# Merchant cash advances explained.

A merchant cash advance is repaid as a slice of a business's daily card takings, rather than in fixed instalments. This is a general explainer of a finance type **Credicorp Limited does not offer**. It is here so directors can understand it and compare it against a fixed-term company loan.

## First, a clear note

Credicorp Limited does not offer merchant cash advances. This guide is educational: it explains how an MCA works in the wider market so that, if you are weighing your options, you can compare it fairly with the fixed-term, fixed-cost products Credicorp does provide. We have kept the tone even and have not steered you toward any product. What Credicorp does offer is on the [products page](/products/).

## What a merchant cash advance is

An advance today, repaid automatically as a percentage of every card sale until a set total is reached.

A merchant cash advance (MCA) gives a business a lump sum today in exchange for a fixed share of its future card sales. The provider advances, say, a sum to a retailer or restaurant, and then takes an agreed percentage — the **holdback** — from each day's card takings until the agreed total has been repaid. The total owed is set at the outset using a **factor rate**: a multiplier applied to the advance, so an advance with a factor rate of 1.3 means £1.30 is repaid for every £1.00 advanced.

Because repayment moves with takings, the amount collected rises on busy days and falls on quiet ones. There is no fixed monthly payment and, in the typical structure, no fixed end date — the advance is cleared when the total is reached, which happens sooner if trade is strong and later if it is slow. Repayment is usually taken automatically through the card-payment processor.

## How repayment as a percentage of takings works

A made-up example, not a real customer, to show the mechanics.

Suppose a business takes an advance and agrees a holdback of 15% of daily card takings against a total to repay set by a factor rate. On a day it turns over £1,000 on card, £150 goes toward the advance. On a £400 day, £60 goes toward it. The proportion is constant; the pounds vary with trade. The business never faces a fixed instalment it cannot meet from that day's sales, which is the feature MCAs are usually sold on — but the flip-side is that a strong run of trade clears the (fixed) total faster, which raises the *effective* cost of the money over the time it was actually borrowed.

This is the key thing to understand about MCA pricing: a factor rate is not an interest rate. A factor rate of 1.3 is a flat 30% of the advance regardless of how quickly it is repaid, so if the balance clears in a few months the cost expressed as an annual rate can be very high. It pays to convert the factor rate into a pounds-and-time figure before comparing it with anything quoted as a daily or annual rate.

## Cost considerations

What to look at closely before comparing an MCA with other finance.
- **The factor rate, converted to pounds.** Work out the total repaid (advance × factor rate) and the charge in pounds, not just the multiplier.
- **The effective cost over the real term.** Because the total is fixed but the timing is not, faster repayment raises the effective annualised cost. Estimate how long repayment is likely to take.
- **The holdback's drag on cashflow.** A slice of every card day is gone before it reaches the business — model what that does to day-to-day cash.
- **Reliance on card sales.** The structure assumes most income comes through card terminals; businesses paid mainly by bank transfer or invoice fit it poorly.
- **Stacking.** Taking a second advance on top of a first compounds the holdback and the cost; treat it with caution.

## How it differs from a fixed-term company loan

The two price and repay in fundamentally different ways. The table sets them side by side.

|  | Merchant cash advance | Fixed-term company loan |
| --- | --- | --- |
| Repayment | A percentage of daily card takings | A fixed schedule over a fixed term |
| Cost expressed as | A factor rate (a flat multiplier) | A rate over time, plus any fee |
| End date | Variable — when the total is reached | Known from the start |
| Total cost certainty | Total is fixed; effective rate varies with speed | Total and timing both known up front |
| Needs card sales | Yes — repayment is tied to the terminal | No |
| Borrower | The business | The company |

A fixed-term loan such as the [Credicorp Business Bridging Loan](/guides/business-bridging-loans-explained/) gives you a known total and a known end date, with interest charged on the outstanding balance and a cost capped at 100% of the principal. An MCA trades that certainty for repayments that flex with takings. Which is preferable depends on how steady your income is and how much you value a known end date. For a wider view of the options, see our [UK SME funding landscape](/articles/uk-sme-funding-landscape-2026) article.

## Who an MCA tends to suit
- **Card-heavy retailers and hospitality businesses** with a high volume of small card transactions.
- **Trade that varies day to day**, where a repayment that flexes with takings is genuinely useful.
- **Owners who value cashflow-matched repayment** over the lowest headline cost.

It suits less well where income arrives mainly by invoice or bank transfer, where the effective cost of the factor rate is steep relative to alternatives, or where a known end date matters more than flexible repayment. In those cases a [revolving facility](/guides/revolving-credit-facilities-explained/) or a fixed bridge may serve better.

## Where to go next
- [Invoice finance explained](/guides/invoice-finance-explained/) — another option Credicorp does not offer
- [Asset finance explained](/guides/asset-finance-explained/)
- [Business bridging loans explained](/guides/business-bridging-loans-explained/) — a fixed total and a known end date
- [What Credicorp does offer](/products/)
- [How short-term business finance is priced](/articles/how-short-term-business-finance-is-priced)
- [Glossary of the terms used here](/glossary/)

[See what Credicorp offers at credicorp.co.uk →](https://credicorp.co.uk/what-we-offer/)