Merchant Cash Advance for UK Businesses
A merchant cash advance is an upfront sum that a business repays from an agreed percentage of its future card takings. The total amount repayable is usually agreed at the start. What changes is how quickly it is collected: when card sales are higher, more goes towards the advance, and when they are lower, less does.
That makes it different from a conventional business loan, where repayments follow a set schedule. Wize Finance can help you understand how the repayments and cost work, what to check before accepting an offer, and whether another structure may suit the business better.
Tell us roughly how much you take in card payments each month and what you need. The team reviews your enquiry and discusses whether an advance may suit.
How repayments work
- Advance
- Share of card takings
- Total repaid
What is a merchant cash advance?
A merchant cash advance (MCA), sometimes called a business cash advance, is commonly structured as an advance against a business’s future card takings rather than as a conventional loan. The provider pays an agreed amount upfront. The business and the provider then agree a fixed total to be repaid, made up of the advance plus the provider’s fee. An agreed percentage of card takings is collected until that total has been reached.
There is usually no fixed final repayment date. The provider estimates how long repayment is likely to take from the business’s card history. The actual time depends on how the business trades after the advance is paid.
Some people search for “card machine loans”, and the connection to the card machine is real: the advance is based on what goes through it. An MCA is not normally set up as a conventional loan with interest and scheduled instalments, though. The exact structure depends on each provider’s agreement, so it is worth reading how a provider describes its own product.
Usually, only card takings count towards an MCA. Cash payments, invoices and bank transfers generally do not. That is why the way a business takes payments matters so much.
Do you take card payments through a countertop terminal, a mobile card reader or an online checkout? Those card takings are what a merchant cash advance is based on.
Countertop terminals
- Barclaycard
- Dojo
- Teya
- Worldpay
Mobile card readers
- Square
- SumUp
- Zettle by PayPal
Online checkout
- Stripe
How merchant cash advance repayments work
Repayments are taken as an agreed share of card takings until the agreed total has been repaid. In a typical arrangement:
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The business receives the agreed advance.
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The provider sets out the total amount repayable and the percentage of card takings it will collect.
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When customers pay by card, part of those takings goes towards the advance. The rest reaches the business as usual.
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Stronger card sales mean more is collected, so repayment may finish sooner.
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Weaker card sales mean less is collected, so repayment may take longer.
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Collection stops once the agreed total has been repaid.
Providers operate differently. Some collect through the card payment provider before the remaining takings are settled to the business. Others collect in other ways, for example from the business bank account. The agreement sets out which method applies.
| If card takings… | Amount collected | Time to repay | Total repayable |
|---|---|---|---|
| rise | More | Shorter | Unchanged |
| remain around expectations | Around the expected level | Around the estimated duration | Unchanged |
| fall | Less, subject to agreement terms | Longer | Unchanged |
Where the flexibility has limits
Repayments that move with card sales can ease pressure in quieter periods, but the arrangement is not open-ended. Depending on the provider, an agreement may include:
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Minimum repayment requirements.
A set amount may need to be repaid over a period even if card takings are low. It is worth checking what happens if takings fall below that level.
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Requirements around the payment route.
The provider may expect card payments to continue through an agreed card payment provider.
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Conditions about switching or diverting card takings.
Moving to a different payment provider, or taking payments in a way that bypasses the agreed route, may breach the agreement.
There is also a timing effect. The busiest trading periods are when the most is collected, and that may also be when the business needs cash for stock, staffing or other costs. A business with strong seasonal peaks may want to think about how collections during those weeks would sit alongside its other outgoings.
When a merchant cash advance may fit, and when it may not
Whether an MCA fits depends more on how a business takes its money than on what it sells. It may be worth considering where:
- a meaningful proportion of revenue comes through card payments
- card takings are reasonably established, with enough history for a provider to assess
- the business wants repayments to move with card trading rather than follow a fixed schedule
- the amount needed is proportionate to its card-takings history
- the business can operate comfortably after the agreed share of each card sale has been deducted
Where it may be a poor fit
- Businesses paid mainly by invoice. If customers settle invoices by bank transfer, there may be little card revenue to base an advance on. Invoice Finance works from unpaid invoices instead.
- Cash-heavy businesses. Cash takings generally do not count.
- Businesses without card history. A business that has not yet traded, or has only just started taking card payments, may not have the history providers look for.
