Merchant Cash Advance UK: How It Works, Costs and Repayments

Merchant Cash Advance UK: How It Works, What It Costs and When It Fits

A merchant cash advance can provide a business with money upfront in exchange for an agreed share of its future card sales.

The sales message can sound simple:

Receive funding now and pay more back when card sales are strong and less when they are quiet.

But before proceeding, the business needs to understand much more than the amount being offered.

It should establish:

• How much money will actually reach the business bank account
• The total contractual amount that will be collected
• What percentage of future card sales will be deducted
• How those deductions interact with processing fees and settlement
• How long collection is likely to continue
• What happens when card sales rise or fall
• Whether early settlement reduces the cost
• Whether the agreement restricts changing payment processor
• Whether a personal guarantee or other security applies
• What happens if the business cannot meet the agreement
• Whether the arrangement is regulated

For a merchant processing £100,000 of card payments each month, a 15% collection rate could remove around £15,000 from monthly card sales before the business receives the rest of its settlement.

That may be manageable where the money is being used to fund profitable stock or equipment.

It may be much harder where the business already has:

• A rolling reserve
• Slow settlement
• Large refunds
• Existing borrowing
• Seasonal revenue
• VAT or payroll commitments
• Limited working capital

This guide explains how UK merchant cash advances work, how to calculate their likely effect and what to check before accepting an offer.

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Merchant Advice Service is an independent UK payments information, comparison and provider-matching service. MAS also publishes information about merchant cash advance and payment-linked business finance because these products can interact directly with a business's card processing, settlement and choice of payment provider.

Quick answer: What is a merchant cash advance?

A merchant cash advance, commonly shortened to MCA, provides a business with an upfront sum in exchange for an agreed portion of its future card or payment receipts.

The British Business Bank describes a merchant cash advance as an upfront payment received in exchange for a portion of future daily debit and credit-card receipts. 

A simplified arrangement might be:

Business receives: £50,000

Total contractual collection: £65,000

Card-sales collection percentage: 15%

The provider then receives the agreed percentage from eligible payment receipts until the contractual amount has been collected.

The amount collected each day or month may vary with sales.

However, the total amount to be collected may remain fixed unless the agreement contains an early-settlement reduction, reconciliation provision or another adjustment.

The exact structure varies. Some agreements describe the arrangement as:

• Purchase of future receivables
• Sale of future card sales
• Revenue-based advance
• Business cash advance
• Merchant finance
• Commercial funding

Others may use lending terminology.

Do not assume that the marketing label alone determines the legal, regulatory or accounting treatment. The agreement itself matters.

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Is a merchant cash advance a loan?

Merchant cash advances are commonly marketed as an alternative to a conventional business loan.

A traditional loan normally involves:

• Principal borrowed
• Interest
• Defined term
• Fixed or scheduled repayments

An MCA may instead involve:

• Advance amount
• Total contractual collection
• Factor rate
• Percentage of future sales
• Estimated rather than fixed collection period

But the distinction is not always as straightforward as the marketing suggests.

The legal substance depends on:

• How the agreement is drafted
• Whether repayment is truly contingent on future receivables
• What obligations continue if sales stop
• Whether minimum payments or reconciliation terms apply
• Default provisions
• Security
• The legal status of the business receiving the funding

For this reason, MAS uses the term merchant cash advance rather than automatically calling every arrangement a loan.

A substantial business should obtain appropriate legal and accounting advice where the contractual classification matters.

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How does a merchant cash advance work?

A typical process can look like this:

Business applies

↓

Provider reviews payment and bank data

↓

Advance and commercial terms are offered

↓

Business signs the agreement

↓

Funds reach the business account

↓

Agreed share of future sales is collected

↓

Collection continues until the contractual amount is satisfied

The provider may assess information such as:

• Card-processing history
• Bank transactions
• Payment-provider reports
• Monthly revenue
• Refunds
• Chargebacks
• Existing borrowing
• Company information
• Credit history
• Directors
• Sector
• Trading history

Eligibility criteria differ between providers.

Published criteria from one provider should not be treated as a universal market standard. For example, the current GOV.UK merchant cash advance listing relates specifically to an offering organised by 365 Finance and publishes that provider’s advance range and eligibility requirements. 

