A merchant cash advance (MCA) is one of the fastest ways for a card-led company to raise working capital, and one of the most expensive. If your business takes most of its money through a card terminal or an online checkout, an MCA lets you borrow against those future takings and repay a slice of every sale automatically. No fixed instalment, no set end date, funding often within days.
That speed and flexibility come at a price that many directors underestimate, because MCA providers quote a factor rate rather than an interest rate, and a factor rate hides how costly the money really is. This guide explains exactly how a company MCA works, how repayment is collected, what a factor rate translates to as a real annualised cost, and when a cheaper facility on our broker panel does the same job for a fraction of the price.
Company borrowers only. The finance introductions on this page are for UK limited companies and limited liability partnerships borrowing for business purposes. We introduce your company to a panel of commercial-finance brokers; we are not a lender and do not give regulated credit advice. If you are a sole trader, an individual, or borrowing for personal or household purposes, this service is not for you and you should speak to an FCA-authorised consumer-credit firm.
What a merchant cash advance actually is
A merchant cash advance is a lump sum paid to your company in exchange for an agreed share of your future card takings until a fixed total has been repaid. Technically it is a purchase of future receivables rather than a loan, which is part of why the terminology differs from ordinary lending. In practice it behaves like short-term borrowing secured against your card settlement stream.
The provider connects to your card acquirer (the company that processes your Visa, Mastercard and other card payments) and reviews your settlement history. The offer is driven almost entirely by how much your business processes through cards each month and how consistent that volume is. Profit, assets and even filed accounts matter far less than they would for a bank loan, which is why card-heavy companies that struggle to borrow elsewhere can often access an MCA quickly.
Because the whole model rests on card volume, an MCA suits a specific type of business: retailers, hospitality venues, salons, garages and online sellers that take the bulk of their income by card. A company that invoices other businesses on 30 or 60 day terms has no card stream to advance against and should look at invoice finance or a term facility instead. The British Business Bank and the government's finance and support for your business service both set out the wider menu of company funding, which is worth scanning before you settle on the most expensive option.
How repayment works: the holdback
Repayment is what makes an MCA distinctive. Instead of a fixed monthly payment, the provider takes a holdback, a set percentage of every card transaction you settle, usually somewhere between 10% and 20%. That percentage is deducted at source through your card acquirer before the balance ever reaches your bank account.
The effect is that repayment flexes with your trading. On a busy Saturday you repay more; on a slow Tuesday you repay less. There is no missed-payment event when sales dip, because the collection simply slows down. This is the genuine advantage of an MCA for a business with lumpy or seasonal card income: repayment breathes with cash flow rather than demanding the same sum every month regardless of takings.
The trade-off is that the total you repay is fixed in advance and does not shrink if you clear it quickly. That single fact is where the real cost lives, and it is best shown with numbers.
Factor rate versus APR: why an MCA is expensive
MCA providers price using a factor rate, a single multiplier applied to the advance. A factor rate of 1.3 on a £40,000 advance means you repay £52,000. The cost is £12,000, and it is fixed the moment you sign, whether you clear it in six months or eighteen.
Consider a retailer processing £40,000 a month in card takings that takes a £40,000 advance at a 1.3 factor rate, repaid through a 15% holdback:
| Element | Figure |
|---|---|
| Advance received | £40,000 |
| Factor rate | 1.3 |
| Total repayable | £52,000 |
| Cost of the advance | £12,000 |
| Monthly card takings | £40,000 |
| Holdback (15%) | £6,000 per month |
| Approximate payback period | Roughly 8 to 9 months |
At £6,000 collected each month, the £52,000 is cleared in a little under nine months. Paying £12,000 to borrow £40,000 for that period is an effective annualised cost comfortably above 60%, and on some structures higher still once you account for the declining balance. Compare that with a £40,000 unsecured company term loan at a representative rate in the low teens, where the total interest over a year would be around £3,000 to £4,000. The MCA costs roughly three to four times as much for the same money.
There is a counter-intuitive sting: because the £12,000 fee is fixed, repaying faster does not save you anything and actually raises your effective annual rate. An MCA rewards no early settlement. This is the opposite of an amortising loan or a revolving credit facility, where interest accrues only on the balance and time you actually use.
