2 min read
How a merchant cash advance works
An MCA provider advances your limited company a capital sum based on your historical card or online payment volumes. Instead of fixed monthly repayments, you agree to remit a set percentage of future card receipts — often 10–20 % — until the advance plus a pre-agreed factor amount is repaid in full. Repayments therefore rise when trading is strong and fall when it is quiet.
Because the provider integrates with your card processor or payment gateway to collect automatically, there is no manual repayment to manage. The total repayable is calculated as the advance multiplied by a factor rate (e.g. 1.25×), expressed as a fixed cost rather than an APR. These figures are illustrative and not a quote or offer.
When an MCA suits a limited company
MCAs work best for companies with consistent, high-volume card or digital payment revenues: restaurants, hospitality businesses, retail outlets, e-commerce operations, and subscription businesses. The self-adjusting repayment structure means a slow month does not create the same cashflow pressure as a fixed loan instalment.
They are less suitable for B2B companies that invoice on credit terms — if most receipts arrive by BACS rather than card, there is no payment stream for the MCA to tap. In those cases, invoice finance is usually more relevant.
Costs, risks and what to check
Unlike a loan, an MCA does not carry an interest rate in the conventional sense. Cost is expressed as a factor rate, which can make comparison with other products difficult. Converting the factor rate to an effective APR — particularly if the advance is repaid quickly — can reveal that MCAs are significantly more expensive than term loans for equivalent amounts.
- Confirm the factor rate and total repayable before signing
- Check whether the provider takes a fixed percentage or can vary the split
- Understand the minimum monthly repayment, if any
- Ask what happens if card volumes fall materially below forecasts
- Ensure the integration with your payment provider is contractually defined
Frequently asked questions
Is a merchant cash advance the same as a loan?
Legally, an MCA is structured as a purchase of future receivables rather than a loan, which is why it is not regulated under the Consumer Credit Act in the same way. However, for a limited company it functions as a funding facility. The distinction has regulatory and tax implications — your accountant should confirm the treatment.
Can a limited company get an MCA if it has an existing loan?
Possibly, subject to lender assessment. Because MCAs are repaid from card revenues rather than a bank account, some providers will advance alongside an existing term loan — but total debt service obligations must be viable on your projected revenues.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.