Merchant cash advance explained

How it works

A merchant cash advance (MCA) gives your business an upfront sum, and you pay it back automatically as a fixed percentage of each day's card sales. Bumper day, you repay more; quiet day, you repay less. There's no fixed monthly instalment — the amount moves with your takings. That's the appeal for businesses whose revenue swings, and the reason it grew up around retail, hospitality and other card-heavy trades.

What it really costs

Here's the catch most people miss: an MCA isn't priced with an interest rate. It uses a factor rate — a multiplier applied to the advance. Borrow a sum at a factor of 1.3 and you repay 1.3 times what you took, however long it takes. Because the cost is fixed in cash terms and repayment speed varies, the effective annual cost can be far higher than a headline factor rate suggests, especially if sales come in fast. To translate a factor rate into a like-for-like figure, read APR vs factor rate explained and use the true cost of borrowing calculator.

Where it fits — and where it bites

An MCA can suit a business with strong, steady card volume that needs cash quickly and values repayments that ease off in a slow week. Where it bites is cost and concentration: the effective rate is often steep, and because repayment is skimmed off takings, a slow spell can drag on for months while the charge stays fixed. It also only works if a large share of your sales run through a card terminal — cash- or invoice-led businesses get little from it.

MCA versus a business loan

A business loan gives you a known sum, a clear rate and a fixed schedule, so you can see the total cost before you sign and plan around it. An MCA trades that certainty for repayments that flex with sales — useful, but usually dearer. For most limited companies wanting to fund working capital, a straightforward loan is cheaper and easier to budget. A Credicorp loan is lent to the company with no personal guarantee; compare the routes in how to compare finance options.