Merchant cash advance

In plain terms

A merchant cash advance (MCA) gives your business an upfront sum in exchange for an agreed share of your future card takings. Each time a customer pays by card, a small percentage of that transaction is diverted to the provider until the advance plus its fee is fully repaid. There's no fixed monthly payment and no fixed end date — you repay faster in busy weeks and slower in quiet ones.

The cost isn't expressed as an interest rate. Instead, the provider applies a factor rate — for example 1.2 — to the amount advanced. Borrow £20,000 at a factor of 1.2 and you repay £24,000 in total, however long that takes. Because repayments flex with sales, an MCA is popular with retailers, hospitality venues and others with steady card revenue.

Why it matters to your business

The appeal of an MCA is its rhythm: repayments shrink when trade is slow, easing pressure on cash flow during a quiet spell. There's no large fixed commitment to meet regardless of takings, which can suit seasonal or unpredictable trade.

The trade-off is cost and clarity. Because the price is a factor rate rather than an APR, a low-looking factor can equate to a high effective annual cost once you account for how quickly the advance is repaid. The faster you pay it back, the higher the effective rate — repaying £24,000 on a £20,000 advance over four months is far more expensive in annualised terms than over twelve. Always convert the factor rate into a total cost and a rough effective rate before committing, and compare it against a conventional business loan or flexible facility.

A worked example

A café takes a £15,000 merchant cash advance at a factor rate of 1.25, agreeing that 12% of daily card takings go to repayment. Total repayable: £18,750 (£15,000 × 1.25), so the cost of the advance is £3,750.

In a strong month with £20,000 of card sales, the café repays £2,400; in a slow month with £8,000 of sales, it repays just £960. The balance clears whenever the takings add up to £18,750 — there's no set deadline. The flexibility is real, but the £3,750 cost is fixed the day the advance is taken, so faster trading simply means paying a high cost over a short period. (Figures are illustrative of the market, not Credicorp's.)

Is it right for you?

An MCA can make sense for a business with strong, consistent card revenue that values repayment flexibility over headline cost, or that can't easily evidence the structured financials a term lender wants. It's less suitable if most of your income arrives by bank transfer or invoice, since there are few card takings to repay from.

Before choosing one, weigh the total repayable and effective cost against alternatives such as a revolving credit facility, invoice finance, or a short-term working-capital loan. For many limited companies, finance lent to the business with a transparent rate works out cheaper and easier to plan around.