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A worked merchant cash advance example

Suppose the business is offered:

The total contractual collection is calculated as:

£50,000 × 1.30 = £65,000

The difference between the amount received and the contractual collection amount is:

£65,000 − £50,000 = £15,000

If the business continues processing £100,000 of eligible card sales each month, the estimated monthly collection would be:

15% of £100,000 = £15,000

A simplified collection period would therefore be:

£65,000 ÷ £15,000 = approximately 4.3 months

This is only an estimate.

Actual timing could change according to:

• Daily sales
• Seasonal trading
• Refunds
• Chargebacks
• Which payment channels are included
• Collection mechanics
• Reconciliation terms
• Minimum-payment provisions
• Default provisions
• Additional fees

Some businesses are now offered funding directly inside the platforms they already use, including ecommerce marketplaces and delivery apps. If you have received one of these offers, our guide to eBay, Amazon, Uber Eats, Deliveroo and Shopify funding explains how to compare it with the wider merchant cash advance market.

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What is a factor rate?

Some merchant cash advance providers express the cost using a factor rate.

A factor rate is usually shown as a decimal, such as:

• 1.15
• 1.25
• 1.30
• 1.40

To calculate the contractual collection amount:

Advance amount × factor rate

Example

Advance: £80,000

Factor rate: 1.25

Total contractual collection:

£80,000 × 1.25 = £100,000

The difference is:

£20,000

That does not automatically mean the business is paying:

25% annual interest

A factor rate does not work like a conventional annual interest rate.

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Factor rate versus interest rate

With an ordinary reducing-balance loan, interest is usually calculated by reference to:

• Outstanding principal
• Interest rate
• Time

As the borrower repays principal, the amount on which interest is calculated may reduce.

With a factor-rate arrangement, the contractual collection amount may be fixed from the beginning.

For example:

Advance received: £50,000

Contractual collection: £65,000

The £15,000 difference may remain the same whether collection finishes in:

• Four months
• Eight months
• Twelve months

unless the agreement provides otherwise.

That means the speed of collection has a major effect on the commercial cost of using the money.

Paying £15,000 to access £50,000 for four months is economically different from paying £15,000 over eighteen months.

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MAS insight: A 1.30 factor rate is not a 30% APR

It is easy to look at:

1.30

and conclude:

The interest rate is 30%.

That is not a reliable comparison with an annual interest rate.

A meaningful annualised comparison would need to consider:

• Exact date funds are received
• Exact timing of every deduction
• Total fees
• Collection period
• Early-settlement treatment
• Any refinancing deductions
• Other compulsory costs

The business should not compare:

1.30 factor rate

directly with:

12% annual interest

without modelling the actual cash flows.

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What is the card-sales collection percentage?

The collection percentage is the portion of eligible sales directed towards the MCA arrangement.

It may also be described as:

• Collection rate
• Holdback percentage
• Split percentage
• Remittance percentage
• Retrieval rate
• Revenue share

For example:

Collection percentage: 15%

For every £100 of eligible card sales:

£15 is allocated to the MCA

and:

£85 remains before processing fees, reserves, refunds and other adjustments

The precise calculation depends on the agreement.

Ask whether the percentage applies to:

• Gross card sales
• Net card sales
• Card sales after refunds
• Specific merchant IDs
• Online payments
• Card-present payments
• Marketplace proceeds
• Digital-wallet payments
• Payment links
• Bank payments
• Particular currencies

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MAS insight: The collection percentage is not the only deduction from card sales

Consider this illustrative £100 card sale:

The remaining £85 may still be affected by:

• Card-processing fees
• Gateway fees
• Rolling reserve
• Refunds
• Chargebacks
• Currency conversion
• Negative balance
• Settlement adjustments

So:

15% MCA collection

does not necessarily mean:

85% reaches the bank.

The business needs to model its usable settlement, not only the MCA percentage.

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How is the money collected?

Collection arrangements vary.

Split settlement

The payment or acquiring arrangement automatically divides eligible card receipts.

A portion goes towards the MCA and the rest follows the merchant’s usual settlement route.

Collection through the payment provider

The MCA provider may have an arrangement with the merchant’s processor, acquirer or payment platform.

Collection from the business bank account

Some arrangements may use:

• Direct Debit
• Bank sweeping
• Open Banking information
• Another agreed collection mechanism

Collection from marketplace or platform proceeds

Some providers may consider eligible income received through platforms or aggregators.

