What is a merchant cash advance?

How a merchant cash advance works

With a merchant cash advance, a provider advances your business a lump sum and then takes a fixed share of every card transaction you process — often 5% to 20% — until the total agreed sum is repaid. Because collection is tied to your card terminal, you repay more on busy days and less on quiet ones. There is usually no fixed end date and no set monthly instalment: the advance simply clears faster when trade is strong. This structure is built around businesses that take most of their payments by card.

What it costs and how that's quoted

An MCA is priced with a factor rate rather than an interest rate. If you take £20,000 at a factor of 1.3, you repay £26,000 in total regardless of how long it takes. That makes the headline cost easy to read but hard to compare with a loan, because the same factor can equate to a very different annual percentage depending on how quickly you repay. Faster repayment means a higher effective cost. Always convert the factor into a total-cost-of-finance figure before comparing it with a fixed-term loan.

How it differs from a business loan

A business loan gives you a known amount over a known term with scheduled repayments, so you can budget precisely. An MCA flexes with sales but ties your finance to your card processor and can be costly if margins are tight. See what is working capital finance and how an overdraft differs from a loan for the wider picture.

• Loan: fixed term, fixed repayments, clear total cost.
• MCA: variable repayment, tied to card sales, factor-rate pricing.

What this means for your company

If your turnover is dominated by card payments and you value repayments that ease off in quiet weeks, an MCA can be a practical fit. If you want predictable instalments, a transparent rate and finance that isn't locked to a card terminal, a fixed-term loan is usually the cleaner choice. Credicorp lends to UK limited companies as a fixed-term working-capital facility with no personal guarantee — so the borrowing sits with the company. You can compare both honestly before deciding which structure serves your cash flow best.