Merchant cash advance: how it works, what it really costs and the alternatives

What a merchant cash advance is

A merchant cash advance is a lump sum paid to a business in return for a fixed share of its future card sales. The provider is not lending at an interest rate. It is buying a slice of the money your customers will pay you by card, at a discount, and collecting that slice as the sales come in. You will also see it called a business cash advance, card takings finance, a sales-based advance or revenue-based finance.

Three numbers define every advance:

• The advance. The cash you receive, for example £30,000.
• The factor rate. A multiplier that sets the total you repay. At a factor rate of 1.2, £30,000 becomes £36,000. The £6,000 difference is the provider’s fee, and it is fixed on the day you sign.
• The holdback. The percentage of each day’s card takings that goes to the provider until the £36,000 has been collected, for example 12%. Providers also call it the retrieval rate, split, sweep or repayment percentage.

Because the fee is fixed and the payments follow sales, an advance has no interest rate and no fixed term. Busy weeks clear it faster and quiet weeks slow it down. That is the appeal: repayments flex with trade, so a slow January does not bring a full loan instalment with it. It is also the catch: a fixed fee repaid quickly is a very high annual rate, and the factor rate on its own does not show that.

Merchant cash advance or revenue-based loan?

The names are used loosely, so read what you are offered rather than what it is called.

Some providers use both labels. Liberis, one of the longest-established UK providers, describes a “revenue based small business loan” for limited companies, repaid weekly, while stating that its Business Cash Advance is a form of receivables finance and not a loan. The economics are close. The legal structure matters if something goes wrong, which is covered in the regulation section.

How a merchant cash advance works, step by step

1. You share your sales data. Usually three to twelve months of card processing statements and business bank statements, often through Open Banking or a direct link to your card terminal or online shop. Platform advances skip this step: the platform already sees your sales.
2. The provider makes an offer. It sets the advance, the factor rate and the holdback from your average card takings, their consistency, refunds and chargebacks, how long you have traded and your credit files. Many offers arrive within a day or two.
3. You sign and receive the money. Funds commonly arrive within one to three working days. Liberis says 70% of its merchants were funded within one working day of approval in 2025, and YouLend quotes funding within 24 hours.
4. The provider collects its share of sales. Every day or week, the agreed percentage of card takings goes to the provider until the total is repaid. You keep the rest.
5. Minimum payments apply if sales fall too far. Most agreements set a floor, such as a minimum amount each month or each 90 days. If the holdback falls short, the difference is usually collected by direct debit.
6. The advance ends when the total is collected. There is no final balloon or interest to settle. Many providers then offer a new advance, often before the first is fully repaid.

The three ways repayments are collected

The method changes how much flexibility you really have. A true percentage split falls automatically in a quiet week. A fixed weekly debit behaves more like a loan until you ask for it to be reviewed, and you may have to show evidence that sales have dropped.

What it costs: factor rates, holdbacks and the true annual rate

The factor rate tells you the total. It does not tell you the rate, because it ignores how long you have the money. A fee of £6,000 on £30,000 is cheap if you keep the money for two years and very expensive if you hand most of it back within a few months. With an advance, you start repaying almost as soon as the money arrives, so on average you hold well under half of it for the full period.

UK factor rates commonly run from about 1.1 to 1.5, with most offers somewhere between 1.15 and 1.35. Holdbacks commonly run from about 5% to 25% of card takings, with 10% to 20% typical. Neither number is published as a standard by the main providers. Each offer is priced from your own data.

Factor rate and repayment time turned into an APR

The table converts factor rates into an equivalent annual percentage rate, assuming equal weekly collections, which is how many advances are repaid. Read across a row to see how the same price gets dearer the faster it is repaid.

These are our calculations, not provider figures. Monthly rather than weekly payments give slightly lower APRs, and daily payments slightly higher. For comparison, the Bank of England puts the average rate on new bank loans to small and medium-sized businesses at 6.63% in August 2026, with Bank Rate at 3.75%.

Providers that lend to limited companies sometimes publish a representative example. Liberis’s example is £25,000 with a fixed fee of £6,000, £31,000 repaid over 12 months, at a representative APR of 41.9%. Ask any provider for its own equivalent annual rate and the assumptions behind it, then check it against the table.