- Larger requirements relative to card takings. The amount offered is usually linked to card takings, so a requirement that is large compared with them may not be met this way.
- Businesses that do not want a share of each sale committed. For as long as the advance is outstanding, part of every card sale goes to the provider.
Card-led businesses that commonly fit this pattern include hospitality venues, retailers, salons and beauty businesses, and ecommerce businesses where the provider supports online takings. These are examples of businesses that take most of their payments by card, not eligibility categories. A business in any sector can fit if its card takings do.
Cost and what to compare
Merchant cash advances are commonly priced using a fixed fee rather than conventional loan interest. The cost is agreed in pounds at the start, and it does not grow if repayment takes longer than expected.
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Fixed fee:
the cost the provider agrees, expressed in pounds.
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Total amount repayable:
the advance plus the agreed fee. This is the figure that the share of card takings works towards.
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Factor rate:
some providers express the same cost as a multiplier. Multiplying the advance by the factor rate gives the total amount repayable. It is the same cost presented a different way, not an interest rate.
MCA costs are not usually shown as an APR. An APR depends on a fixed repayment timetable, and with an MCA the time taken depends on future card takings. There is no set timetable from which to calculate a meaningful like-for-like annual rate. The same fixed fee covers a shorter period if trading is strong and a longer one if trading is quiet.
What to compare before accepting an offer
- Amount advanced
- Fixed fee
- Total amount repayable
- Percentage of card takings collected
- Estimated repayment duration
- The card-takings assumptions behind that estimate
- Any minimum-repayment requirement, and what happens if it is not met
- Any other fees
- How early settlement is treated
- How a renewal or top-up would treat any amount still outstanding
- Whether a personal guarantee is required, and what it covers
- Any requirements about which card payment provider the business uses
When comparing an MCA with a business loan, compare the total pounds repayable and the likely repayment period. A factor rate and an interest rate measure different things, so comparing one directly with the other can mislead.
Compare your options
Want to compare your funding options?
How Wize Finance works
Wize Finance uses the information provided to understand the funding requirement and, where appropriate, introduces the business to a funding provider. The funding provider assesses the application and makes the decision.
After you submit your details, the Wize Finance team reviews your enquiry and contacts you to discuss your funding needs and next steps. Where appropriate, your details can then be shared with a suitable funding provider.
- Your business
- Wize Finance understands the funding requirement and, where appropriate, introduces the business to a funding provider
- Funding provider assesses the application and makes the decision
Merchant cash advance vs business loan
The main difference is what the repayments follow. With an MCA they follow card takings. With a conventional business loan they follow an agreed schedule.
Neither is automatically cheaper, easier to obtain or quicker to arrange.
It depends on the business and the terms offered, so the way your business takes payments is a good place to start when comparing the two.
Merchant cash advance and business loan compared
Merchant cash advance
- Repayment basis
- A percentage of card takings
- Regular payment
- Moves with card sales, subject to agreement terms
- Reliance on card takings
- Central
- Term
- Typically an estimated duration rather than a fixed final repayment date
- Cost
- A fixed fee, giving a fixed total repayable
- Early repayment
- Often does not reduce the agreed fee, although provider terms differ
- Security and personal guarantee
- Depends on the provider and the agreement
- Assessment focus
- Card-processing and card-takings history
Business loan
- Repayment basis
- Scheduled repayments
- Regular payment
- Follows the repayment schedule
- Reliance on card takings
- Not card-specific
- Term
- An agreed term
- Cost
- Interest at an agreed rate, plus any applicable fees
- Early repayment
- May reduce future interest, although charges may apply
- Security and personal guarantee
- Depends on the lender and the agreement
- Assessment focus
- A broader assessment of finances and affordability
In broad terms, a business loan gives more certainty over the repayment schedule. A merchant cash advance gives more certainty over the total repayable, while the time it takes depends more heavily on future card trading, within any minimum-repayment terms in the agreement.
That trade-off is the real decision. A business with steady cash flow, a clearly defined purpose and a preference for knowing exactly what leaves the account each month may lean towards Business Loans. A card-led business whose takings rise and fall may value repayments that follow its trading, provided it is comfortable with the fixed cost and a share of each card sale being committed.
Personal guarantees and security
An MCA can involve three different kinds of protection for the provider. They are worth checking separately.
