Merchant Cash Advance Explained. The Complete UK Guide
What Is a Merchant Cash Advance?
A merchant cash advance (MCA) is a type of business funding where you receive a lump sum upfront, and repay it as a small percentage of your daily card sales. It's not technically a loan, it's a purchase of your future card revenue at a discount.
This distinction matters because it changes how repayments work. There are no fixed monthly payments, no set term, and no APR in the traditional sense. Instead, you repay a little bit every day, automatically, based on how much your card machine processes.
How Repayments Actually Work
When you take an MCA, you agree to two key numbers:
- The factor rate: This determines the total cost. A factor rate of 1.25 means a £10,000 advance costs £12,500 in total. A rate of 1.35 means it costs £13,500. The factor rate is fixed, it doesn't change over time.
- The holdback percentage: This is the percentage of your daily card sales taken as repayment, typically 8 to 15%. If your holdback is 10% and you take £1,000 in card payments today, £100 goes to the MCA provider.
The beauty of this model is that repayments flex with your business. Quiet Tuesday? You repay less. Busy Saturday? You repay more. If you close for a week's holiday, you repay nothing that week.
A Real-World Example
Let's say you run a busy café:
- Monthly card turnover: £30,000
- Advance amount: £20,000
- Factor rate: 1.25
- Total repayable: £25,000
- Holdback rate: 10% of daily card sales
On an average day processing £1,000 in card payments, £100 is taken. Over a typical month, that's roughly £3,000 in repayments. At that pace, the advance would be repaid in about 8 to 9 months, but if business picks up, it clears faster. If things slow down, it takes longer. The repayment adapts.
Who Is an MCA Right For?
MCAs work best for businesses with:
- Strong card turnover: Restaurants, pubs, hotels, cafés, retail shops, salons, and gyms are classic MCA candidates.
- Revenue that fluctuates: If your income varies by day or season, the flexible repayment model is a genuine advantage over fixed monthly loan payments.
- A need for speed: MCAs can be funded within 48 hours. If you need capital quickly, for a refurbishment, stock purchase, or opportunity, it's one of the fastest options available.
- Limited trading history: Some MCA providers will lend to businesses with as little as 3 to 4 months of card processing history, whereas most business loans require 12+ months.
Who Should Look Elsewhere?
An MCA probably isn't right if:
- Most of your revenue is invoiced or cash: The holdback only works on card payments. If you process less than £5,000/month by card, an MCA won't generate meaningful repayments and providers are unlikely to offer one.
- You need a longer term: MCAs typically repay within 6 to 18 months. If you need finance over 3 to 5 years, a term loan is more appropriate.
- You want the cheapest rate: MCAs are a premium product. The factor rate means the total cost is higher than a traditional business loan at similar amounts. You're paying for flexibility and speed.
How to Apply
The application process is simple:
- Provide your last 3 to 4 months of card machine statements. These can usually be downloaded from your card processor's portal (SumUp, Zettle, Worldpay, Barclaycard, etc.).
- Basic business details: Company name, registration number, director information.
- Receive offers: Your broker will present options from multiple MCA providers, showing you the advance amount, factor rate, and holdback percentage.
- Accept and receive funds: Once you accept an offer, funds are typically in your account within 24 to 48 hours.
Common Questions
Why is there no APR?
Because an MCA isn't a loan in the traditional sense. APR assumes a fixed repayment schedule over a known period, but MCA repayments vary daily. The factor rate is the simplest way to understand the total cost.
What if my business goes quiet?
You pay less. That's the whole point. If your card machine processes nothing on a given day, your repayment is zero. This is what makes MCAs particularly appealing for seasonal businesses.
Can I get a second advance?
Yes. Once you've repaid around 50 to 60% of your first advance, many providers will offer a top-up or renewal, often at a better factor rate if your repayment history has been strong.
Is an MCA Right for You?
If you take significant card payments and need fast, flexible funding, an MCA is worth exploring. It's not the cheapest form of finance, but it's one of the most accessible and adaptable, and for many hospitality and retail businesses, the flexible repayment model makes it easier to manage than a fixed monthly loan payment.