What is a merchant cash advance?
A merchant cash advance (MCA) is a form of business finance where a lender advances a lump sum in exchange for a percentage of your future card sales. Unlike a traditional loan, there are no fixed monthly repayments. The lender takes a fixed percentage of your daily card takings until the advance is repaid in full.
What is a factor rate?
A factor rate is the multiplier used to calculate how much you repay on a merchant cash advance. A factor rate of 1.3 means you repay £1.30 for every £1.00 advanced. On a £20,000 advance with a factor rate of 1.3, you repay £26,000: a cost of £6,000. Factor rates look deceptively low compared to interest rates, but the true APR is often 50%-150%.
What is a holdback rate?
The holdback rate is the percentage of your daily card sales that the lender takes as repayment. A 10% holdback on £1,000 of daily card sales means £100 per day goes to the lender. Higher holdback rates mean faster repayment and a higher effective APR. Lower holdback rates are gentler on daily cash flow but extend the repayment period.
Is a merchant cash advance regulated?
Merchant cash advances are not regulated in the same way as business loans in the UK. Providers are not required to disclose APR, which makes cost comparison difficult. The Financial Conduct Authority has been reviewing the regulation of business lending including MCAs. Always seek independent advice before taking any form of business finance.
How quickly can I get a merchant cash advance?
MCAs can typically be arranged in 24-72 hours, significantly faster than traditional business loans. This speed is one of their main advantages for businesses that need funds urgently. However, the speed comes at a cost. Always compare the effective APR against alternatives before accepting.