Merchant cash advances explained: rates, costs and alternatives for SMEs

A merchant cash advance (MCA) gives your business a lump sum that you repay as a percentage of your future card sales. Instead of paying interest, you agree a fixed total repayment upfront, usually worked out with a "factor rate". Repayments rise when you're busy and fall when you're quiet, which is why MCAs are popular with retailers, restaurants and other businesses that take lots of card payments.

That flexibility comes at a price, and MCAs can be one of the more expensive ways to borrow once you look at the effective annual cost. This guide explains how merchant cash advances work, how much you could borrow, how rates and fees are calculated, and the alternatives worth comparing before you decide.

*Note, this guide is for informational purposes only and not to be treated as financial advice. It is important to do your own research and find the best solution for your business. 

What is a merchant cash advance?

A merchant cash advance is a form of business funding based on your card takings. A provider gives you an upfront sum, then collects repayments as a share of the debit and credit card payments your customers make. It's closely related to revenue-based financing, but an MCA is usually tied specifically to card sales, while revenue-based financing can look at income across several channels.

Because repayments come from future sales, an MCA is usually unsecured. You don't normally put up property or equipment as security, although some providers may ask for a personal guarantee.

How does a merchant cash advance work?

The process usually follows four steps:

1. You apply. The provider looks at your card sales history, often over the last 6 to 12 months, to see how much you take and how steady it is.

2. You receive an offer. This sets out the advance amount, the total you'll repay, and the percentage of card sales that goes towards repayment (often called the "holdback" or "retrieval rate").

3. You get the funds. If you accept, the lump sum is paid into your business bank account.

4. You repay through your card sales. An agreed percentage of each day's card takings goes to the provider until the full amount is repaid.

Repayments are collected in one of two ways. Some providers work with your card terminal provider to take their share before your takings reach your account. Others take a regular payment from your bank account based on your recent card sales. Either way, there's no fixed monthly instalment. A good month repays more, a slow month repays less.

How much can you borrow with a merchant cash advance?

The amount you can borrow is based mainly on your card takings rather than your balance sheet. Providers typically offer an advance linked to your average monthly card sales. 

Providers will also look at:

• how long you've been trading

• how consistent your card sales are month to month

• your business credit history

• any other finance you already have

Some providers set a minimum level of monthly card sales. As a guide, some ask for at least £10,000 a month in debit and credit card sales and 6 months' trading, but criteria vary between providers. Note that eligibility requirements do vary by lender. It is important to check with each lender before applying. 

Merchant cash advance rates and fees

MCA pricing works differently from a loan, which can make it hard to compare. Here's how the cost is built up.

Factor rates explained

Most MCAs use a factor rate rather than an interest rate. The factor rate is a multiplier applied to the amount you borrow to give the total you'll repay. A factor rate of 1.2 on a £20,000 advance means you repay £24,000, so the cost of the advance is £4,000.

Factor rates vary between providers and depend on your card sales, your sector and your credit profile. Merchant cash advance rates vary between providers and customers, so do your own research and compare offers before signing up.

Is there a merchant cash advance interest rate?

Not in the usual sense. The cost is fixed when you sign, so it doesn't build up over time like interest on a loan. That makes the total cost easy to see. It also means that, with many providers, you pay the same fee whether you repay in 4 months or 12, so there's often no saving from repaying early. Check how early repayment works before you agree.

The effective APR of a merchant cash advance

Because the fee is fixed but the repayment period isn't, the effective annual cost of an MCA depends on how quickly you repay. 

The example below is for illustration only. It isn't a quote and doesn't reflect any provider's pricing.

Both businesses pay the same £4,000 fee, but Business B uses the money for half as long, so its effective annual cost is more than double. When you compare an MCA with a loan or other credit, it helps to work out the equivalent APR for your own expected card sales rather than relying on the factor rate alone. 

Our guide to how interest rates work explains APR in more detail. *Note, this is an estimate and not to be used as a guide. Figures here are for illustrative purposes only.

Other merchant finance fees

The factor rate is usually the main cost, but check the offer for:

• arrangement or origination fees

• fees for changing or renewing the advance

• charges linked to your card terminal or payment provider

• fees if a payment fails or you breach the terms

Ask for the total amount repayable, including every fee, in writing before you sign.

How to compare merchant cash advance offers

The factor rate doesn't tell you the whole cost on its own. When you compare, look at:

• Total amount repayable, including all fees

• Holdback percentage, as a higher share of sales repays faster but leaves you less cash each day

• Estimated repayment period, based on your realistic card sales, not your best month

• Early repayment terms, and whether any discount applies

• Personal guarantee requirements, and what they'd mean for you personally

• What happens if your sales drop, or you change card terminal provider

It's worth getting more than one quote and asking each provider to explain the equivalent APR for your circumstances.

