Merchant Cash Advance Explained for UK SMEs
A merchant cash advance (MCA) gives a UK business a lump sum in exchange for a percentage of future card takings, repaid automatically until the total owed is cleared. There is no fixed monthly payment and no set term. Repayment rises and falls with your revenue, making it a flexible option for card-heavy businesses.
What a Merchant Cash Advance Actually Is
An MCA is not a loan in the traditional sense. The provider purchases a portion of your future card receipts at a discount, advancing you cash today in return for a larger amount collected gradually from your card terminal or payment processor. Because no interest rate is attached, the cost is expressed as a factor rate, typically between 1.10 and 1.50, meaning a £20,000 advance at a 1.30 factor rate costs £26,000 in total.
The structure means the provider shares your revenue risk to a degree. If card sales drop, daily repayments fall automatically. If sales are strong, the advance clears faster. This distinguishes an MCA from a term loan, where the monthly payment stays fixed regardless of trading conditions.
How Repayment Works Day to Day
Repayment is collected as a fixed percentage of each day's card transactions, a figure known as the holdback or retrieval rate, which typically sits between 10% and 25% of daily card turnover. The provider integrates directly with your card processor or payment gateway, so repayments happen without any manual action on your part.
Because the holdback is a percentage rather than a fixed sum, the actual amount deducted varies with trade. A quieter Monday might see £40 collected; a busy Saturday might see £180 collected. The advance is fully repaid once the agreed total repayment amount has been reached, which could happen in four months or ten months depending on your card volumes. There is no early repayment penalty in most standard MCA agreements, though you should confirm this in the contract before signing.
Which Businesses Suit an MCA
MCAs are best suited to businesses that generate a significant and consistent volume of card payments, because the repayment mechanism depends entirely on card or payment-processor throughput. Retail outlets, restaurants, cafés, hotel operators, e-commerce businesses and leisure venues are the most common users.
Eligibility criteria vary by provider, but most will want to see at least four to six months of card processing history and a minimum monthly card turnover, often £5,000 or more. Unlike a commercial mortgage or asset finance facility, there is no requirement to pledge physical security. That makes MCAs accessible to businesses that rent their premises and hold few tangible assets. FundBiz works with limited companies, LLPs and partnerships of four or more members; sole traders and micro-partnerships fall outside this scope regardless of their card volumes.
Factor Rates, Fees and True Cost
The total cost of an MCA is determined by the factor rate applied to the advance, and understanding this is essential before committing. A factor rate of 1.25 on a £30,000 advance means you repay £37,500 in total, so the cost of the capital is £7,500.
Some providers also charge an origination or arrangement fee, which may be deducted from the advance at drawdown or added to the total repayable amount. Because repayment has no fixed term, it is not straightforward to calculate an annual percentage rate, but if the advance clears in eight months, that £7,500 cost represents a significant annualised figure. Businesses should model the total repayable amount against their average monthly card volume to estimate a realistic repayment window before accepting an offer. Comparing offers on total repayable amount, rather than factor rate alone, is the most reliable approach.
Advantages and Limitations
The main advantages of an MCA are speed, flexibility and the absence of fixed assets as security. Decisions can be made within 24 to 48 hours of application, and funds are often received within a few working days. The fluctuating repayment structure reduces the risk of cash-flow strain during slower trading periods.
The limitations are equally important to acknowledge. The effective cost of capital is generally higher than a term loan or invoice finance facility, particularly if the advance clears quickly. Stacking multiple MCAs simultaneously can become expensive and difficult to manage. Some providers include restrictions on taking additional funding from other sources during the advance period, which can limit financial flexibility. Because the product is not currently regulated by the FCA for most commercial borrowers, independent legal or financial advice before signing is sensible practice, especially for larger advances.
The Application Process
Applying for an MCA is straightforward compared with most other forms of business finance. Providers focus primarily on card processing history rather than audited accounts or property valuations, so the documentation requirement is relatively light.
Most applications require three to six months of card processing or payment gateway statements, recent business bank statements covering the same period, proof of identity for directors or designated members, and Companies House confirmation of the business structure. Some providers will also request a brief overview of trading activity or a signed director's declaration. Once documents are received, credit decisions are typically made within one to two business days. Businesses applying through a broker like FundBiz benefit from having their information presented to multiple MCA providers simultaneously, which can improve both the speed and quality of offers received.
