What is a merchant cash advance?
A merchant cash advance (MCA) is a form of business finance where a lender advances you a lump sum in exchange for a fixed percentage of your future card or payment receipts until the total amount owed is repaid. It is not a loan in the traditional sense: there is no fixed monthly repayment, no set term and no interest rate. Instead, the cost is expressed as a factor rate and you repay automatically as your customers pay you.
MCAs were originally tied exclusively to card terminal receipts, but UK providers have expanded eligibility to include businesses that take card payments online, via EPOS systems or through payment gateways such as Stripe, Square and SumUp. YouLend is the dedicated MCA provider on Fundably’s panel and can typically approve and fund within 24 to 48 hours, making MCAs one of the fastest forms of business funding available in the UK. Where an MCA is not the right structure, our wider 50+ lender panel covers revenue-based finance, term loans and invoice finance as alternatives.
How a merchant cash advance works
- You apply with a provider and share your card processing statements (typically the last 3 to 6 months)
- The lender calculates your average monthly card turnover and makes you an advance offer based on a multiple of that figure
- You receive a lump sum, typically between £2,000 and £500,000
- A fixed percentage of your daily or weekly card receipts (the “holdback” or “retrieval rate”) is automatically collected by the lender
- Repayment continues until the total amount owed (advance plus the factor rate cost) is cleared
Example:
- Advance amount: £30,000
- Factor rate: 1.25
- Total repayment: £30,000 × 1.25 = £37,500
- Monthly card turnover: £20,000
- Holdback rate: 15% → £3,000 per month collected
- Estimated repayment period: approximately 12 to 13 months
Because repayments flex with your revenue, a slow month means smaller repayments and a busy month accelerates repayment. There is no penalty for early repayment (the factor rate is fixed regardless of how quickly you repay).
Factor rates explained
Unlike traditional loans which use an annual percentage rate (APR), MCAs use a factor rate, typically between 1.09 and 1.50. Multiply the advance amount by the factor rate to find your total repayment.
| Factor Rate | Advance | Total Repayment | Cost |
|---|---|---|---|
| 1.10 | £20,000 | £22,000 | £2,000 |
| 1.25 | £20,000 | £25,000 | £5,000 |
| 1.40 | £20,000 | £28,000 | £8,000 |
| 1.50 | £20,000 | £30,000 | £10,000 |
Factor rates are influenced by your monthly card turnover, trading history, sector and the lender’s assessment of your business. Businesses with consistent, high-volume card turnover typically access the lowest rates.
Important: because there is no fixed term, converting a factor rate to an APR requires you to estimate repayment duration. A factor rate of 1.25 over 10 months represents a much higher effective APR than the same factor rate over 18 months. Compare MCAs using total cost of capital rather than APR alone.
What Fundably’s MCA lenders look for
MCA providers on Fundably’s panel typically require:
- At least 3 months of trading history
- Minimum monthly card turnover of £5,000 to £10,000 (varies by lender)
- A UK business bank account
- No active insolvency proceedings
Unlike secured lending, most MCAs do not require collateral or a formal personal guarantee (though some lenders include a director guarantee in their terms). Credit score is considered but is less important than card turnover consistency.
Holdback rates and repayment
The holdback rate is the percentage of daily card receipts withheld by the lender each day until the advance is repaid. Typical rates are 10% to 25%. A higher holdback rate means faster repayment but reduces your daily cash flow more significantly.
Many providers let you negotiate the holdback rate. If you prefer slower repayment to preserve cash flow, request a lower holdback rate (with the understanding that it will take longer to clear the advance).
Costs versus alternatives
MCAs are generally more expensive than term loans and invoice finance on a cost-of-capital basis, but they offer advantages that justify the premium for many businesses.
| Product | Cost Structure | Repayment | Speed |
|---|---|---|---|
| Merchant Cash Advance | Factor rate 1.09 to 1.50 | % of daily receipts | 24 to 48 hours |
| Unsecured Term Loan | APR 6% to 40%+ | Fixed monthly | 24 hours to 5 days |
| Invoice Finance | 2% to 5% per invoice | When customer pays | 24 hours (ongoing) |
| Revenue-Based Finance | Factor rate 1.06 to 1.35 | % of monthly revenue | 24 hours to 3 days |
If your business generates revenue primarily from invoices rather than card payments, revenue-based finance or invoice finance may offer a better rate for the same speed. If you need a longer-term facility with fixed costs, a business loan is worth comparing.
Which businesses suit a merchant cash advance?
MCAs work best for businesses where card payments make up a significant share of revenue and where cash flow is seasonal or variable.
Well suited to:
- Restaurants, cafes and hospitality businesses
- Retailers with physical or online stores
- Salons, gyms and lifestyle businesses
- E-commerce businesses processing payments via Stripe, Shopify or PayPal
- Any business that needs funding quickly and prefers repayment to flex with revenue
Less well suited to:
- B2B businesses that invoice customers on credit terms (invoice finance or revenue-based finance is typically a better fit)
- Businesses with very low monthly card volumes (below £5,000)
- Businesses seeking the lowest possible cost of capital over a longer term
How to compare merchant cash advance providers
Not all MCA offers are equivalent. When comparing, look at:
- Total repayment amount (advance × factor rate): the clearest measure of total cost
- Holdback rate: how much of your daily takings will be retained and the impact on your working cash flow
- Advance multiple: how much you can borrow relative to your average monthly card turnover (typically 1x to 2x monthly turnover)
- Fees: origination fees, early repayment terms and any renewal conditions
- Renewal terms: some lenders offer automatic top-ups once you have repaid 50% of the advance, which can become a cycle of borrowing if not managed carefully
- FCA status of the provider: MCAs on card receipts are not currently regulated by the FCA as credit agreements in all cases, but reputable providers operate under clear consumer and business protection standards
Compare MCA offers alongside term loans and revenue-based finance through Fundably. As a commercial finance broker and NACFB member, we run one application across 50+ lenders, with a soft credit check only at the matching stage. YouLend is our flagship MCA provider, with revenue-based finance and term-loan alternatives also matched in the same application.
Compare merchant cash advance offers on Fundably →