However, not every marketplace or payment platform supports MCA deductions.

The business should establish:

• Which revenue is included
• Who performs the split
• When it happens
• What appears in settlement reporting
• What happens if the payment provider changes
• How refunds are treated

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How does an MCA affect settlement?

Without an MCA, the simplified payment journey may be:

Customer card payment

↓

Card-processing deductions

↓

Reserve or adjustments

↓

Merchant payout

With an MCA, it can become:

Customer card payment

↓

MCA collection

↓

Card-processing deductions

↓

Reserve, refunds and adjustments

↓

Merchant payout

The order can vary according to the structure.

A merchant should ask for a sample settlement report showing:

• Gross sales
• MCA deduction
• Processing fee
• Refunds
• Chargebacks
• Reserve retained
• Net payout
• Outstanding MCA balance

For more detail on normal card funding, see Card Payment Settlement Times: T+1, T+2, Holds and Delays.

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MCA and rolling reserve example

Suppose the merchant processes:

£200,000 per month

It has:

• 15% MCA collection
• 10% rolling reserve

Before other fees and adjustments:

MCA collection: £30,000

Rolling reserve: £20,000

The amount remaining is:

£150,000 before processing fees, refunds and chargebacks

The combined effect means that 25% of gross processing is already unavailable before ordinary payment costs.

That does not automatically make the arrangement unaffordable.

But the business needs to know whether it can still fund:

• Stock
• Payroll
• VAT
• Rent
• Suppliers
• Refunds
• Existing borrowing

MAS covers reserves separately in its guide to merchant account rolling reserves.

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What happens when card sales fall?

One of the main attractions of an MCA is that collections can move with sales.

Suppose:

Collection percentage: 15%

Strong month

Card sales: £150,000

Estimated MCA collection: £22,500

Average month

Card sales: £100,000

Estimated MCA collection: £15,000

Quiet month

Card sales: £60,000

Estimated MCA collection: £9,000

The percentage remains the same, but the amount collected changes.

However, merchants should not interpret this as:

There is no obligation when sales fall.

The agreement may contain provisions relating to:

• Minimum collections
• Estimated term
• Reconciliation
• True-ups
• Revenue reporting
• Diversion of sales
• Changes in processor
• Default
• Business closure
• Sale of the business

Read these clauses carefully.

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What happens when card sales rise?

If sales rise, the amount collected normally rises too.

For example:

Card sales: £250,000

Collection rate: 15%

Estimated collection: £37,500

The advance may therefore finish more quickly.

But faster collection does not necessarily reduce the total cost.

If the contractual collection amount remains:

£65,000

the provider may still collect the full £65,000 regardless of whether it takes four months or ten.

Any reduction depends on the agreement’s early-settlement or rebate terms.

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MAS insight: Flexible collection is not the same as a cheaper facility

An MCA may adjust to revenue better than a fixed monthly loan payment.

That can be useful.

But the business should separately analyse:

1. Payment flexibility
2. Total cost

A facility can be flexible and expensive at the same time.

Likewise, a fixed-payment loan may be less flexible but have a lower total financing cost.

Businesses can approach a merchant cash advance provider directly or use an intermediary to compare potential options. If you are deciding which route makes sense, read our guide to Merchant Cash Advance Broker vs Direct Provider.

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Is the collection term fixed?

Merchant cash advances are often described using an estimated term.

For example:

Expected to complete in nine months

That estimate may be based on historic card sales.

If sales are stronger than forecast, collection may finish earlier.

If sales weaken, it may take longer.

The business should ask:

• Is the term only an estimate?
• Is there a contractual long-stop date?
• Is there a minimum collection?
• What happens if sales stop?
• Is reconciliation available?
• Can the collection percentage change?
• What constitutes default?
• Are there additional costs if the term extends?

Do not treat an illustrative repayment period as a guaranteed end date.

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What happens if card sales stop?

This is one of the most important questions to ask.

Possible reasons include:

• Temporary closure
• Renovation
• Seasonal shutdown
• Payment-provider termination
• Business failure
• Change in business model
• Sale of the company
• Switching processors
• Customers moving to bank payments

The outcome depends on the agreement.

A genuinely revenue-linked arrangement may reduce collections when eligible sales reduce.