Named asset security
Merchant cash advances are not typically secured against property or another specifically named asset. The agreement confirms the position for each offer.
Security over company assets
Check whether the agreement requires any security over company assets, such as a charge or debenture.
Personal guarantees
Some providers ask directors for a personal guarantee, and requirements vary. If one is requested, the director should understand what obligations it covers and what personal exposure it creates before agreeing to it. A personal guarantee is separate from any security the company itself gives.
What providers look at
MCA providers focus mainly on card trading, though criteria differ between providers. Factors may include:
- card-processing history
- monthly card takings
- how consistent card transactions are
- how long the business has been trading
- business bank account activity
- existing finance, including any advance already in place
- the business’s and directors’ credit profile
- whether the provider can work with the business’s card payment provider
Card history matters twice.
It can influence how much may be offered, and it underpins the provider’s estimate of how long repayment may take. A business with a longer, steadier record of card takings gives a provider more to base both on.
Other structures to consider
An MCA is one way of structuring funding. These alternatives are worth weighing where the distinction is clear.
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If you’re starting from what the money is for
An MCA describes how repayments work, not what the funds are used for. If the starting question is “what do we need the money for?” rather than “how do we want to repay it?”, Working Capital Loans looks at the options by purpose.
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If the need is recurring or uncertain
A Business Line of Credit provides an agreed limit that can be drawn, repaid and potentially redrawn. An MCA is normally a one-off advance with a fee on the full amount. Where the requirement comes and goes, or the business may not need the full sum at once, a line of credit may fit better.
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If customers pay by invoice
Where customers predominantly pay invoices rather than cards, invoice finance can release funds against those unpaid invoices.
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If the requirement is stock
Where the funding is specifically for buying stock, Stock Finance ties the funding to the stock purchase rather than to card takings.
Advantages and disadvantages
Whether these points apply depends on the provider and the agreement.
Potential advantages
- Repayments may move with card takings, so less may be collected in quieter periods
- Typical structures have no conventional fixed monthly repayment
- The total amount repayable may be known at the outset
- Card-processing history is central to the assessment
- No named-asset security is typically required
Potential disadvantages
- Part of every card sale is committed while the advance is being repaid
- Repaying early often does not reduce the agreed cost
- The busiest trading periods produce the largest collections
- Minimum-repayment conditions may apply
- A personal guarantee may be required
- Changing or diverting payment processing may breach some agreements
- Repeat advances can increase reliance on future card takings
Merchant cash advance FAQs
Is a merchant cash advance a loan?
A merchant cash advance is typically structured as an advance against a business’s future card takings rather than as a conventional loan. There is usually a fixed fee instead of interest, and no fixed repayment schedule. How a particular product is set up depends on the provider’s agreement, so check how the provider describes it.
What happens if card sales fall?
When card sales fall, less is typically collected, so repayment may take longer. The total amount repayable does not usually increase. Some agreements include minimum-repayment provisions, so it is worth checking what applies if takings drop below a certain level.
Can a merchant cash advance be repaid early?
Often, yes. Because the cost is usually a fixed fee agreed at the start, repaying early may not reduce what the business pays overall. Provider terms differ, and some may treat early settlement differently, so check the agreement.
Will directors need to give a personal guarantee?
Some providers require one and others may not. Where a personal guarantee is requested, its scope varies, so directors should be clear on exactly what it covers before signing.
Do I need to change card machine provider?
Not necessarily. Some funding providers work with a business’s existing payment provider, some ask the business to use a particular provider, and others collect repayments in a different way.
How much can a business receive?
The amount offered is generally linked to the business’s recent card takings and the provider’s wider assessment. Businesses with a longer, steadier record of card takings give the provider more to base an offer on.
My card payment provider has offered me a cash advance. Should I compare it?
Yes. Some card payment providers offer cash advances to their own customers, and it is sensible to weigh any offer on its terms. Compare:
- the total amount repayable
- the share of card takings collected
- any minimum repayment
- fees
- personal guarantee requirements
- how early repayment is treated
Can a business have a merchant cash advance alongside other finance?
It can be possible, but existing commitments matter. Providers usually take other finance into account, including any advance already in place, when assessing how much the business can comfortably repay.
Take most of your revenue by card and considering an advance?
Tell us:
- roughly how much funding you need
- how the business takes payments
- what the funding is for
Where appropriate, Wize Finance can introduce the business to a funding provider.