Merchant Cash Advance

Get a lump sum payment made to your business which is then repaid as an agreed percentage of your future card transactions.

Merchant Cash Advance

Apply in minutes and see funds in as little 48 hours

Apply in minutes and see funds in as little 48 hours

What is a merchant cash advance?

A merchant cash advance is a type of business finance where the funding is based on monthly card sales. Technically, merchant cash advances are not business loans but a forward purchase of future receivables. In other words, the lender gauges your average monthly income and then advances you a portion of this income before it’s received.

The reason why it’s centred around card sales (not total sales) is that a portion of your future card sales will be taken to repay the cash advance automatically.

How do merchant cash advances work?

Merchant cash advances are often unsecured and paid back within 12 months, though there are some instances of providers with longer terms. The amount of funding available directly relates to the average monthly card sales because this is the source of repayments. Trading history length can also be a factor.

Repayments are daily and automatic, taken from a portion of the card sales. The percentage amount taken from each card payment is typically fixed and pre-agreed. This means that the more you sell, the more you pay back and the faster the advance is cleared.

A merchant cash advance provider will charge you what is known as a ‘factor rate’. Typically, this is between 1.1 and 1.5. If you agree to a factor rate of 1.15 and borrow £10,000, you’ll need to pay back £11,500.

The process from signup to repayment is as follows:

  1. Terms agreed (total advance and repayment percentage). You agree on the total amount of the cash advance, the cost of the advance determined by the factor rate, and the percentage of your daily credit and debit card sales used to repay the cash advance (typically between 5% and 15% of your card sales). For example, you may be offered £10,000 at a factor rate of 1.2 with 10% repayments. So £12,000 will need to be repaid by taking 10% of each card sale processed.
  2. Make card sales. You take credit and debit from your customers as normal.
  3. Automatic repayments are made. The pre-agreed percentage is automatically deducted from your daily card transactions at the point of sale.
  4. Receive the remaining sales amount in your account. You receive the remaining money from your card sales in the same timescales as previously. The MCA repayments do not add a delay to your business receiving funds from your card sales.
  5. The MCA balance is reduced. The MCA total outstanding is reduced every time you receive a card payment.
  6. Repayments Finish. Once the outstanding MCA balance is cleared repayments stop automatically.

Is a merchant cash advance a loan?

No, merchant cash advances are not business loans but a forward purchase of future receivables. This means they are not regulated by the FCA.

The MCA lender is buying a portion of the business’s future card sales at a discount. Instead of repaying a loan amount with interest over a fixed period, an MCA allows a firm to sell a specific amount of its future revenue in exchange for a lump sum. Therefore, they are more similar to invoice factoring than a loan.

As stated above, the other main difference is that their fees are not based on a monthly interest rate but on a factor rate. The repayment process is also automated which is not always the case for a business loan.

What can businesses use a merchant cash advance for?

Merchant cash advances are typically used to provide fast capital for urgent funding requirements, cash flow shortages, short-term expenses and investments including:

  • Equipment and machinery
  • Unexpected repairs and maintenance
  • Marketing and advertising (i.e. Google Ads, Facebook Ads)
  • Website development
  • Paying VAT
  • Inventory (i.e. for seasonal sales)
  • Stock
  • Cash flow relief (e.g. for wages, supplies, events)

Best merchant cash lenders

You can compare merchant cash advance lenders for UK businesses here. You can check the eligibility requirements and maximum funding available from:

Types of businesses that use merchant cash advances

There is a wide range of industries in the UK that use merchant cash advances, either as their sole form of business finance or in conjunction with longer-term funding solutions. Some examples include:

  • Retail: A clothing shop preparing for the holiday season may use an MCA to purchase summer inventory.
  • E-commerce: All transactions for an online store are done through card sales, making them a good candidate for an MCA. This may be used to jump on new trends, expand a store, or run a marketing campaign that is expected to drive sales.
  • Hospitality: A coastal restaurant which experiences a big swing in seasonal trade and cash flow.

How much does an MCA cost?

The total cost of an MCA is pre-agreed before the loan is transferred and does not depend on how quickly it is paid.

The total cost of the finance is determined by multiplying the total advance amount by the agreed factor rate. For example, if the borrowing approved is £20,000 at a factor rate of 1.2, the amount to repay is £24,000 (of which £4,000 is the cost of the MCA).

What is a factor rate?

The factor rate is a multiplier used to calculate the full repayment amount. This is not like an APR (annual percentage rate) or interest rate, because it bears no relationship to time. Instead, it’s simply a pre-agreed cost of a provider advancing funds to a business.

What are the benefits of merchant cash advances?

