MCA Factor Rates: What UK Businesses Actually Pay
A merchant cash advance uses a factor rate, not an interest rate, to set the total repayment amount. For UK limited companies and LLPs that take card payments, understanding how factor rates translate into real cost is essential before accepting any offer. This guide explains the mechanics, typical ranges, and how to compare MCA cost against other finance.
What a factor rate is and how it differs from an interest rate
A factor rate is a simple decimal multiplier applied to the advance amount to produce the total repayment figure, so a factor of 1.30 on a £50,000 advance means you repay £65,000 in total, regardless of how quickly you clear it. Unlike an APR, the factor rate does not decrease if you repay early, because the full cost is fixed at the point of agreement.
This is the most important distinction for borrowers used to bank loans. With a term loan, settling early reduces the interest you pay. With an MCA, the £15,000 cost in the example above is owed whether repayment takes four months or twelve. Lenders justify this because their revenue projection depends on a fixed return, not a time-based yield.
Typical factor rate ranges for UK SMEs in 2026
Most UK MCA providers quote factor rates between 1.15 and 1.55, with the rate offered depending on your card turnover volume, business age, sector risk, and recent trading consistency. Rates at the lower end are typically available to established hospitality or retail businesses with two or more years of stable card takings above £15,000 per month.
Higher-risk sectors or businesses with shorter trading histories tend to attract rates above 1.35. Some specialist providers working with post-decline applicants may quote rates up to 1.55. It is worth noting that the BoE base rate of 3.75% has limited relevance here because MCA pricing is not interest-rate linked; it is underwritten on cash-flow risk rather than credit cost of funds.
How repayments are collected via card revenue
Repayments are collected as a fixed percentage of your daily or weekly card terminal or payment processor settlements, commonly called the retrieval rate or holdback, which typically sits between 8% and 20% of gross card takings. Because repayments flex with revenue, a quieter trading week means a smaller absolute repayment that week, and a busier week means more is collected.
This structure suits businesses with seasonal or uneven card income, such as hotels, restaurants, and independent retailers. However, the total amount owed does not reduce with the retrieval rate variation. Only the speed of repayment changes. Your provider will integrate directly with your card acquirer or payment processor, so repayments are automatic and require no manual action from you.
Converting factor rate to an approximate APR for comparison
Converting a factor rate to an APR is not straightforward, but a useful approximation is possible: divide the total cost by the advance principal, then divide by the expected repayment term in years, and multiply by 100. A factor of 1.30 repaid over nine months produces an approximate APR of around 40%, which gives a clearer basis for comparison with other products.
This approximation matters because FCA regulations require credit brokers to present representative APRs for regulated products, but MCAs provided to limited companies are not regulated consumer credit and therefore APR disclosure is not mandatory. Asking your broker to produce a cost-of-capital comparison table is a reasonable request and any credible adviser should be able to do so before you sign heads of terms.
Fees and charges to check beyond the factor rate
Beyond the factor rate itself, you should review origination fees, administration fees, and any technology or integration fees charged by the provider to connect with your payment processor. These are typically between 1% and 3% of the advance amount and are usually deducted from the initial drawdown rather than added to the repayment total.
Some providers also charge a renewal fee if you take a second advance before the first is fully repaid, which is common given that many businesses use MCA repeatedly. Read the agreement carefully for any clauses relating to minimum monthly card volumes, because falling below a stated threshold can trigger a revised retrieval rate or a lump-sum catch-up payment. Your solicitor or accountant should review the agreement if the advance exceeds £100,000.
When an MCA makes commercial sense compared with alternatives
An MCA makes strongest commercial sense when your business has healthy card turnover, needs funds quickly, and cannot wait the four to eight weeks a commercial mortgage or asset finance facility requires. Typical use cases include purchasing seasonal stock ahead of peak trading, covering a short-term cash-flow gap, or funding a refurbishment that will generate additional card revenue.
It is less suitable when the underlying need is capital expenditure on a long-lived asset, where asset finance or an equipment lease would spread cost more efficiently. It is also worth comparing against a VAT loan or R&D advance if the cash need is specifically tied to a tax liability or credit claim, as those products carry materially lower effective costs. The right product depends on the purpose, the term, and the real cost-of-capital comparison across options.
