Merchant cash advances explained

How a merchant cash advance works

A merchant cash advance (MCA) is built for businesses that take a lot of payment by card — shops, restaurants, salons, bars. The provider gives you a lump sum up front, and you repay it automatically as a fixed percentage of your daily card takings. On busy days you repay more; on quiet days you repay less. There is no fixed monthly instalment and no set end date — repayment simply tracks your sales until the agreed total is cleared.

Because the provider plugs into your card terminal data, decisions can be fast and the advance is sized to your recent card turnover. The appeal is the flexibility: repayments breathe with your trade, which can be a relief for seasonal or unpredictable businesses. The catch is in the cost, which works very differently from a loan — and that is where directors most often misjudge it.

How the cost works

An MCA is not priced with an interest rate. Instead it uses a factor rate — a multiplier applied to the amount advanced. If you take £20,000 at a factor rate of 1.3, you repay £26,000 in total, whatever the timeframe. That £6,000 is the entire cost.

The crucial point: because the cost is fixed in pounds, repaying faster does not make it cheaper. If your sales surge and you clear the advance in four months instead of nine, you still pay the full £26,000 — so the effective annual cost can be very high. Converted to an APR, MCAs frequently sit well above conventional business borrowing. They can still make sense for the speed and the sales-linked repayments, but only if you go in with eyes open about the true price. Our guide to how interest works shows how factor rates compare to ordinary rates.

Pros and cons

An MCA is a genuinely useful tool for the right business, and a costly one for the wrong fit.

Advantages:

• Repayments flex with trade — quiet weeks cost less.
• Fast access, with decisions often based on card data alone.
• No fixed monthly payment to find in a thin month.
• Usually unsecured, with no asset pledged.

Drawbacks:

• The effective cost is often high relative to a term loan.
• Only available to businesses with strong card revenue.
• Repaying early gives no saving — the total is fixed.
• A slice of every day's takings is committed until it clears.

For many companies a fixed-term facility or revolving line works out cheaper and more predictable — see working capital finance.

The alternatives

Before committing to an MCA, it is worth comparing the more conventional options, especially if cost matters more than the speed.

Option	Repayment	Typical cost basis
Merchant cash advance	% of daily card sales	Fixed factor rate (often high)
Short-term business loan	Fixed instalments	Interest rate + fees
Revolving credit facility	Draw and repay flexibly	Interest on what you draw
Invoice finance	As customers pay	Service + discount charge

If you value sales-linked repayments, an MCA wins. If you want the lowest cost or genuine savings from repaying early, a working capital loan or revolving facility usually beats it — and lets you benefit from clearing the balance sooner.

A clearer alternative from Credicorp

Credicorp provides short-term working capital to UK limited companies as a straightforward, transparently priced facility — not a factor-rate product. You repay on clear terms, you can see the total cost up front, and we lend to the company with no personal guarantee from directors. For many card-taking businesses that prefer predictable pricing to a slice-of-takings model, that is a better fit.

If you would benefit from being able to draw and repay flexibly, the Credicorp Flex facility may suit; for a defined sum, see our business loans. You can register to apply in a few minutes. This guide is educational and not financial advice — weigh any MCA offer against conventional finance on total cost before deciding.