Merchant cash advances come with a variety of benefits, including:

  • High approval rates: MCAs have one the highest approval rates of all business loan types. Approval rates can be as high as 90% for some MCA lenders compared to 62% for traditional business lending.
  • Speed of and ease of approval: MCAs can be a quick and easy way to get funding for your business. Unlike traditional loans, you can get approved for an MCA within 24 hours using an online-only application. Funds may arrive within 1-2 business days.
  • No collateral or personal guarantees required: MCAs don’t require collateral to be offered and directors don’t need to make personal guarantees which removes the personal liability concerns of traditional loans.
  • Ease of application: Unlike traditional lenders, MCA lenders will not require a business plan to be submitted during an application. Instead, they look at card sales data via statement PDFs or via open banking which speeds up the application even more. According to YouLend data, merchants who use open banking in their MCA application are 60% more likely to receive an instant approval decision than those who supply bank statement PDFs.
  • Credit ratings are usually irrelevant: As the lender can see your previous card sales, they don’t need to rely on credit ratings.
  • Lower risk of default or damage to your credit rating: As repayments are automatically taken from your customers’ card payments there is less risk of defaulting or incurring late payment fees which may damage your credit rating.
  • No effect on credit ratings: Unlike traditional business loans, a merchant cash advance can not damage, or improve, your credit rating.
  • Proportional repayments: If your business has a slow week with reduced sales, less of the MCA will be repaid. The dynamic nature of repayments can provide better cash flow compared to standard loans which require the same amount each month.
  • Simple top-ups: It is simple to apply for ongoing top-ups after you have paid down a large proportion of an existing cash advance.
  • More lending available to start-ups: Businesses just 3 months old can get a merchant cash advance if they are generating card sales. In contrast, a business that has traded for less than 12 months would typically struggle to get an unsecured bank loan.

What are the downsides?

  • Factor rate fees are often more expensive than conventional business loans: Total repayments tend to be higher overall and spread over a smaller repayment term. This means that monthly payments are relatively high compared to standard business loans.
  • Funding limit is restricted by card turnover: It may be possible to get more funding from other types of business loans. Most MCA lenders will not advance more than 2 times your monthly card turnover. If you need a loan that is significantly larger than your card turnover and there is no time pressure, other types of business finance may be a better option.
  • No savings are possible by repaying early: As the repayment total is fixed when you take out the merchant cash advance, early repayment will not reduce the interest charged like it would on a standard loan with monthly interest.

Merchant Cash Advance Vs Traditional Business Loan

Below is a brief overview of how a business cash advances compare to traditional business loans. 
Merchant Cash Advance Traditional Business Loan


One clear, all-inclusive fee for the duration of the merchant cash advance. No interest or late fees.
Interest is charged according to the length of time the loan is outstanding. Admin charges and late fees are payable.
Fixed Term

Typical Length

3-18 months
Up to 5 years

Speed of Approval

Speed Of Approval
1 - 24 hours

Speed Of Funding

24 hours after approval
Typically weeks

Approval Rates

Collateral Required
Personal Guarantees Required
Usage Restrictions
Yes they usually also come with usage restrictions (i.e. conditions that the loan can only be used for purchasing stock)
Credit Rating Affected
Yes (it could be improved or damaged if payments are late or not made)

Business finance alternatives to MCAs

What are the lending criteria for merchant cash advances?

There are a few things lenders will take into account when considering your business for a merchant cash advance:

  • Your monthly card sales: Lenders want to see that you have a steady stream of credit and debit card sales. This can be done quickly by linking your bank account via open banking. An alternative method is uploading your most recent bank statement PDFs (typically 3-12 months) plus any other supporting documents (e.g. Shopify sales reports). 
  • Your time in business: Most lenders will require that you’ve been trading for at least three months before they’ll consider you. Limited liability partnerships, limited companies, partnerships and sole traders will be considered. 
  • Business sector: Businesses operating in riskier sectors will have a lower chance of being approved.
  • Business and director location: Many MCA direct lenders will require at least one director to be based in the UK and the business is registered in the UK (if they are not a sole trader).

How much can we borrow?

How much you can borrow depends on your monthly credit and debit card sales, the business cash advance lender, your business type, and your trading history. 

Time in business will also make a significant difference to the borrowing limit for some lenders. For example, YouLend may lend a business with a monthly card turnover of £20K a total of £26K if they’ve been trading for 12 months, but £40K if they have been trading for 5 years.

What are the fees and interest rates for merchant cash advances?

Fees are normally split into a small upfront fee and a fixed percentage of daily sales. The rate you will pay each month will based on the agreed factor rate rather than APR.

Factor rates generally start at 1.1, equivalent to paying the lender 10% of the funding provided, and can go as high as 2.5. They are usually expressed as a decimal number (not a percentage) that multiplies the principal amount of the loan indicated. 

So if you are offered a £20,000 merchant cash advance with a factor rate of 2 you would need to pay back £40,000.

Crucially, this total cost of the cash advance does not increase if repayments take longer than anticipated (as it would if a monthly interest rate was used). 

The factor rate is calculated based on several factors, including:

  • How much your business needs to borrow
  • How long your business has been trading
  • Your average monthly card payment income and how these fluctuate over time (benchmarked by the industry)
  • The projected time it will take to pay back the advance in full
  • How likely the MCA lender thinks a default on the advance will be

How is a factor rate different to APR?