Eligibility and what lenders look at during underwriting
UK MCA providers focus their underwriting primarily on card processing statements rather than credit scores, which is why the product is accessible to businesses that have been declined for bank lending. Most providers require a minimum of six months trading, a Companies House-registered limited company or LLP, and monthly card takings of at least £5,000, though many set the floor higher at £10,000 to £15,000.
Underwriters will request three to six months of card processing statements, recent business bank statements, and confirmation of the legal entity structure. Directors with adverse personal credit history do not automatically disqualify an application, but a county court judgement on the business itself may limit available providers. FundBiz works exclusively with limited companies, LLPs, and partnerships of four or more members, reflecting the credit and operational profile these structures present to specialist lenders.
| Factor Rate | Advance Amount | Total Repayment | Total Cost | Approx APR (9-month term) |
|---|---|---|---|---|
| 1.15 | £30,000 | £34,500 | £4,500 | ~20% |
| 1.20 | £30,000 | £36,000 | £6,000 | ~27% |
| 1.25 | £50,000 | £62,500 | £12,500 | ~33% |
| 1.30 | £50,000 | £65,000 | £15,000 | ~40% |
| 1.40 | £75,000 | £105,000 | £30,000 | ~53% |
| 1.50 | £75,000 | £112,500 | £37,500 | ~67% |
Step-by-step
- Gather six months of card processing statements and business bank statements before approaching any provider.
- Establish the exact amount needed and the most likely repayment term based on your average monthly card takings divided by the retrieval rate percentage.
- Request factor rate quotes from at least two MCA providers via your broker and ask for an equivalent approximate APR on each.
- Review origination fees and deduct these from the net advance to understand the true funds received on day one.
- Check the agreement for minimum card-volume clauses and confirm your payment processor is compatible with the provider's integration method.
- Sign the agreement and complete the payment processor authorisation form; funding typically reaches your business account within two to five working days.
Example
A Leeds-based independent restaurant group operating as a limited company with four sites processes around £80,000 per month across card terminals. They needed £60,000 quickly to fit out a fifth site before the summer trading period. A factor rate of 1.28 was agreed, producing a total repayment of £76,800. With a 12% retrieval rate applied to their card takings, the advance cleared in approximately eight months, costing £16,800 in total.
Frequently asked questions
Is a merchant cash advance regulated by the FCA?
MCAs provided to limited companies and LLPs are not regulated consumer credit under the Financial Services and Markets Act 2000, so FCA conduct rules around APR disclosure and cooling-off periods do not apply. However, credit brokers arranging MCAs for businesses are typically FCA-authorised. Always confirm your broker holds the appropriate permissions before proceeding.
Can I repay a merchant cash advance early to save money?
In most cases, early repayment does not reduce the total amount owed because the full cost is fixed by the factor rate at the outset. Some providers offer a small early settlement discount, but this is not standard and must be negotiated before you sign. Ask your provider to confirm the early settlement position in writing before you accept an offer.
What card processing volumes do I need to qualify?
Most mainstream UK MCA providers require minimum monthly card takings of between £5,000 and £15,000, processed through a recognised acquirer or payment platform. Higher advance amounts require proportionally higher card volumes. Providers will typically lend between one and two times your average monthly card turnover, so your processing history directly determines the maximum advance available.
How does a factor rate compare to taking an overdraft or revolving credit facility?
An overdraft charges interest only on the balance drawn and reduces as you repay, making it materially cheaper if you have access to one. A revolving credit facility works similarly. The MCA's fixed total cost means it is generally more expensive than an overdraft on a cost-of-capital basis, but many SMEs use it precisely because bank overdrafts and revolving facilities are unavailable or take too long to arrange.
Does applying for an MCA affect my business credit file?
Most MCA providers conduct a soft search during initial underwriting, which does not appear on your commercial credit file and does not affect your score. A hard search may be conducted before final approval. If you use a broker to approach multiple lenders simultaneously, confirm with them whether each lender will conduct a hard or soft search, as multiple hard searches in a short period can affect future credit applications.
By Oliver Mackman, Director, Best Business Loans Ltd. Last reviewed 2026-06-12.