But the contract might still require the merchant to:

• Continue operating normally
• Report revenue
• Maintain an approved processor
• Avoid diverting transactions
• Permit account access
• Complete reconciliation
• Notify the provider of changes
• Make alternative payments in certain circumstances

A business should not assume:

No card sales means nothing further can be owed.

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Can I change card processor while repaying an MCA?

Potentially, but do not change provider without checking the MCA agreement.

Collection may depend on:

• Existing acquirer
• Payment processor
• Split-settlement arrangement
• Merchant ID
• Business bank account
• Payment-platform integration
• Open Banking connection

Changing processor could:

• Interrupt collection
• Breach the agreement
• Trigger a default provision
• Require a replacement collection route
• Create incorrect balances
• Affect the new merchant-account application

Before switching, ask:

1. Is the current processor named in the agreement?
2. Is provider consent required?
3. Can the MCA collection move to the new processor?
4. Does the new processor support the arrangement?
5. Will the collection percentage remain the same?
6. Will settlement be delayed during the switch?
7. Must the outstanding advance be settled first?
8. Does the replacement acquirer need to know about the MCA?

The new payment provider should receive an accurate description of any existing finance tied to payment receipts.

See the MAS guide to switching merchant-account providers.

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MAS insight: Do not hide the MCA from a replacement payment provider

An acquirer may need to understand why part of every settlement is being diverted.

The MCA can affect:

• Cash flow
• Refund capacity
• Negative balances
• Reserve requirements
• Settlement instructions
• Financial strength

Hiding the arrangement may create inconsistencies between:

• Processing statements
• Bank statements
• Settlement reports
• The application form

A complete high-risk merchant account application should explain significant finance arrangements affecting payment settlements.

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Can an online business use a merchant cash advance?

Potentially.

An online business may receive card income through:

• Direct ecommerce checkout
• Stripe
• PayPal
• Shopify Payments
• Payment links
• Online marketplace
• Booking platform
• App
• Subscription platform

The provider needs to establish whether that income can be:

• Verified
• Included in underwriting
• Connected to the collection arrangement
• Reconciled consistently

Not every payment channel is supported by every MCA provider.

Online-business questions

• Which processor receives the money?
• Does the legal company own the merchant account?
• Are sales processed directly or through a platform?
• What is the refund rate?
• What is the chargeback rate?
• How quickly are goods delivered?
• Are sales recurring?
• Does the business operate internationally?
• Can the MCA provider access reliable transaction data?
• Can the deduction be made from that payment route?

A provider accepting ordinary card-terminal income may not necessarily support a complicated marketplace or platform payout.

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Marketplace and third-party income

Some businesses receive money from:

• Amazon
• eBay
• Deliveroo
• Uber
• Airbnb
• Booking platforms
• App stores
• Other marketplaces

That revenue is not always equivalent to direct merchant-acquiring income.

The marketplace may already deduct:

• Commission
• Refunds
• Disputes
• Advertising
• Seller reserves
• Other fees

Payouts may also follow a separate schedule.

The MCA provider should explain:

• Whether marketplace revenue is eligible
• Whether gross sales or net payouts are assessed
• How deductions will be collected
• What happens if the marketplace holds money
• Whether another security method is required
• How the revenue is reconciled

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What information is needed to apply?

Requirements vary, but providers may request:

• Legal company details
• Director and owner information
• Identification
• Business bank statements
• Card-processing statements
• Open Banking access
• Payment-platform reports
• Financial accounts
• Management accounts
• Existing finance details
• Use of funds
• Website
• Business description
• Refund and chargeback data

A provider may also conduct:

• Company checks
• Credit checks
• Affordability or sustainability assessment
• Fraud checks
• Bank verification
• Processor verification

Do not assume an MCA involves no credit assessment simply because card sales are important to the decision.

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Does bad credit prevent an MCA?

Not necessarily, but approval is never guaranteed.

The provider may consider:

• Business credit history
• Director history
• Recent defaults
• County Court judgments
• Insolvency events
• Bank conduct
• Payment revenue
• Existing commitments
• Business performance
• Security or guarantees

Some providers may accept a business that does not meet a bank’s lending criteria.

That does not mean poor credit is irrelevant or that every adverse event will be accepted.

Disclose the position accurately before submitting the application.

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How much can a business receive?

There is no universal minimum or maximum MCA amount.