Other charges to ask about

• Arrangement or broker fees, sometimes deducted from the advance, so you receive less than the headline figure.
• Default or administration fees if a payment fails or you breach the agreement.
• Card processing costs, if the advance requires you to move to a particular processor with higher transaction fees.

Many providers say the factor rate is the only charge. PayPal Working Capital, for example, states one fixed fee with no interest, late fees or early repayment fees. Get that confirmed in writing for any offer.

Worked example: £30,000 for a restaurant

The figures below are illustrations built on stated assumptions, not a quote from any provider.

The same £30,000 as a loan

The loan is cheaper at every one of those rates, and it takes less each month than the advance does in an ordinary month: about £2,657 against £4,800. The advance’s strengths are elsewhere. It is quicker to arrange, it is available to businesses a lender may turn down, and in the very slow scenario it takes £2,400 a month when a loan would still want its full instalment.

Can the business afford the holdback?

Check the holdback against your margin, not your sales. If the restaurant’s net profit margin is 8%, it makes about £3,200 a month on £40,000 of sales, yet the advance collects £4,800. For seven or eight months, the provider is taking more than the business earns. That works if the £30,000 produces extra profit quickly, such as a refit that lifts covers in the busy season. It does not work if the advance is plugging a loss, because the following months will be tighter still.

How much you can get, and who qualifies

Advances are sized from card takings, not from profit or assets. Many offers come out at around one to one and a half times average monthly card sales, adjusted for how steady those sales are and how much is already committed to other finance. A business taking £40,000 a month by card might be offered roughly £40,000 to £60,000. Published ranges give the outer limits:

Amounts and terms are subject to each provider’s own underwriting and change often. Use the table to understand the shape of the market, not as an offer.

What providers usually look for

• Card takings. Regular card or online sales, commonly from a few thousand pounds a month. Payment platforms set their own floors, such as PayPal’s £9,000 a year.
• Trading history. Often three to six months of card sales, sometimes twelve. Platform advances usually need about 90 days on the platform.
• Consistency. Steady sales with few refunds and chargebacks matter more than a high average with wild swings.
• Existing commitments. Other advances or short-term loans already taking a share of the same sales count heavily against you.
• Credit records. Usually a check on the business and its directors. Advances are often available with weaker credit than a bank loan needs, at a price. Our guide to bad credit business loans covers the wider options.

Some providers fund sole traders and partnerships as well as limited companies. Our own upcoming service is for limited companies only.

The small print that decides the real cost

Two advances with the same factor rate can turn out very differently. These are the terms to read before you sign.

Minimum payments

Almost every advance has a floor, so the provider is not left waiting if sales collapse. Liberis sets a monthly minimum of up to 3% of the amount owed. PayPal requires a minimum every 90 days of no more than 10% of the total repayable. Shopify sets minimum payments within an 18-month maximum term.

Early settlement

The fee is usually fixed, so settling early often saves nothing. You pay the full £6,000 whether the advance takes six months or six weeks. Some providers offer a discount for early settlement. Ask for the settlement figure at three and six months in writing before you sign.

Renewals and top-ups

Providers often offer a new advance once half or two-thirds of the first has been repaid. The new advance usually settles the old balance first, so you receive less new cash than the headline figure, and you may pay the whole of the old fee as well as a new one.

Card processor and account restrictions

If repayments come through your card processor, the agreement will usually require you to keep that processor, or to get the provider’s consent before you switch, until the advance is repaid. Diverting takings, adding a second terminal or steering customers to cash or bank transfer can be a breach. Check what counts as a breach and what it costs.

Personal guarantees and indemnities

Some platform advances say there is no personal liability. Other providers ask directors for a guarantee or an indemnity. These are often described as covering only a breach of the agreement, such as switching processor or misreporting sales, rather than slow trading. But if the company does breach the agreement, the director may become liable for the whole outstanding amount. Read the wording, and read our guide to personal guarantees before you sign one.

Stacking

Taking a second advance from another provider while the first is running means two providers taking a share of the same takings. Many agreements prohibit it. Even where it is allowed, combined holdbacks of 20% to 30% of sales can leave too little to run the business on.

When a merchant cash advance makes sense, and when it does not

A useful test: write down what the £30,000 will earn and when. If the return arrives before the advance is repaid and exceeds the fee comfortably, an advance can be a sensible tool despite the high annual rate. If you cannot point to the return, the cheapest option is usually to borrow less, or not at all.