MCA Alongside Other Finance
An MCA can sit alongside other finance facilities in certain circumstances, though this depends on the terms set by each provider. Some lenders permit concurrent facilities; others include a negative pledge or exclusivity clause that prevents taking on additional debt during the advance period.
Where a business has both card-based revenue and physical assets, a combined approach might include an MCA for working capital needs alongside an asset finance facility for equipment, or a commercial mortgage for premises. Bridging finance and MCAs are occasionally used together during property transactions where short-term liquidity is needed. In all cases, the priority is ensuring that total debt-service obligations, including the MCA holdback, remain manageable against projected cash flow. A broker can help map this across the full lending picture before any facility is drawn.
| Advance Amount | Factor Rate | Total Repayable | Cost of Capital | Holdback Rate | Monthly Card Turnover | Estimated Repayment Period |
|---|---|---|---|---|---|---|
| £10,000 | 1.20 | £12,000 | £2,000 | 15% | £15,000 | Approx. 5 months |
| £20,000 | 1.25 | £25,000 | £5,000 | 15% | £20,000 | Approx. 8 months |
| £30,000 | 1.30 | £39,000 | £9,000 | 20% | £25,000 | Approx. 8 months |
| £50,000 | 1.35 | £67,500 | £17,500 | 20% | £40,000 | Approx. 8 months |
| £75,000 | 1.40 | £105,000 | £30,000 | 25% | £60,000 | Approx. 7 months |
Step-by-step
- Gather three to six months of card processing or payment gateway statements and matching business bank statements.
- Confirm your business structure is a limited company, LLP or partnership of four or more members.
- Submit an enquiry through FundBiz with your monthly card turnover figure and the amount you wish to advance.
- Receive indicative terms from matched MCA providers, typically within one to two business days.
- Review each offer on total repayable amount, holdback rate and any fees or restrictive covenants.
- Sign the agreement and receive funds, usually within two to five working days of approval.
Example
A limited company operating three café sites across the East Midlands processed around £35,000 per month through its card terminals. It needed £25,000 quickly to cover a supplier deposit ahead of a seasonal restock. The business received an MCA at a 1.28 factor rate, giving a total repayable amount of £32,000 at a 15% holdback. The advance cleared in just under seven months without disrupting its other credit facilities.
Frequently asked questions
Is a merchant cash advance regulated by the FCA?
For most commercial borrowers, MCAs are not currently regulated by the Financial Conduct Authority because they are structured as a purchase of future receivables rather than a credit agreement. This means the protections available under the Consumer Credit Act do not apply. Businesses should review contract terms carefully and take independent advice if they are uncertain about any clause.
Can I get an MCA if my business has a County Court Judgement?
Some MCA providers will consider applications from businesses with CCJs, particularly where card processing volumes are strong and the judgement is satisfied or relatively small. Others will decline automatically. Each provider sets its own credit criteria, and applying through a broker helps identify which lenders are likely to consider the application before a formal submission is made.
How is an MCA different from invoice finance?
Invoice finance advances cash against outstanding sales invoices owed by your trade customers, and is most suited to B2B businesses with significant debtor books. An MCA advances cash against future card transactions and suits consumer-facing or mixed B2B and B2C businesses with card-payment infrastructure. The repayment mechanism, cost structure and eligibility criteria differ significantly between the two products.
What happens if my card sales drop sharply during the advance period?
Because repayment is a fixed percentage of card turnover rather than a fixed monthly sum, a drop in card sales automatically reduces the daily amount collected. The advance simply takes longer to clear. There is no missed payment in the conventional sense, though the provider will monitor overall trading health and may make contact if volumes fall substantially for a sustained period.
Can a partnership of four or more members apply for an MCA?
Yes, provided the partnership meets the card processing volume and trading history requirements of the chosen provider. FundBiz accepts applications from qualifying partnerships alongside limited companies and LLPs. All designated partners or a majority of partners will usually be required to provide identification and, in some cases, a personal guarantee, depending on the provider's terms.
By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-06-30.