The offer may depend on:

• Average card sales
• Volatility
• Current processing
• Profitability
• Existing borrowing
• Sector
• Trading history
• Refunds
• Chargebacks
• Business structure
• Provider policy

Avoid using figures published by one provider as though they apply across the entire market.

The amount offered may also differ from the amount the business should responsibly accept.

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MAS insight: Eligibility and affordability are different questions

A provider may be willing to advance:

£150,000

That does not automatically mean the business should take £150,000.

The business should calculate:

• How the money will be used
• Expected return
• Total contractual collection
• Percentage of future revenue committed
• Working capital remaining
• Effect of a poor trading month
• Existing debt
• Tax and payroll commitments

The maximum available amount is not necessarily the appropriate amount.

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What can an MCA be used for?

Depending on the agreement, uses may include:

• Stock
• Equipment
• Refurbishment
• Marketing
• Expansion
• Seasonal working capital
• Technology
• Repairs
• Business acquisition costs
• Short-term cash-flow requirements

The GOV.UK merchant cash advance listing gives examples including stock, refurbishment and working capital, although that page describes a particular provider offering rather than universal market terms. 

Before proceeding, ask whether the proposed use is likely to generate enough value or cash to justify the cost.

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Using an MCA for stock

This can be commercially sensible where:

• Stock has proven demand
• Margin is strong
• Turnover is quick
• The business understands the collection cost
• Sales will create the income needed to complete the advance

For example:

Advance received: £50,000

Total collection: £65,000

The stock and resulting sales need to produce enough gross profit to cover:

• £15,000 finance cost
• Processing fees
• Fulfilment
• Staff
• Tax
• Returns
• Other overheads

Sales revenue alone is not profit.

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Using an MCA to cover an ongoing cash shortfall

This needs more caution.

If the business is using new finance each month to cover:

• Payroll
• VAT
• Rent
• Existing advance deductions
• Persistent trading losses

the MCA may delay rather than solve the underlying problem.

A percentage of future sales will then be diverted before the business can use those sales to cover ordinary costs.

Where the business is already struggling to meet liabilities, speak to:

• Accountant
• Restructuring or insolvency professional
• Independent debt adviser

Business Debtline provides free, confidential and independent business debt advice. 

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Can I repay a merchant cash advance early?

It depends on the agreement.

Possible outcomes include:

Full contractual amount remains due

The business pays the remaining contractual collection without a reduction.

Early-settlement discount

The provider offers a rebate or discount according to a stated formula.

Fixed early-settlement amount

The agreement sets specific figures for settling during particular periods.

No voluntary early-settlement route

Collection continues through the agreed percentage.

Administrative cost

A settlement or refinancing charge may apply.

The British Business Bank notes that some MCA structures provide no interest saving from early repayment because the cost is fixed rather than calculated using a reducing balance. 

That should not be treated as a universal rule for every agreement.

Ask for the actual early-settlement calculation in writing.

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Questions to ask about early settlement

• Can the advance be settled voluntarily?
• What is today’s settlement amount?
• Is a discount available?
• How is the discount calculated?
• Does it change each month?
• Are fees added?
• Does refinancing affect the discount?
• Does early completion release any security?
• When will the processor stop making deductions?
• How are overcollections returned?

Do not assume that finishing faster automatically saves money.

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Renewals and additional advances

A provider may offer further funding before the first advance has fully completed.

This may be described as:

• Renewal
• Top-up
• Refinance
• Additional advance
• Consolidation

The new funds may be used partly to satisfy the old balance.

For example:

New advance: £100,000

Existing balance cleared: £35,000

Fees or deductions: £5,000

Cash reaching the business: £60,000

The business may hear:

You have been approved for £100,000

but only receive £60,000 of usable new money.

Always separate:

• Gross new facility
• Existing finance repaid
• Fees
• Net cash received
• New contractual collection
• New percentage
• New estimated term

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MAS insight: Compare the cash received, not the headline advance

Suppose the renewed agreement says:

Advance amount: £100,000

But after settling the previous MCA, the business receives:

£60,000

If the new contractual collection is:

£130,000

the business needs to understand that it has taken on a £130,000 collection obligation in exchange for £60,000 of new usable cash plus the settlement of the previous agreement.

That is a very different commercial calculation from:

£100,000 funding at a 1.30 factor rate.

