Written by the Lendus editorial team · Last updated: April 2026
A merchant cash advance (MCA) is a form of business finance where a lender advances a lump sum in exchange for a percentage of your future card sales, plus a fixed fee. Repayment is automatic — a set percentage of daily or weekly card takings is collected until the advance and fee are fully repaid. Because repayments flex with revenue, MCAs suit businesses with variable income but consistent card payment volumes.
A merchant cash advance is not technically a loan. The provider purchases a portion of your future card receivables at a discount. Here’s how the mechanics work in practice:
You apply for an MCA — typically online, often with same-day or next-day decisions. Eligibility is assessed primarily on your monthly card turnover, not your credit score. Most providers will advance between 75% and 150% of your average monthly card takings.
Example: Your restaurant processes £30,000 per month in card payments. An MCA provider offers you £30,000 — equivalent to one month’s card turnover.
The provider applies a factor rate — a fixed multiplier — to determine your total repayment. Factor rates typically range from 1.10 to 1.50 depending on your business risk profile, trading history, and the provider.
Example continued: At a factor rate of 1.28, your total repayment is £30,000 × 1.28 = £38,400. The cost of the advance is £8,400.
Repayment begins immediately. The provider integrates with your card payment terminal or payment processor and automatically collects a fixed percentage — the holdback — of every day’s card receipts.
Example continued: With a 15% holdback on £30,000 monthly card turnover (£1,000/day average), the provider collects £150 per day.
| Month | Card Takings | Holdback (15%) | Cumulative Repaid |
|---|---|---|---|
| 1 | £30,000 | £4,500 | £4,500 |
| 2 (slow) | £22,000 | £3,300 | £7,800 |
| 3 | £32,000 | £4,800 | £12,600 |
| … | … | … | … |
| ~8–9 months | £38,400 (fully repaid) |
The total cost is fixed at the point of agreement — unlike a loan where interest stops accruing when you repay early. This makes the effective APR highly sensitive to how long repayment takes.
| Advance | Factor Rate | Total Repayment | Repayment Period | Effective APR |
|---|---|---|---|---|
| £20,000 | 1.15 | £23,000 | 5 months | ~42% |
| £20,000 | 1.25 | £25,000 | 8 months | ~48% |
| £20,000 | 1.35 | £27,000 | 12 months | ~35% |
| £20,000 | 1.50 | £30,000 | 18 months | ~33% |
Note that a higher factor rate over a longer period can actually produce a lower APR — because the fixed cost is spread over more time. This is one reason why APR comparisons with MCAs can be misleading; always look at the total cost in pounds.
| Merchant Cash Advance | Term Loan | |
|---|---|---|
| Repayments | Flex with revenue | Fixed monthly amount |
| Speed | 24–72 hours | 1–7 days |
| Credit required | Low/poor accepted | Fair to good preferred |
| Security | None (unsecured) | May require PG or asset |
| Early repayment | Full factor still owed | May reduce interest |
| Regulated | No (FCA) | Often yes |
| Best for | Card-heavy, variable revenue | Stable, predictable business |
Restaurants and cafes: High card volume, seasonal peaks, and often tight margins that make fixed repayments risky. MCAs flex naturally with the business cycle.
Retail shops: Card-heavy environments with predictable transaction flows. MCAs can bridge a quiet January or fund a summer stock purchase.
Salons and barbershops: Typically unregulated credit environments, small ticket sizes, high card frequency. MCA providers actively target this sector.
E-commerce businesses: Online payment processors integrate easily with MCA collection mechanisms, making the admin frictionless.
Seasonal hospitality: Businesses with strong summer revenues and quiet winters benefit from repayments that drop automatically in the off-season.
Major MCA providers active in the UK market as of 2026 include YouLend, Liberis, Capify, and Swoop. Many are available directly or through business finance brokers. Because MCAs are not regulated, comparison is limited — a broker with access to multiple providers can source the lowest factor rate for your profile.
Typical eligibility requirements:
No personal guarantee is required by most MCA providers, which makes them accessible to directors who cannot or do not want to offer personal security.
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