Alternatives to a merchant cash advance

Before accepting an advance, check whether one of these does the same job for less. Most are covered in our guide to working capital finance, which prices several of them on the same £50,000 over 90 days.

If a bank turns you down, ask it to refer you under the Bank Referral Scheme. Under regulations in force since 2016, the nine designated banks must offer to pass a declined small business’s details to designated finance platforms, with your consent. Those platforms can show you several lenders at once, including some that offer advances.

Regulation, complaints and what happens if the business fails

A merchant cash advance is generally not regulated by the Financial Conduct Authority. Providers structure it as a purchase of future receivables rather than credit, and lending to a limited company is outside the consumer credit rules in any case. Providers say so plainly: YouLend states that its merchant financing is not regulated by the FCA, although YouLend is authorised as a payment institution for its payment services. Liberis states that it is not authorised or regulated by the FCA and that the Financial Ombudsman Service cannot consider complaints about it.

That has practical consequences:

• Fewer protections. There is no statutory cooling-off period, no regulated affordability check and no standard format for disclosing the cost. Your rights are in the contract.
• Limited complaint routes. The Financial Ombudsman Service can hear some complaints from micro-enterprises and small businesses, but only about firms and activities within its remit. Ask any provider in writing how complaints are handled and whether its advances fall within the Ombudsman’s remit.
• Check who you are dealing with. A broker may be authorised by the FCA for other products even when the advance itself is not regulated. Search the FCA Register for the firm’s name and number, and read the provider’s terms, not only the broker’s summary.

If the business closes or becomes insolvent

If takings stop because the business fails, the provider stops receiving its share of sales. What it can then recover depends on the contract. In most cases it ranks as an unsecured creditor for the outstanding amount, unless it holds security. If a director has given a guarantee or indemnity, the provider will look at whether its terms were breached and may claim against the director personally. Speak to a licensed insolvency practitioner early if the business is struggling. Do not take a new advance to keep up with an old one.

Tax and accounts

In the company’s accounts, the fee is a cost of finance. How it is spread across periods and relieved for corporation tax depends on the structure of the advance and your accounting policies. Ask your accountant before you sign, not at the year end.

How to apply, and the checklist before you sign

1. Work out the need. How much, for what, and what it will earn. Borrow for a purpose, not a feeling.
2. Gather your data. Three to twelve months of card processing statements, business bank statements, recent management accounts and details of any existing finance.
3. Get a loan quote at the same time. Use the unsecured loan calculator to see what a loan of the same size would cost each month, then ask at least one lender or broker for a real figure. Our guide to business loan quotes explains where to get one without a hard credit search.
4. Compare advances on the same basis. Total repayable in pounds, holdback, expected time to repay at your normal sales, and the equivalent APR from the table above.
5. Read the agreement. Then check every item on the list below before you sign.

Ten questions to ask any provider

1. What is the total repayable in pounds, and is there any fee on top of the factor rate?
2. Will any fee be deducted from the advance, so I receive less?
3. What percentage of my takings is collected, and how? Is it a true percentage or a fixed debit?
4. What is the minimum payment, over what period, and how is a shortfall collected?
5. What is the settlement figure if I repay after three months, and after six?
6. If I renew early, is the unpaid part of the old fee discounted?
7. Must I keep my current card processor or account, and what happens if I change?
8. Is there a personal guarantee or indemnity, and exactly what triggers it?
9. Do you report the advance to credit reference agencies, and what search will you run?
10. How do I complain, and can the Financial Ombudsman Service consider a complaint?

Our guide to comparing business loans sets out a side-by-side method that works for advances too, and business loan interest rates explains flat, monthly and factor rates in more depth.

Where Business Loan Advice fits

We are not a lender or a broker and we do not give personal advice. We are preparing a service that will introduce UK limited companies directly to lenders. No lenders are confirmed yet, so we cannot currently obtain quotes or make introductions. You will not pay us a fee. If a lender pays us commission after the service launches, we will tell you before asking your permission to refer you.

In the meantime, the unsecured loan calculator, the business loan calculator and these guides are free to use with no sign-up. If your limited company is planning to borrow, you can register its interest and we will contact you about the service launch. Read how we are paid for the details.

Common questions