Worked example: how a £30,000 merchant cash advance actually plays out

This is an illustrative worked example with round numbers, not a client case study and not a quote — real offers depend on your trading and differ between funders. The point is to show the mechanics: what a factor rate and holdback do to a business’s cash, month by month, from drawdown to final payment.

The setup: a food business takes a £30,000 advance at a 1.25 factor rate with a 12% holdback on card takings. Total repayment is fixed on day one at £30,000 × 1.25 = £37,500, so the cost of the money is £7,500 whatever happens next.

What repayment looks like in a normal month

Suppose the business takes £40,000 a month in card payments in an average month. The holdback deducts 12% of each day’s card takings, so a £40,000 month sends £4,800 to the funder and leaves £35,200 flowing into the business as usual. At that pace, £37,500 is repaid in just under eight months.

What happens in a quiet month

This is the feature the product is built around. If takings drop to £25,000 in a slow January, the deduction drops with them to £3,000 — there is no fixed instalment to find. The trade-off is symmetrical and worth seeing plainly: repaying more slowly does not reduce the £37,500 total, so a quiet run of months stretches the same fixed cost over a longer period. Faster repayment does not save money either; the factor-rate cost was set at signature.

The same £7,500, expressed as an annual rate

A factor rate hides the thing every other product has to show, which is what the money costs per year. The arithmetic is not difficult. £7,500 on £30,000 is 25% of the advance. Repay it over the eight months our average column suggests and the simple annualised equivalent is roughly 37%; stretch it to sixteen quiet months and it falls to about 19%. Same total, same agreement, opposite-looking numbers.

That is the honest reason MCA providers quote a factor rate rather than an APR: the repayment period is not fixed, so no single annual figure is true for the whole life of the deal. It is also the reason a fast repayment on an advance is expensive rather than efficient, which is the reverse of every loan you have ever had.

What the same £30,000 looks like as a term loan

The comparison worth running is not advance against nothing, it is advance against the alternative on the same panel. At £25,000 unsecured, 36 of our lenders have a product covering the amount, over terms of 1 to 72 months, with published rate floors from 4.1% and a median floor of 19.2% a year (checked September 2026). At £50,000 the count rises to 47 and the median floor falls to 17%.

A loan at a rate in that region, over twelve months, costs less in pounds than £7,500. What it does not do is flex. The instalment is the same in a dead January as in a busy December, and a missed one is a default rather than a slow week. That is the whole trade, and it is a trade about cash flow rather than about price.

Our unsecured panel of 55 lenders carries both shapes, so the same enquiry can be tested against each. We would rather show you the two totals side by side than sell you the one that pays best. The lender still makes its own decision on either.

Three things to check on a real offer

First, whether the quoted total repayment includes every fee. Some agreements add an origination or administration charge on top of the factor-rate total, so the number on the term sheet is not the number leaving your account.

Second, whether deductions are daily or weekly, and whether they come from the card processor before settlement or by direct debit afterwards. Weekly deductions taken after settlement are far easier to reconcile, and far less likely to bounce.

Third, what happens if you want a top-up. Most funders open one at 50% to 70% repaid, and a top-up usually settles the original advance and starts a new one at a new factor rate. That is not the same as borrowing more on the existing terms, and it is where stacked advances tend to begin.

When does this example make sense, and when not?

Run the purpose against the £7,500 cost. If the £30,000 buys stock or equipment that earns back more than £37,500 within the repayment window, the advance has paid for itself; the businesses this structure suits are ones whose revenue is card-based and whose plan for the money is specific. The example works badly if the £30,000 is covering ongoing losses — the deduction makes every future month 12% tighter while the underlying problem continues.

Two checks belong next to any real offer: the equivalent cost over your realistic repayment period (a £7,500 cost over eight months is a very different annualised rate than over sixteen), and the twelve questions on our checklist, starting with whether the quoted total includes every fee.

Frequently asked questions

Related pages

• Twelve questions to ask before an MCA
• Factor rates explained
• What an MCA costs
• MCA cost calculator

Sources

Panel counts cover available products only. The £30,000 example uses round illustrative numbers and is not a quote.

1. FCA: consumer credit and unregulated business lending
2. BVA BDRC: SME Finance Monitor
3. British Business Bank: Small Business Finance Markets
4. Gov.uk: finance and support for your business