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Can a business have more than one MCA?

Potentially, but this can create significant risk.

The agreements may:

• Prohibit additional advances
• Require consent
• Claim priority over receivables
• Require a particular processor
• Conflict with each other
• Trigger default provisions

Even where it is contractually permitted, several advances can cause a large percentage of future revenue to be committed.

For example:

First MCA collection: 15%

Second finance collection: 10%

Rolling reserve: 10%

Before ordinary processing costs:

35% of card sales is already unavailable

This can make even a profitable business vulnerable during a quieter month.

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Multiple deductions example

Suppose monthly card sales are:

£200,000

The business has:

That leaves:

£130,000 before card-processing fees, refunds and chargebacks

The business still has to pay:

• Suppliers
• Staff
• Rent
• Tax
• Marketing
• Other borrowing

The relevant question is:

What percentage of every future sale is already committed before we run the business?

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Personal guarantees and security

An MCA may be marketed as:

Unsecured business finance

That does not automatically mean directors have no personal exposure.

Check whether the documents include:

• Personal guarantee
• Director guarantee
• Indemnity
• Debenture
• Security over receivables
• Charge over company assets
• Direct Debit authority
• Set-off rights
• Processor-control rights
• Bank-account control
• Default fees

A limited company’s borrowing and a director’s personal guarantee are separate obligations.

The FCA has confirmed that directors guaranteeing unregulated limited-company lending do not receive the consumer-credit protections contained in its Consumer Credit sourcebook merely because they provided the guarantee. 

Obtain independent legal advice before giving a substantial personal guarantee.

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What does “unsecured” mean?

It can mean that the provider is not taking a conventional legal charge over a particular asset such as:

• Property
• Vehicle
• Equipment

It does not necessarily mean:

• No personal guarantee
• No company debenture
• No claim against receivables
• No Direct Debit
• No enforcement rights
• No liability following default

Read the complete security package rather than relying on the word unsecured.

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Check Companies House for charges

Where finance is being offered to a limited company, the business can check the provider’s legal identity and view its own public company filings through the Companies House register.

Companies House records can include:

• Company status
• Directors
• Filing history
• Previous company names
• Registered charges
• Insolvency information

The register does not replace legal advice or prove that every piece of filed information is accurate, but it is a useful basic verification step. 

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What happens if the business cannot afford the deductions?

Do not wait until the business account is empty.

Review the agreement and speak to the provider promptly.

Establish:

• Current outstanding contractual amount
• Collection percentage
• Recent sales
• Missed or interrupted collections
• Reconciliation rights
• Minimum obligations
• Default provisions
• Personal guarantee
• Security
• Legal costs
• Whether another payment method is being used
• Whether the business remains solvent

Do not deliberately divert card transactions or conceal revenue without taking advice.

That may breach the agreement and materially worsen the position.

Where the company cannot pay debts as they fall due, urgent professional insolvency advice may be appropriate.

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Is a merchant cash advance regulated by the FCA?

Do not assume that every MCA is either fully regulated or entirely unregulated.

The position can depend on:

• Legal structure of the product
• Whether it amounts to credit
• Type of borrower
• Amount
• Business purpose
• Provider’s role
• Activities carried out by any broker

The FCA’s current perimeter report states that its regulatory perimeter extends to business lending where the borrowing is £25,000 or less and the borrower is a sole trader, a partnership with two or three partners, or another relevant unincorporated recipient of credit. 

By contrast, commercial lending to an ordinary limited company is generally outside the FCA’s consumer-credit perimeter. Lending over £25,000 for business purposes to relevant sole traders and small partnerships can also sit outside that perimeter. 

An MCA structured as a purchase of receivables may require a different legal analysis from an agreement that is, in substance, credit.

The precise contract should therefore be reviewed rather than relying on a general statement that:

All MCAs are unregulated

or:

The provider is FCA registered, so the agreement is protected.

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What is an FCA Annex 1 firm?

In March 2026, the FCA warned about the distinction between full authorisation and Annex 1 registration.

Annex 1 firms are registered with the FCA solely for anti-money-laundering supervision.

The FCA explained that:

• Its wider conduct rules do not apply solely because of that registration.
• Annex 1 registration is different from full authorisation.
• Customers do not gain Financial Ombudsman Service access for the unregulated activity merely because the firm is an Annex 1 firm. 

