What is a merchant cash advance and how is it repaid?

Full answer

A merchant cash advance (MCA) is a form of business funding where a provider gives you a lump sum today and recovers it by taking a fixed percentage of your future debit and credit card sales. It is popular with retailers, hospitality, and other businesses that take a high volume of card payments. How it works: the provider agrees an advance amount and a total repayment figure (the advance plus a fixed cost, often expressed as a factor rate rather than an interest rate). Repayment is then collected automatically as a slice of each day's card takings - sometimes called a holdback or split. On a busy day you repay more; on a quiet day you repay less. There is no fixed term or fixed monthly payment, so the time to clear the balance depends on your sales volume. Worked illustration of the mechanism: if you take a GBP 20,000 advance with a 1.2 factor, the total repayable is GBP 24,000. If the holdback is 15% of card sales, then on a day with GBP 1,000 of card takings, GBP 150 goes to the provider until the GBP 24,000 is cleared. The example factor and holdback are illustrative only - your actual terms depend on the provider. Who it affects: card-reliant small businesses needing fast, flexible cash, often those that struggle to get a traditional bank loan. The trade-off is cost: because charges are a fixed fee rather than an APR, the effective annualised cost can be high, especially if you repay quickly. A 2026/27 note: an MCA is a funding facility, not a tax measure, but the fee is generally a business cost and your underlying card sales still carry VAT if you are registered (threshold GBP 90,000). MCA pricing varies widely, so do not assume a rate - compare offers carefully and model your tax position with the relevant calculators.

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