Check eligibility
A merchant cash advance can get cash into your business within days, without needing to put up an asset as security. That's the appeal, and for the right business, it's a genuinely useful tool. But the way it's priced is different to a loan, and if you don't understand that difference before you sign, it can end up being a more expensive way to borrow than it first appears.
It is a good idea if you need funds quickly, take most of your revenue through card sales, and don't have assets to offer as security.
The rest of this guide breaks down exactly how the cost works, when an MCA makes sense, when it doesn't, and what else is worth considering first.
What Is a Merchant Cash Advance and How Does It Work?
A merchant cash advance (MCA) isn't technically a loan. It's a lump sum paid to your business in exchange for an agreed share of your future card sales, collected automatically through your card terminal until the total is repaid.
Instead of an interest rate, MCAs use a factor rate. This is applied once, to the whole advance, not year by year like interest.
Example: a £20,000 advance at a factor rate of 1.2 means you owe £24,000 in total, whether you clear it in four months or fourteen.
The repayment itself comes out as a percentage of your daily or weekly card takings. There's no fixed monthly payment and no fixed term. Busy weeks mean you repay faster. Quiet weeks mean you repay less. Most agreements settle somewhere between four and eighteen months, depending on how quickly your card sales clear the balance.
Is a Merchant Cash Advance Regulated in the UK?
This is the part most guides skip.
Because an MCA is structured as a sale of future receivables rather than a credit agreement, it generally falls outside the FCA's consumer credit rules when the borrower is a limited company. That means the same statutory protections that apply to a regulated business loan don't automatically apply here, and providers aren't required to run the same affordability checks a regulated lender would.
This doesn't make MCAs unsafe but it means the responsibility for checking the terms properly sits more with you, and it's exactly why working with an FCA-authorised broker matters. Millbrook operates as an FCA-authorised representative, and we make sure the factor rate and total repayable amount are clearly set out before you agree to anything.
When a Merchant Cash Advance Makes Sense
An MCA tends to be the right call when:
- You need funds within days, not weeks
- Most of your revenue comes through card payments, consistently
- You don't have property, vehicles or equipment to offer as security
- You'd rather repayments flex with your sales than sit as a fixed monthly cost
- You've been declined for a bank loan but have strong, regular card turnover
When It's the Wrong Choice
An MCA is usually the more expensive option if:
- You have time to arrange other finance: A business loan or asset finance agreement will typically cost less over the same period.
- You're hoping to save money by repaying early: Because the factor rate is fixed to the whole advance upfront, clearing it faster doesn't reduce the total you owe, unlike a loan where interest stops once it's paid off.
- Your margins are thin: A fixed percentage taken from every card sale can put real pressure on cash flow during a strong month, precisely when you need that revenue to reinvest.
- You're already repaying another advance: Taking a second MCA before the first is cleared compounds the amount being taken from your daily sales and is one of the most common ways businesses get into difficulty with this product.
- You could secure an asset-backed alternative instead: If you own equipment, vehicles or property outright, refinancing usually costs less than an MCA for the same amount.
How the Cost Compares
Because MCAs don't quote an APR, it's easy to underestimate the real cost against a loan. Here's a simplified comparison for a £20,000 advance over roughly 9 months.
| Merchant Cash Advance | Business Loan | |
|---|---|---|
| Price Structure | Factor rate (Fixed, one-off) | Interest rate |
| Typical cost on £20,000 | Factor rate of 1.2 = £24,000 total repayable | Varies by rate and term, but early repayment can reduce total interest paid |
| Repayment | Percentage of daily/weekly card sales | Fixed monthly instalment |
| Security required | Usually none | Depends on loan size and structure |
| Speed | Often within days | Typically slower, though same-day decisions are available for some products |
These figures are illustrative. Your actual rate may vary and will depend on turnover, trading history and more. It's worth getting a no-obligation quote.
Check your eligibility
Alternatives Worth Considering
Before committing to an MCA, it's worth weighing up whether one of these fits your situation better:
Business Loans - a fixed monthly repayment and a set term, usually cheaper than an MCA if you qualify and have a few days to arrange it.
Invoice Finance - if delayed customer payments are the real issue, releasing cash from unpaid invoices may solve the problem at the source rather than borrowing against future sales.
Asset Refinance - if your business owns equipment, vehicles or property outright, refinancing can release working capital, often at a lower cost than an MCA.
If you're weighing up whether to go through a broker or approach a lender directly for any of these, our guide on business finance broker vs lender covers how that decision affects your options and your rate.
How to Decide What's Right for Your Business
Ask yourself these questions before choosing:
- How quickly do I actually need the funds? Same-day or a few days genuinely points towards an MCA. A week or two opens up cheaper options.
- Do I have an asset I could secure finance against instead? If yes, refinancing or asset finance is worth a look first.
- Is the real problem slow-paying customers? If so, invoice finance may solve it more directly.
- Can my margins absorb a variable daily deduction, even in a strong month? If margins are tight, a fixed monthly loan repayment may be easier to plan around.
- Have I compared the total repayable amount, not just how fast I can get the money? Speed matters, but it shouldn't be the only factor.
If you're not sure which answer fits your business, that's exactly what a broker conversation is for. We'll talk through your numbers and tell you honestly if an MCA is the right fit, or if something else would cost you less.
FAQS
Frequently Asked Questions About Van Finance
Are merchant cash advances a good idea?
Is a merchant cash advance a loan?
Are merchant cash advances regulated in the UK?
What is a factor rate?
Can I reduce the cost by repaying a merchant cash advance early?
How much can I borrow with a merchant cash advance?
What happens if my sales drop after taking a merchant cash advance?
Can I get a merchant cash advance with bad credit?
What's the difference between a merchant cash advance and invoice finance?
Is it better to use a broker for a merchant cash advance?