So a business should not interpret:

Registered with the FCA

as proof that:

• The MCA is regulated
• The FCA has approved the product
• The agreement is fair
• The Financial Ombudsman will hear a complaint
• Financial Services Compensation Scheme protection applies

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How to check an MCA provider

Start by confirming the provider’s complete legal identity.

Companies House

Check:

• Legal company name
• Company number
• Registered status
• Directors
• Filing history
• Previous names
• Registered charges
• Insolvency information

FCA Financial Services Register

Search the Financial Services Register and check:

• Whether the firm appears
• Whether it is authorised or only registered
• Which permissions it holds
• Trading names
• Contact information
• Any restrictions

The FCA Register itself warns that an entry does not automatically confirm whether Financial Ombudsman or FSCS protection applies. 

Contract

Confirm which entity:

• Provides the funds
• Purchases the receivables
• Collects payments
• Acts as broker
• Receives commission
• Holds security
• Enforces the agreement

The brand on the website may not be the entity entering into the contract.

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Is the broker FCA-authorised?

The answer may depend on the activity the broker carries out and the product involved.

Do not assume that a broker:

• Must always be authorised
• Is authorised for every type of business finance
• Provides regulated advice
• Represents every provider
• Offers the lowest-cost option

Ask:

• Is the broker acting for the business or the provider?
• How is it paid?
• Which lenders or funders can it access?
• Does commission vary?
• Is any fee payable by the business?
• Which entity appears in the agreement?
• Is the activity regulated?
• What complaint route applies?

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Can I complain to the Financial Ombudsman?

Possibly, but not automatically.

It depends on:

• Whether the activity is regulated
• Which entity provided it
• The complainant’s eligibility
• The nature of the complaint
• The provider’s FCA permissions

An FCA Register entry alone does not guarantee Ombudsman eligibility.

For an unregulated commercial agreement, the complaint route may be limited to:

• Provider’s internal process
• Contractual dispute procedure
• Mediation
• Court
• Other legal remedies

Obtain legal advice where a substantial amount is disputed.

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Merchant cash advance versus business loan

Neither option is automatically better.

The right choice depends on:

• Purpose
• Total cost
• Timing
• Cash-flow predictability
• Security
• Term
• Payment operation
• Alternative finance available

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Find Your New Processor

MCA versus overdraft

An overdraft may provide flexible access to an agreed bank balance.

It might be more suitable where:

• The business needs occasional working capital
• The bank provides an affordable limit
• Drawings and repayment need to vary
• Card-sales deductions would be disruptive

An MCA might be considered where:

• Card turnover is strong
• The bank will not provide the required facility
• Revenue-linked collection is valuable
• The business understands the total fixed collection

Check:

• Interest
• Facility fees
• Review rights
• Security
• Personal guarantees
• Bank’s right to reduce or withdraw the overdraft

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MCA versus invoice finance

Invoice finance is linked to qualifying business invoices rather than card sales.

It may be more relevant to a business selling to:

• Other businesses
• Public-sector bodies
• Customers on payment terms

An MCA may be more relevant where the business receives most revenue through card payments.

A company with both card sales and commercial invoices might have several options.

Compare:

• Eligible revenue
• Advance percentage
• Collection method
• Customer notification
• Recourse
• Total cost
• Contract
• Security
• Administration

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MCA versus asset finance

Asset finance is used to fund equipment, vehicles or machinery.

Where the funding is for a specific asset, asset finance may provide:

• Longer term
• Cost linked to the asset
• Security over the financed item
• More predictable payment schedule

An MCA may be faster or less tied to the asset, but a high fixed collection cost could make it more expensive.

Compare both before using short-term card-sales finance to purchase a long-life asset.

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When might an MCA fit?

An MCA may be worth considering where:

• The business has consistent card revenue
• Revenue genuinely fluctuates
• The percentage collection can be supported
• Funds have a clear commercial use
• Expected return exceeds the finance cost
• The business understands the contract
• Other finance is unavailable or less suitable
• The processor and MCA collection work together
• A poor-month stress test remains affordable

It should still be compared with alternatives.

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When should a business be particularly careful?

