How Does A Merchant Cash Advance Work?

merchant cash

One kind of loan that is dependent on the potential revenue of your company is a cash advance.

Unlike a traditional business loan, a cash advance sells future sales to the lender at a discount rather than having an outstanding loan amount, interest rate, and period. The phrase “loan amount” is substituted with “advance rate.”

Cash advances are intended for businesses and establishments that accept credit card payments from clients. The company takes out a loan, which it pays back with a portion of the money that customers use to pay for their cards.

Small firms that need a quick cash boost are the perfect candidates for cash advances. It is possible for lenders to demand that you have been in business for a minimum of six months and that you process at least £10,000 worth of card transactions each month.

Having said that, a lot of lenders will approve companies with a far lower monthly card transaction value that have just been in operation for a month. To get the greatest offer available, it is therefore beneficial to use a loan marketplace.

Being a limited company, partnership, or sole trader registered in the UK is the first and most fundamental prerequisite. The second essential prerequisite is that you must routinely accept consumer credit card transactions, either manually at a card reader or online via a merchant gateway provider.

Cash advances are widely utilized by e-commerce merchants who take credit card payments online, as well as by the hotel industry, cafes, garages, and retail stores.

The Role of MCA in the UK Market

In the context of the United Kingdom, the concept of a “merchant cash advance in the UK” has seen a surge in popularity. The UK market, known for its vibrant small and medium enterprise (SME) sector, presents fertile ground for MCA. UK retail and hospitality businesses have leveraged MCAs to navigate cash flow challenges, invest in growth opportunities, and cover unexpected expenses.

The flexibility and speed of MCAs make them a suitable option for many UK-based businesses seeking alternative financing solutions.

Advantages of Opting for a Merchant Cash Advance

Rapid Access to Funds

One of the most significant advantages of a merchant cash advance is the speed businesses can access funding. Unlike traditional loans, which can take weeks or months to process, MCAs often provide funds within 24 to 48 hours.

This rapid turnaround is crucial for businesses that need immediate cash to address urgent needs, such as emergency repairs, stock replenishment, or seizing a time-sensitive business opportunity.

Flexible Repayment Structure

The repayment structure of an MCA is inherently flexible, aligning directly with the business’s sales volume. Since repayment is a fixed percentage of daily or weekly credit card sales, the business’s revenue fluctuates. This means the company pays less during lower sales, which can significantly ease financial pressure during slow periods. Conversely, the advance is paid off more quickly when sales are high.

Minimal Credit Requirements

MCAs are accessible to businesses that might not qualify for traditional bank loans due to less-than-perfect credit histories. MCA providers generally focus more on a business’s consistent sales history and future revenue potential rather than its credit score.

This accessibility is a lifeline for many small businesses still establishing their creditworthiness or recovering from financial setbacks.

No Collateral Required

Unlike many traditional loans that require collateral (such as property or equipment), MCAs are unsecured. Business owners don’t have to risk their personal or business assets. This aspect of an MCA is particularly appealing for small businesses and startups, which might have little assets.

Simplicity and Transparency

Obtaining a merchant cash advance is typically straightforward, with fewer paperwork and formalities than traditional bank loans. The terms of the advance, including the amount, factor rate, and holdback percentage, are clearly outlined upfront, which means businesses can make informed decisions without worrying about hidden fees or complex interest calculations.

No Impact on Credit Rating

Since an MCA is not a loan but an advance on future sales, it usually doesn’t impact a business’s credit rating. This is particularly advantageous for companies building or maintaining their credit score.

High Approval Rates

MCAs have higher approval rates compared to traditional bank loans. Providers are often more interested in a business’s recent financial history and projected sales rather than its long-term credit history. This makes it easier for companies that have been operational for a shorter period or those with uneven credit histories to secure funding.

Considerations and Costs

While MCAs offer quick and accessible funding, they also cost more than traditional loans. The factor rate applied can translate to high annual percentage rates (APRs), making it an expensive form of borrowing. Therefore, businesses must assess their ability to manage the holdback percentage without straining their operations.

Additionally, since the industry is less heavily regulated than traditional banks, businesses should meticulously review the terms and choose reputable providers to avoid unfavourable conditions.

How to Choose the Right MCA Provider

Choosing the appropriate MCA provider is crucial for businesses, and this is where ComparedBusiness can make a significant difference. Companies should prioritize finding a provider with clear terms and fees, a robust and positive reputation, and high customer satisfaction ratings.


Merchant cash advances offer a unique and flexible financing solution for businesses needing quick access to capital. With their sales-aligned repayment structure, they are particularly suitable for companies with variable revenue streams. However, the higher costs and the need for careful provider selection make it essential for companies to evaluate this option thoroughly. As the market for MCAs, including in the UK, continues to evolve, they represent a crucial tool in the arsenal of business financing options.