A loan calculated with a factor rate, which is expressed as a decimal, has a fixed repayment amount that is known from the offset. This total repayment amount will not change no matter how long the loan takes to pay back. Factor rates are typically best used for short-term lending.

In contrast, a loan’s APR may be fixed or variable and the total interest charged over the life of the loan will not be known upfront. Interest will be charged on the remaining capital each month and early repayments can save money, though sometimes early repayments are penalised with a fee. These types of loans are typically best for medium-to-long-term lending.

If only the minimum repayments are made each month on business financing that charges monthly interest, such as a business credit card or unsecured business loan, the business may be in danger of paying more back in interest than the sum borrowed. 

How to apply for a merchant cash advance

Applying for a merchant cash advance is a fast process and can all be completed online. You will need to fill in an online form to provide details on:

  • Any company directors and beneficial owners control more than 25% of the company.
  • The company type (Sole Trader, LTD, PLC, Partnership, LLP)
  • Registered company address
  • Website (optional)
  • Evidence of card sales. Some MCA lenders make this very easy by giving you the option to link your business bank account securely via open banking. Alternatively, you can upload statements for the last 3-12 months showing card sales.

Once you’ve submitted your application, the underwriting process will start and a decision will be made quickly. If your business is approved you will be made one or more offers (multiple offers will include different levels of cash advances) and if you are happy to proceed, you can the contract can be signed electronically.

Once the contract is signed, you’ll typically receive the funds in your nominated business account within 1-3 business days.

Before you sign anything, ensure you understand the factor rate, the total repayable, and the % of daily sales that will be used to pay off the business cash advance.

Can we repay the cash advance early?

Typically you can only repay according to the agreement, which is a fixed percentage of the card sales. Some providers may allow for voluntary early repayment, possibly even providing a discount for doing so. Without a discount, there’s little incentive to do so.

Do cash advances effect credit scores?

MCA typically operate outside of the sphere of credit scores. However, failing to repay the MCA may result in legal action that could affect your credit score.

Can we get an MCA with bad credit?

Yes, you can get a business cash advance with a poor credit rating. MCAs are popular among businesses that are deemed uncreditworthy by banks. MCA providers look closely at recent business performance to determine whether they can repay the advance.

Can a business get a cash advance without a credit check?

MCA providers do not typically carry out a credit check as their due diligence is based on card sales. If they plan to carry out a credit check, they should inform you as part of the application but is also worth checking their terms of service which should be linked to on their website. 

Can I get an MCA without bank statements?

If you are happy for the MCA provider to link to your business bank account via open banking to view evidence of your card sales you will not have to provide bank statements. Either way, the MCA lender will need to see proof of your recent card sales before approving your application. 

Can I keep my existing card machine and payment processor?

In most cases, it is possible to keep your existing card machine provider. Some providers may request you to switch to their preferred system but if this was the case it would be easier to keep the same payment processor and find an MCA provider that is happy to partner with them to collect card payments. 

What are the interest rates on MCA loans?

MCAs do not use interest rates in the traditional sense. Rather, they use factor rates to pre-determine a total repayment amount. 

Can I get a merchant advance funding as a sole trader?

Sole traders qualify for MCAs with several providers. What’s important is that you can provide evidence of card sales.

Other FAQs

Most merchant cash advance providers require a POS terminal as the MCA will be repaid through card payments taken on these terminals. 

However, some providers also allow online card sales to repay the cash advance. For example, YouLend offers businesses selling on Shopify cash advances via their Shopify Capital product. 

Speed varies from provider to provider, but typically a decision is made within a day, and funding can be the day after approval.

Cash advance lenders therefore focus on speed as a key selling point, and most lenders will provide you with the funds within a couple of days after applying.

Unlike many other forms of financing, MCAs are generally used for any purpose. However, exceptions can apply and high-risk sectors may be excluded.

Most lenders try and work around your current business set-up, meaning in most scenarios you won’t need to change your existing card machine provider. This isn’t always the case though, and so it needs to be checked at the time of applying.

If you want to receive additional funds before you have paid off your merchant cash advance, many providers will approve additional funds to be transferred after a certain percentage of the original advance has been repaid. This is typically known as a top-up. 

You can also request another cash advance once a previous advance has been repaid. Indeed, further advances are common and YouLend states that over 85% of their businesses request additional advances.

This is determined by your card sales volume and the percentage that’s being repaid. However, MCAs are usually designed to be repaid within a year.

No, most MCAs do not require a personal guarantee. There may be exceptions such as when higher borrowing limits are requested.

To find the cheapest business cash advance you would need to apply to a few direct lenders and compare the offers provided. You can compare direct merchant cash advance lenders here

The calculators shown on their websites can be a helpful guide but these are just used for illustrative purposes and rates will be determined on a case-by-case basis.

This depends on the provider. There are examples where this is possible, but it generally yields no benefit due to the total cost of the advance being fixed. 

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