant cash advance? Yes, if the card sales and trading history meet the funder's criteria. Sole traders, partnerships and limited companies are all eligible.

Can I get one with bad credit? Often, yes. Approval rests mainly on your card sales record, though checks still apply. A better card record can bring a lower factor rate.

What happens if I cannot pay? Expect collection action, higher fees and possibly legal action, plus enforcement of any personal guarantee. Tell the provider early if takings fall.

Is a merchant cash advance the same as factoring? No. An MCA is repaid from card sales. Invoice finance, which is what people usually mean by factoring, advances money against unpaid invoices.

Can I repay early? Usually yes, but the fee is fixed, so you generally do not save money. A minority of funders offer an early-settlement discount, so ask before you agree.

A factor rate of 1.2 is not a 20% annual rate. The fee is fixed, so the faster your sales clear the advance, the higher the true annual cost.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.