Warning signs include:

• The MCA is needed to repay another MCA.
• Most of the funding will cover ordinary losses.
• The business cannot explain the factor rate.
• Nobody has provided the total contractual collection.
• The sales representative discusses only the weekly deduction.
• A personal guarantee is buried in the documents.
• Early-settlement terms are unclear.
• The provider insists another processor cannot be considered.
• Several advances will deduct from the same sales.
• VAT, payroll or suppliers already cannot be paid.
• The business needs continued rapid growth to remain solvent.
• The provider or broker’s legal identity is unclear.
• The business feels pressured to sign immediately.

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MAS insight: Speed should not replace due diligence

A fast application and same-day offer can be useful.

But the speed of funding does not reduce the importance of checking:

• Total cost
• Collection percentage
• Security
• Regulation
• Early settlement
• Defaults
• Processor restrictions
• Broker commission
• Cash-flow impact

A finance decision affecting every future card sale should not be based solely on:

The money can be in your account tomorrow.

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How to compare two MCA offers

Suppose two providers offer:

Provider B has the lower contractual collection.

But the business also needs to understand why only £95,000 reaches the account.

Provider A may finish faster but remove more money from each sale.

The correct comparison includes all terms, not one factor rate.

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The merchant cash advance offer table

Complete this before signing:

If the business cannot complete this table from the offer documents, ask for clarification before signing.

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Model a strong month, normal month and weak month

Suppose the business has:

15% MCA collection

Estimate the effect under three scenarios.

Then deduct:

• Processing fees
• Reserve
• Refunds
• Chargebacks
• Payroll
• Suppliers
• Rent
• Tax
• Existing finance

The important result is not:

Can we afford 15%?

It is:

Can the business still meet every essential obligation after all deductions during a weak month?

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Find Your New Processor

Calculate the lost access to future revenue

Suppose:

Total contractual collection: £130,000

Collection percentage: 15%

Every £100 of future eligible sales contributes:

£15

towards the agreement until the £130,000 is completed.

The business is effectively committing part of its future revenue before it knows:

• How strong each month will be
• How many refunds will arise
• Whether card-processing terms will change
• Whether a reserve will be imposed
• Whether other costs will increase

That future-revenue commitment should be treated as seriously as an ordinary monthly loan repayment.

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Questions to ask before accepting an MCA

About the money

1. What is the headline advance?
2. How much will actually reach our bank?
3. What deductions are made before funding?
4. What is the total contractual collection?
5. Is the amount fixed?

About the collection

6. What percentage of sales is collected?
7. Which payment channels are included?
8. Is it based on gross or net sales?
9. How are refunds treated?
10. How are chargebacks treated?
11. Is there a minimum payment?
12. Is reconciliation available?
13. What happens when sales stop?

About the term

14. Is the term fixed or estimated?
15. Is there a long-stop date?
16. What happens if collection takes longer?
17. Does collection become more expensive?

About early settlement

18. Can we settle early?
19. Is there a discount?
20. What is today’s settlement figure?
21. Does refinancing remove the discount?

About payment processing

22. Which processor must we use?
23. Can we change provider?
24. Who performs the split?
25. What happens if our merchant account closes?
26. Can the deduction coexist with a rolling reserve?

About security

27. Is there a personal guarantee?
28. Is there a debenture?
29. Is any charge registered?
30. What happens on default?
31. Who pays legal and enforcement costs?

About the provider

32. Which legal entity provides the funds?
33. Is a broker involved?
34. How is the broker paid?
35. Is the agreement regulated?
36. What FCA permissions apply?
37. What complaint route is available?

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Comparing a merchant cash advance?

Tell Merchant Advice Service:

• Amount offered
• Amount that will reach the bank
• Total contractual collection
• Factor rate
• Card-sales percentage
• Expected term
• Monthly card turnover
• Average and maximum transaction
• Current payment provider
• Settlement timetable
• Existing rolling reserve
• Refund and dispute profile
• Existing finance
• Personal guarantee or security shown
• Intended use of funds

MAS can help you understand:

• How the proposal connects with your card settlements
• Which payment revenue may be affected
• The questions to ask about processor compatibility
• How to compare the offer with other potential arrangements
• What information a finance provider or broker may require

Where appropriate, MAS may introduce a business to a commercial-finance provider or broker.

Final eligibility, pricing, contractual terms and funding decisions remain with the relevant provider.

MAS does not provide regulated financial advice, legal advice, accounting advice, debt advice or insolvency advice.