How does a merchant cash advance work in the UK?

Quick answer: a merchant cash advance (MCA) gives your business a lump sum now in exchange for a share of your future card sales. Instead of fixed monthly repayments, an agreed percentage of each day’s card takings goes to the provider until the advance plus a fixed fee has been repaid. You pay back more quickly when trade is busy and more slowly when it is quiet.

How an MCA works, step by step

1. The provider looks at your card takings, usually from your card terminal or bank statements over the last 3 to 12 months.
2. They offer an advance based on those takings. The amount is often roughly in line with one to two months of card sales, although every provider sets its own limits.
3. You agree a fixed total repayment. This is often shown as a “factor rate”. For example, a factor rate of 1.2 on £20,000 means you repay £24,000 in total.
4. Repayments come from your card sales, usually a set percentage (the “holdback” or “split”) collected automatically each day through your card terminal provider or bank.
5. The advance ends when the agreed total has been repaid. There is no fixed end date, but providers will estimate how long it is likely to take.

What does an MCA cost?

The cost is the difference between what you receive and the total you repay, and it is agreed upfront. Because there is no interest rate, an MCA is hard to compare directly with a loan. A useful check is to work out the total cost in pounds and the likely repayment period. A fee that looks small can be expensive if repaid over a few months.

Ask any provider or broker to show you:

• the advance amount and the total repayable
• the percentage of card sales that will be taken
• the estimated repayment period at your current sales level
• any other fees, and what happens if your card sales fall

Who is an MCA suited to?

MCAs are most often used by businesses that take a large share of their sales by card, such as:

• restaurants, cafés, pubs and takeaways
• shops and retail chains, including online retailers (via revenue-based versions of the product)
• hotels, salons, gyms and other consumer-facing businesses

Providers usually look for a business that has been trading for at least several months and has steady monthly card takings. Credit history matters less than with a traditional loan, because repayments are tied to sales, although providers will still check it.

Advantages and drawbacks

Advantages

• Repayments rise and fall with your sales, which can ease cash flow in quieter months
• Decisions and funding can be quick, often within days
• Usually no property security needed

Drawbacks

• Often more expensive overall than a bank or alternative business loan
• A percentage of every card sale is taken until repaid, which reduces daily cash
• Taking a second advance before the first is repaid (“stacking”) can put real pressure on cash flow

Is an MCA regulated?

In the UK, a merchant cash advance is normally structured as a purchase of future card receivables rather than a loan, so it usually falls outside FCA consumer credit regulation. That makes it especially important to read the agreement carefully and understand exactly what you will repay.

Alternatives worth comparing

Before choosing an MCA, compare it with an unsecured business loan, working capital finance, or, if you sell to other businesses on credit, invoice finance. Our guide to merchant cash advance vs business loan explains the differences.

How Bridgemead Finance can help

Bridgemead Finance is a UK commercial finance broker, not a lender. We can compare merchant cash advance providers and other options for your business and explain the total cost in plain pounds before you decide. See our merchant cash advance page or tell us what you need.