What is Merchant Cash Advance (MCA) or MCA Loan?

A Merchant Cash Advance (MCA), often referred to as an MCA loan, is a type of financing tailored for businesses that need quick access to cash. Unlike traditional loans, an MCA is repaid through a percentage of the business’s daily credit card sales, making it a flexible and accessible option for many UK businesses, especially those with fluctuating revenues.


Key Aspects of a Merchant Cash Advance (MCA):

  1. Definition:
    • An MCA is not a loan in the traditional sense. Instead, it is an advance on future credit card sales. The provider gives the business a lump sum upfront, which is then repaid through a percentage of daily credit card transactions.
  2. How It Works:
    • Advance Amount: The business receives a lump sum of money, which can range from a few thousand to several hundred thousand pounds, depending on the business’s credit card sales volume.
    • Repayment: Repayment is made automatically through a fixed percentage of the business’s daily credit card sales. This continues until the advance and any fees are fully repaid.
    • Holdback Rate: The percentage of daily credit card sales that goes towards repayment, typically ranging from 5% to 20%.
  3. Eligibility:
    • Businesses need to have a certain volume of credit card sales, often a minimum of £5,000 to £10,000 per month.
    • The business should have been operating for a certain period, usually at least six months.
  4. Fees and Costs:
    • Factor Rate: Instead of traditional interest rates, MCAs use a factor rate to determine the cost of the advance. This rate typically ranges from 1.1 to 1.5, meaning the total repayment amount will be 1.1 to 1.5 times the advance.
    • Total Repayment Amount: The advance amount multiplied by the factor rate. For example, an advance of £10,000 with a factor rate of 1.3 means a total repayment of £13,000.
  5. Advantages:
    • Quick Access to Cash: Funds can be available within a few days, making MCAs ideal for businesses needing immediate cash flow.
    • Flexible Repayment: Repayments adjust with the business’s sales volume. On slower days, less is repaid, reducing the financial strain on the business.
    • Minimal Paperwork: The application process is typically faster and less cumbersome than traditional loans, with fewer requirements for collateral and credit checks.
  6. Disadvantages:
    • Higher Costs: MCAs are generally more expensive than traditional loans due to higher factor rates and fees.
    • Impact on Cash Flow: A significant percentage of daily sales going towards repayment can strain the business’s cash flow, particularly during periods of lower sales.
    • Lack of Regulation: MCAs are less regulated than traditional loans, which can lead to less favorable terms for borrowers.

Example of a Merchant Cash Advance:

A UK-based retail store needs £20,000 to renovate its premises. The store has consistent monthly credit card sales of £50,000. The MCA provider offers an advance of £20,000 with a factor rate of 1.3 and a holdback rate of 10%.

  • Advance Amount: £20,000
  • Factor Rate: 1.3
  • Total Repayment: £20,000 × 1.3 = £26,000
  • Holdback Rate: 10%

The store will repay 10% of its daily credit card sales until the total repayment amount of £26,000 is reached. If the store averages £1,667 in daily credit card sales, it would repay approximately £167 per day, leading to a repayment period of about 156 days (£26,000 / £167).



A Merchant Cash Advance (MCA) is a flexible financing option for UK businesses that need quick access to funds and have regular credit card sales. While it offers advantages like fast funding and adaptable repayments, it comes with higher costs and potential cash flow challenges. Businesses should carefully consider these factors and evaluate their cash flow needs and repayment capabilities before opting for an MCA.