Business Funding · 6 min read
Merchant cash advance vs revenue-based finance
The two products are close relatives. Both advance a lump sum, both charge a fixed fee agreed at the start, and both are repaid as a percentage of what the business earns rather than as a fixed monthly instalment. The difference is the stream the percentage is taken from. A merchant cash advance is repaid from card sales, through the card processor. Revenue-based finance is repaid from total revenue, usually by direct debit from the bank account.
What they share
Both are priced with a factor rather than an interest rate. iwoca puts the merchant cash advance factor typically between 1.2 and 1.5, and says you cannot save money by repaying early because the total is fixed. YouLend, per the Business Expert review this month, fixes the fee in pounds at signing and early repayment does not reduce it. Our factor rate explained page covers the arithmetic.
Both also flex with trading. 365 Finance describes its advance as having no fixed term and no additional charges if it takes longer to repay, with repayments falling during a seasonal dip. That flex is the main reason businesses choose either product over a fixed-instalment loan, and the fee is fixed at the start rather than accruing as interest.
Where they differ
| Feature | Merchant cash advance | Revenue-based finance |
|---|---|---|
| Repaid from | A percentage of card sales (365 Finance, iwoca) | A percentage of total revenue |
| Collected via | Card processor or settlement account before funds reach you (YouLend) | Bank account, typically by direct debit |
| What the lender reads | Card processing history; Open Banking | Bank account revenue; Open Banking |
| Published entry tests | YouLend: 3 months, £1,500 card sales a month; 365 Finance: 6 months, £10,000 a month | Varies by provider; check the provider |
| Cost structure | Fixed factor fee | Fixed factor fee |
| Typical fit | Shops, hospitality, salons: card-heavy takings | E-commerce, subscriptions, B2B: revenue not mainly by card terminal |
The card-sales stream
With an MCA the repayment is taken before the money reaches the business. Business Expert describes YouLend taking the agreed share through its settlement account before the rest is paid out, using the example of 20% of daily sales. 365 Finance describes paying back a small percentage of credit and debit card sales. If card takings halve, the repayment halves. If a business takes mostly cash or bank transfer, there is little to collect from, which is why providers set a card-sales minimum.
The practical effect is that the card processor becomes part of the arrangement. Some providers work with specific processors or platforms; some require the business to route card sales through a nominated account. Product detail is on our merchant cash advance page.
The total-revenue stream
Revenue-based finance reads the whole top line. An online retailer paid through a marketplace, a software business on subscriptions, or a trade supplier paid by bank transfer has revenue that never touches a card terminal. The provider assesses that revenue, usually through an Open Banking connection, and collects a percentage of it from the bank account. Our revenue-based finance page sets out how providers structure it.
One wrinkle: the words are used loosely. iwoca describes MCA lenders as revenue-based funding lenders, and some providers market a card-sales product under the RBF label. The question that settles it is which account the deduction comes from.
Which suits which business
Businesses where the card machine is the main till, such as cafés, bars, salons and convenience stores, commonly look at an MCA first, because the repayment stream and the takings are the same thing. Businesses whose revenue arrives by transfer, marketplace payout or subscription commonly look at the bank-revenue form, because a card-sales percentage would either be tiny or impossible to collect. Mixed businesses, a restaurant with a large delivery-platform income for instance, fall between the two and generally compare an offer of each.
Questions to ask before comparing offers
Because the two products look alike on paper, the useful questions are about the mechanics rather than the label.
- Which account or stream is the deduction taken from, and what happens in a week with nothing passing through it?
- What is the total repayable in pounds, and is any part of it variable?
- Is there a minimum monthly amount, a maximum term, or a point at which slow repayment is treated as arrears?
- Does the provider require a change of card processor, or a nominated account for takings?
- Is a personal guarantee required, and from whom?
- What does early settlement cost, if anything?
Businesses commonly get each answer in writing before signing. The signed agreement, not the sales call, governs the arrangement, so an answer that is not reflected in it is worth less than it sounds.
When neither is the right product
Both are short-term working capital priced with a fixed fee. A business funding a long-lived asset, or one that can show the accounts a bank wants, commonly compares a term loan or asset finance as well. A term loan is priced on interest over a fixed term, so the total repayable can differ a great deal; compare the total repayable on each offer rather than assuming either is cheaper. A business on thin margins may find a percentage of every sale harder to carry than a fixed instalment it can plan for. And because the fee is fixed, fast repayment brings no saving; iwoca notes early settlement may also carry a charge at some providers.
CapExpand is not a lender of either product. We act as an introducer, connecting UK limited companies and LLPs with providers of both; the provider assesses, prices and decides.
Frequently asked questions
Is a merchant cash advance a type of revenue-based finance?
In the way most providers use the words, yes. iwoca describes merchant cash advance lenders as revenue-based funding lenders. The distinction this article draws is about the repayment stream: an MCA is collected from card sales, and what the market usually calls revenue-based finance is collected from total revenue through the bank account. Always check which stream a provider actually deducts from.
Which is cheaper?
Neither is cheaper by definition. Both price with a fixed factor, which iwoca puts typically between 1.2 and 1.5 for an MCA. The factor an individual business is offered depends on its trading record, and repaying early does not reduce it. The comparison that holds is the total repayable on each offer, not the product label.
Can a business have both at the same time?
Technically possible, but a second provider can see the first provider's deductions in the bank feed and generally looks at it closely. Two facilities taking a share of the same income is the situation our stacking page warns about.
Do I need a card machine for revenue-based finance?
Not for the bank-revenue form, because repayment is taken from total income rather than card takings. For a merchant cash advance, card sales are the repayment mechanism, so providers publish a card-sales minimum: YouLend £1,500 a month, 365 Finance £10,000 a month on average.
Does CapExpand offer either product?
No. CapExpand is an introducer, not a lender. We introduce UK limited companies and LLPs to providers of both products, and the provider assesses, prices and decides.
Sources (checked August 2026)
Compare an offer of each
CapExpand introduces UK limited companies and LLPs to providers of both products. Use the form below, or call 0333 041 3127 and tell us how your revenue arrives.
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CapExpand Ltd is not authorised by the Financial Conduct Authority and can only complete non-regulated introductions. We work with UK limited companies and LLPs only, for business and commercial purposes. We are not a lender and we do not provide financial, tax or legal advice. We work with a panel of lenders whose particulars are available on request, and we receive commission from the lender if a deal completes, at no cost to you. All lending is subject to status, valuation where applicable and the lender's own checks.
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CapExpand Ltd (Company No. 14433858) is a commercial finance introducer, not a lender. We are not currently authorised or regulated by the Financial Conduct Authority and do not provide financial advice. All information on this page is for educational purposes only. Funding is subject to status and lender criteria. CapExpand will receive a commission from providers at no extra cost to you.