What happens if your card sales drop or you can't repay?

One of the main benefits of an MCA is that repayments fall when sales fall, so a quiet month doesn't mean a missed payment. But the total you owe stays the same, so a long slowdown means you're repaying for longer.

Problems usually arise if your card takings stop reaching the provider, for example if you switch card terminal provider without agreement, steer customers to cash or bank transfer, or close the business. These can count as a breach of the agreement. Depending on the contract, the provider may then ask for the outstanding balance in full, and could call on any personal guarantee you've given.

Merchant cash advances for businesses aren't usually regulated in the same way as consumer credit, so read the agreement carefully. If you're unsure about any terms, take independent legal advice before you sign.

Pros and cons of a merchant cash advance

Potential benefits

• Repayments flex with your card sales, easing pressure in quieter periods

• Usually unsecured, with no property or equipment needed as security

• Decisions and funding can be quick

• Approval is based largely on card sales, not only your credit history

• The total cost is fixed upfront

Potential drawbacks

• Can be more expensive than a business loan once you work out the effective APR

• Often no saving if you repay early

• Daily or regular deductions reduce the cash you have on hand

• Only suits businesses that take a steady volume of card payments

• A personal guarantee may be required

Is a merchant cash advance right for your business?

An MCA may suit you if:

• most of your sales are made by card

• your takings are seasonal or uneven, and fixed monthly repayments would be a strain

• you need funding quickly for stock, repairs or a short-term opportunity

• you've compared the effective cost with other options and are comfortable with it

It's less likely to suit businesses that are mostly paid by invoice or bank transfer, have low or irregular card sales, or need funding over several years. In those cases, a loan or another form of credit may cost less overall. Our guide to what finance is right for your business compares the main options side by side.

Getting a merchant cash advance through Funding Circle

If a merchant cash advance is right for your business, you can explore options through the Funding Circle marketplace. We work with a panel of 25+ vetted lenders, and your dedicated Account Manager will help you find options that suit your card sales and plans.

• Complete a simple form, which won't affect your credit score if you're a limited company or LLP

• Your Account Manager will call to talk through your options

• Decisions are usually made within 1 to 2 days

• If approved, you could receive your funds within 48 hours

The marketplace is open to UK limited companies and LLPs. We're unable to fund sole traders and partnerships.

Explore merchant cash advance options

Merchant cash advance alternatives

An MCA isn't the only way to fund a business with fluctuating income. Depending on what you need the money for, one of these may be a better fit.

Business loans

A Funding Circle business loan gives you a lump sum with fixed monthly repayments over a set term. Because you know exactly what you'll repay and when, it can be easier to plan around, and the cost is set out as an interest rate and APR you can compare directly with other offers. You can borrow up to £750,000, with decisions in as little as 5 minutes.

FlexiPay

FlexiPay is a cash flow companion, credit you can flex around your business. You use it to pay a business cost upfront, such as a stock order, a supplier invoice or a VAT bill, then choose to repay over 1, 3, 6, 9 or 12 months. There's no interest, just a flat fee from 1.99% per transaction, and your available credit tops back up as you repay. It can suit businesses that need help with specific costs rather than a single lump sum.

Cashback business credit card

For everyday spending, the Funding Circle Cashback business credit card gives you up to 42 days interest-free as a grace period, when you clear your balance in full each month. You also earn 2% cashback for the first 6 months or up to £2,000, whichever comes first, then 1% uncapped. There are no monthly fees and no foreign exchange fees.

Frequently asked questions

What is a typical merchant cash advance rate?

MCA costs are usually shown as a factor rate, such as 1.2, which means you repay £1.20 for every £1 you borrow. Rates vary between providers and depend on your card sales, sector and credit profile. Compare the total repayable and the equivalent APR across several offers before you decide.

How much can I borrow with a merchant cash advance?

The amount is based mainly on your average monthly card sales, along with how long you've been trading and how steady your takings are. Each provider sets its own limits, so the amount you're offered can vary.

Is a merchant cash advance a loan?

Not technically. Many MCAs are structured as the purchase of a share of your future card sales, rather than a loan with interest. In practice, it works in a similar way to borrowing, because you receive a lump sum and repay more than you received.

Can I repay a merchant cash advance early?

Some providers allow it, but because the fee is usually fixed upfront, you may not save anything by repaying early. Check the early repayment terms before you sign.

Disclaimer

02/10/26 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.