A merchant cash advance gives you a lump sum today and takes a fixed percentage of your card takings until a set total is repaid. It is fast, it needs no assets, and it is one of the most expensive ways to borrow money in the UK.
A factor rate is not an interest rate
This is the bit that catches people. A factor rate of 1.35 on £25,000 means you repay £33,750 — £8,750 more than you borrowed. That reads like 35%, and people file it next to a 35% credit card in their head.
It is not 35% a year. It is 35% over however long the repayment takes. Repay it in seven or eight months and the equivalent annual cost is comfortably over 50%.
The strangest part: a **good** trading month repays the advance faster, which makes the annual rate **higher**, not lower. That is the opposite of how a loan behaves, and it is why the two numbers cannot be compared directly.
When it still makes sense
Genuinely short bridges where speed matters more than price, and businesses with strong card takings but no assets to secure against. Retail and hospitality use them for a reason — repayments flex down automatically in a quiet month, which a fixed loan repayment does not.
It becomes a problem when it funds something that was never short-term, or when one advance is used to clear another. If you are in that position, refinancing onto a conventional facility is usually the single biggest saving available to you.
Common questions
Is a merchant cash advance regulated?
Most commercial MCAs to limited companies are unregulated business lending, so the consumer protections you might expect do not apply. That makes reading the agreement properly more important, not less — particularly the sections on what happens if takings fall, whether a personal guarantee is involved, and what the provider can do if you switch card terminal provider.
Can I repay it early to save money?
Usually not in the way you would with a loan. The total repayable is fixed by the factor rate at the outset rather than accruing daily, so paying it off sooner generally does not reduce what you owe — it just gets you to the same total faster. Some providers offer a discount for early settlement, but it is a concession rather than a right, so ask before you assume.
How does it compare with a business loan?
Almost always more expensive, and almost always faster to arrange. Use this calculator to get the annualised figure, then hold it next to a term loan quote for the same money. If the loan is available and the timing works, the loan is normally the cheaper answer by a wide margin. The MCA earns its place when a lender's timetable does not fit the opportunity.