The real cost of a merchant cash advance, in

2 min read

Factor rateNot an APR

Fast repaymentHigh effective cost

Turnover-linkedFlexible payments

Advance amount (£)

Factor rate

Average monthly card turnover (£)

Holdback (% of takings)

A factor rate is a fixed multiple, not an interest rate — total repayable = advance × factor. Estimated term assumes steady takings.

How a merchant cash advance is priced

A merchant cash advance advances a lump sum repaid as a fixed percentage of daily card takings, priced with a factor rate. Borrow £30,000 at a factor of 1.2 and you repay £36,000 — a £6,000 cost, whatever the speed.

Why speed makes it expensive

Because the factor ignores time, repaying fast does not reduce it — it raises the effective APR. Repay that £36,000 over six months and the £6,000 cost, annualised, equates to an APR well into the double or even treble digits. The shorter the payback, the higher the effective rate.

When it still fits

An advance can be worth the cost when speed and turnover-linked repayment matter more than the lowest headline — buying stock ahead of a proven sales spike, say. The flexible repayment cushions a slow month. But it is dear money, so use it deliberately.

Price it against a term loan

Convert the factor to a total cost and compare with a term-loan APR before deciding. The calculator below helps you see the effective cost.

Where Credicorp fits

Credicorp lends to your company, not to you personally, and takes no personal guarantee. See indicative terms on business loans, or apply online in minutes.

See APR vs factor rate and the answer on APR vs flat rate.

Frequently asked questions

Why is a merchant cash advance quoted as a factor?

Because repayment is turnover-linked with no fixed term, a fixed-term APR does not neatly apply. The factor is simpler to quote — but it hides the effect of time.

Is a factor of 1.2 expensive?

It depends entirely on how fast you repay. Over a short payback, 1.2 can equate to a very high APR. Convert to total cost and annualise before judging.

When should I avoid one?

When a term loan at a clear APR is available for the same purpose, or when the effective cost outweighs the value the money creates. Price both first.