Business Funding · Updated 15 May 2026 · Alex Beardsley
Merchant cash advance, explained for UK business owners
A merchant cash advance is one of the most widely used forms of business funding in the UK. It's also one of the most misunderstood. This guide covers how it works, what it costs, how factor rates compare to APR, where it fits next to a traditional business loan, and the alternatives worth knowing about.
If you already know you want an MCA, the page you actually want is /business-funding/mca. Otherwise, read on.
What a factor rate actually is
A factor rate is a decimal multiplier (typically 1.1 to 1.5) used to calculate the total you'll repay. Unlike APR or interest, factor rates have no relationship to time. The total cost is fixed regardless of how quickly or slowly you repay.
Factor rate 1.15
£10,000 advance → £11,500 repayment
£1,500 total cost (15%)
Factor rate 1.35
£10,000 advance → £13,500 repayment
£3,500 total cost (35%)
Factor rate vs APR
Factor rates and APRs are not directly comparable. APR builds time into the calculation, factor rates don't. That changes the maths when you compare an MCA to a business loan.
| Aspect | Factor rate (MCA) | APR (traditional loan) |
|---|---|---|
| Total cost | Fixed from day one | Varies with repayment time |
| Early repayment | No saving (cost is fixed) | Saves on interest |
| Calculation | Simple multiplication | Percentage over time |
| Best for | Short-term, 3 to 12 months | Medium to long-term, 1 to 5 years |
An important cost consideration
MCAs typically cost more than traditional loans. They earn that in flexibility and speed. The total cost is set up front, there are no late-payment penalties, and there's nothing to chase. If you repay slowly, you don't pay more. If you repay quickly, you don't pay less.
What an MCA does well
Approval rates are strong for card-accepting businesses. Decisions lean on card sales rather than credit history, which is why owners declined by a bank often get approved here.
Funding is fast. Apply in minutes, get a decision within 24 hours, funds in your account within 1 to 2 working days of approval.
No assets are taken as security. MCAs don't require property or other collateral. A personal guarantee is required, which makes you personally liable for the outstanding amount if the business cannot repay, but your home isn't taken as security.
The application is light. No 30-page business plan. Most lenders make the decision from card sales data, either via recent bank statements or open banking.
Trading history matters more than credit score. Lenders care what the till has done over the last three to six months. A patchy personal credit file is less of a blocker than it would be at a bank.
Repayments flex with sales. A quiet month means a smaller deduction. A busy month means a bigger one. The percentage stays the same.
It doesn't typically affect your credit score. MCAs usually operate outside the credit reporting system. Because repayments are automatic, there's less risk of a missed payment marking your file. A serious default that ends up in legal action could still affect credit.
The total cost is fixed. No hidden fees, no late charges, no surprises. You agree the number upfront.
Newer businesses can qualify. Some lenders accept as little as three months of trading, compared with 12+ months at most banks.
What to weigh up before you sign
Overall cost can be higher than a bank loan. Factor rates typically work out more expensive than an APR-based loan, especially if the alternative is a low-rate term loan you can comfortably afford.
Funding is capped by your card sales. Maximum advance is usually around 100 to 200% of monthly card turnover. If you need significantly more than that, an MCA may not stretch.
Early repayment doesn't save you money. The total cost is fixed via the factor rate. Paying off the balance early doesn't reduce what you owe in the way it would with a loan.
Daily deductions affect cash flow. A percentage of every card sale comes off the balance. If your sales drop unexpectedly, the deduction drops with them, but the cash flow still feels different from a fixed monthly payment.
MCA vs traditional business loan
Side by side, the differences come down to speed, flexibility and cost structure.
| Feature | Merchant cash advance | Traditional business loan |
|---|---|---|
| Approval time | 1 to 24 hours | 1 to 4 weeks |
| Funding speed | 24 to 48 hours after approval | 1 to 3 weeks after approval |
| Approval rate | Typically higher | Varies by bank |
| Typical term | 3 to 18 months | 1 to 5 years |
| Repayment structure | % of daily card sales (flexible) | Fixed monthly payments |
| Cost structure | Factor rate (1.1 to 1.5x) | APR + interest |
| Asset security | Usually none | Often required for secured loans |
| Personal guarantee | Yes (not asset-based) | Usually yes |
| Credit impact | Minimal or none | Can affect credit score |
| Application | Simple, 3 to 10 minutes | Complex, plans and financials |
| Best for | Short-term, urgent needs | Long-term, planned investments |
More questions, answered
Do I need a card machine to get a merchant cash advance?
Most lenders require you to process card payments, either through a physical terminal or online. Some lenders (YouLend is one) also write advances against e-commerce platforms like Shopify, not just traditional card machines.
Is a credit check required?
Most MCA lenders don't run a hard credit check. Their decision is based on card sales data. A soft check is possible. Always confirm with the lender before applying if you're concerned.
Can I repay the advance early?
Repayments happen automatically as a percentage of card sales. Some lenders allow voluntary early repayment, occasionally with a discount. Without a discount, there's little financial benefit to repaying early because the total cost is fixed via the factor rate.
Will an MCA affect my credit score?
MCAs generally operate outside the credit reporting system, so they don't impact your credit score. Defaulting on repayment and any subsequent legal action could. Because repayments are automatic, the risk of a missed payment is lower.
What if I need additional funding later?
Many lenders offer a top-up once you've repaid 50 to 70% of the original advance. You can also apply for a new advance once the previous one is fully repaid. A large proportion of MCA customers come back for repeat funding.
What business types qualify?
Limited companies, partnerships, LLPs and (with some lenders) sole traders. Common sectors include retail, hospitality, e-commerce, salons, tradespeople and healthcare. Higher-risk sectors face more scrutiny and may be declined.
How is the factor rate determined?
It comes from a mix of factors: advance amount, length of trading history, average monthly card sales, sales volatility, and perceived default risk. Typical range is 1.1 to 1.5.
Can I use MCA funds for any business purpose?
In most cases yes. Common uses include stock, equipment, marketing, renovations, staff costs and cash flow relief. High-risk uses or sectors may be excluded by individual lenders.
Alternatives worth knowing about
An MCA isn't the only option. If it isn't the right fit, one of these usually is.
Unsecured business loans
Traditional term loans without collateral. Lower cost than an MCA, slower to approve, stricter on credit and trading history.
Secured business loans
Backed by assets, so the lender takes less risk and the rate is lower. Slower process, and you put a specific asset on the line.
Invoice finance
Unlocks cash tied up in unpaid invoices. Suits B2B businesses on 30 to 90-day payment terms more than card-based retailers.
Asset finance
Spreads the cost of equipment, vehicles or machinery over time, secured against the asset itself.
Business credit cards
Revolving credit, often with rewards. Useful for ongoing expenses and short 0% introductory periods, not for big lump sums.
Revenue-based finance
Close cousin of an MCA, but repayments come off total revenue rather than card sales only. Useful when card sales are only part of the picture.
Want to see what's available for your business?
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Check your optionsCapExpand is a credit introducer, not a lender. This article is general information, not financial advice. All funding is subject to status and lender approval. Personal guarantees are required for every MCA we place.