Who a merchant cash advance suits
An MCA is the right tool for a narrow set of situations rather than a general funding solution. It fits a company that:
- Takes the majority of its income by card, with a consistent monthly settlement history
- Needs cash quickly for a short, revenue-generating purpose, such as buying seasonal stock, funding a refurbishment, or covering a defined gap
- Wants repayment to flex with takings rather than commit to a fixed monthly figure
- May not have the filed accounts or trading history a bank wants for a conventional loan
It is the wrong tool for long-term investment, for funding an ongoing shortfall (that signals a deeper problem an expensive advance will worsen), or for any company whose income arrives by bank transfer against invoices rather than by card. If most of your revenue is B2B on credit terms, the honest answer is that an MCA is not built for you, and working capital finance or invoice finance will be far cheaper.
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Company MCA only: the regulation line
This matters, and it is the reason we can introduce your business at all. An unsecured cash advance to a limited company against future card takings is not regulated consumer credit. Under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, introducing a body corporate to a lender is not credit broking (Article 36A of the RAO), so a company MCA sits outside the consumer credit regime.
The picture changes for individuals. A merchant cash advance taken by a sole trader or a person can be regulated consumer credit, which requires an FCA-authorised firm to arrange and to lend. The FCA's perimeter guidance on credit broking (PERG) explains where that line falls. We do not introduce sole traders, individuals, or anyone borrowing for personal or household purposes. Our introductions are strictly for UK limited companies and LLPs, and the enquiry form asks whether your business is a limited company as its first qualifying question. If it is not, we route you to our accountant team rather than the finance panel. A sole trader who wants a card advance should approach an FCA-authorised provider directly.
MCA versus revolving credit versus invoice finance
An MCA rarely stands alone as the best answer. It is worth putting it beside the two facilities it most often competes with.
| Feature | Merchant cash advance | Revolving credit facility | Invoice finance |
|---|---|---|---|
| Best for | Card-led retail, hospitality, salons | Any company with lumpy cash needs | B2B companies invoicing on terms |
| Repaid from | A share of daily card takings | Whatever you choose to repay | Customer payments on the ledger |
| Cost basis | Fixed factor rate (very high effective cost) | Interest on the drawn balance only | Service fee plus discount margin |
| Speed to fund | Fastest (24 to 72 hours) | Moderate | Moderate |
| Early repayment saves money | No | Yes | Yes |
For a card-led hospitality business weighing an advance against slower-but-cheaper options, our sector view on finance for hospitality companies sets out where card takings make an MCA the practical choice and where they do not. Online sellers facing marketplace payout holds should read our take on finance for ecommerce companies, since much of the funding gap there is better solved with a revolving line than a card advance. The umbrella business loans guide maps every company debt option and where an MCA fits in the ladder.
Red flags to check before signing
MCAs are legitimate, but the market includes aggressive selling. Before you commit, confirm the following:
- The effective annualised cost, not just the factor rate. Ask the provider to express the deal as an equivalent APR using your realistic payback period. If they cannot or will not, treat that as a warning.
- Personal guarantees. Many providers ask a director for one. Check whether it is required, what it covers, and whether it is capped.
- Holdback floors and reviews. Some agreements set a minimum monthly collection or let the provider raise the holdback. That removes the flexibility you are paying for.
- Stacking clauses. Running a second advance over an existing one is often a contractual default and can starve your account of settlement. Refinance into one facility instead.
- Switching your card acquirer. Confirm whether the deal ties you to a particular card processor and on what terms.
How the tax works, and how to apply
For a company borrowing for trading purposes, the finance cost of an MCA (the difference between the advance and the total repaid) is generally deductible against profits under the loan relationship and finance-cost rules (see HMRC's Business Income Manual at BIM45301 on interest and finance costs). That softens the after-tax cost, but it does not make an expensive facility cheap, and it should never be the reason to take one. The detail of interest and finance-cost deductibility, and how it interacts with your corporation tax position, is set out in our guide to corporation tax and marginal relief. With the main rate at 25% (19% below £50,000 of profit, an effective 26.5% in the marginal band), the deduction is worth having but modest against a headline cost that can exceed 60% a year.
To apply, complete the enquiry form below. We ask whether your business is a limited company, your average monthly card takings, and the sum you are looking for. Those details let the broker panel price a merchant cash advance against the cheaper facilities you may also qualify for, so you make the decision with the real numbers in front of you rather than a factor rate that flatters the cost.