What is a merchant cash advance?
A merchant cash advance (MCA) is a form of business funding where a provider advances a lump sum against your future card sales. Instead of fixed monthly repayments, you repay via a small percentage of your daily card terminal income — automatically collected until the advance plus a fixed factor-rate fee is repaid.
Because repayments flex with your revenue — lower in quiet periods, faster when business is strong — an MCA suits seasonal businesses or those with variable income where fixed monthly loan payments would create cash flow risk.
Understanding factor rates and real costs
MCAs use a "factor rate" instead of an APR. The factor rate is multiplied by the advance to give your total repayment. Here's what different factor rates cost in practice:
Factor rate 1.10
£50,000 advance → £55,000 total repayment. Cost: £5,000. Effective APR ~20–25% (if repaid over 8 months).
Factor rate 1.20
£50,000 advance → £60,000 total repayment. Cost: £10,000. Effective APR ~35–45%.
Factor rate 1.30
£50,000 advance → £65,000 total repayment. Cost: £15,000. Effective APR ~55–70%.
Factor rate 1.50
£50,000 advance → £75,000 total repayment. Cost: £25,000. Effective APR ~90–110%.
MCAs are most appropriate for short-term working capital needs where the alternative is missed supplier payments, HMRC penalties, or business disruption. They are not designed as long-term finance. If you have multiple MCAs running simultaneously, debt consolidation may significantly reduce your cash flow burden.
How is the advance amount calculated?
Most MCA lenders advance between 50% and 150% of your average monthly card turnover. If your business processes £30,000/month in card payments, you may be able to access £15,000–£45,000. The factor rate agreed upfront determines the total repayment cost.
Who is a merchant cash advance suitable for?
MCAs are particularly well suited for retail businesses, restaurants and hospitality, gyms and fitness studios, salons and beauty businesses, and any business that takes a significant proportion of payments by card. You need a minimum monthly card turnover (typically £5,000–£10,000) and usually 6+ months of trading history.
Bad credit and merchant cash advances
Because MCAs are assessed on card turnover rather than credit score, they are one of the most accessible finance products for businesses with adverse credit. The provider's primary security is your future card revenue — not your personal credit history. CCJs, defaults and recent bankruptcy are regularly considered by MCA providers.