Merchant Cash Advance Costs Explained: Factor Rates, Holdbacks and Total Repayment

Quick answer: how much does a merchant cash advance cost?

The cost of a merchant cash advance is usually better understood by looking at the amount advanced, the total amount that must be collected and the percentage of future sales used for repayment.

Some providers express the cost using a factor rate. Others quote a fixed fee or simply show the total amount that will ultimately be collected.

For example:

• advance received: £30,000
• factor rate: 1.20
• total collection: £36,000
• finance cost: £6,000.

If 15% of eligible card sales is then collected towards the advance, that percentage determines how quickly the £36,000 balance reduces. It does not change the £36,000 total in this simplified fixed-cost example.

A factor rate of 1.20 does not mean 20% APR. Factor rates and annual interest rates measure cost differently and should not be compared as though they were the same number.

Merchant Advice Service is an independent UK payments information and provider-matching service. We help businesses understand merchant cash advance costs alongside the payment-processing and settlement arrangements that may be used to collect them.

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How are merchant cash advance costs calculated?

There is no single pricing structure used by every merchant cash advance or revenue-based finance provider.

Depending on the agreement, you may see terms including:

• factor rate
• fixed fee
• total repayment
• total collection
• repayment percentage
• holdback percentage
• sweep rate
• revenue share.

These terms do not all mean the same thing.

A useful starting point is to separate the cost of the finance from the speed at which it is collected.

The cost

This tells you how much the funding costs in cash terms.

For example:

£30,000 received

£36,000 total collection

£6,000 finance cost

The collection percentage

This determines how much of the defined sales revenue is allocated towards the outstanding balance.

For example:

15% of eligible sales.

These are two separate numbers and both matter when assessing an offer.

What is a merchant cash advance factor rate?

A factor rate is one method used to calculate the total amount payable or collectable under certain commercial finance arrangements.

Unlike a percentage interest rate, it is commonly expressed as a decimal such as:

• 1.10
• 1.15
• 1.20
• 1.30.

To calculate a simple total collection using a factor rate:

Advance amount × factor rate = total collection

For example:

£20,000 × 1.20 = £24,000

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

£4,000.

That represents a cash cost equivalent to 20% of the original advance in this simplified example.

It does not mean the product carries a 20% annual interest rate.

Factor rate examples

These are mathematical examples only and are not representative quotes or indications of the pricing a particular business will receive.

Is a factor rate the same as an interest rate?

No.

This is one of the most important points to understand when comparing merchant finance.

An interest rate normally relates the cost of borrowing to the outstanding balance and time.

A factor rate is typically used to establish a fixed amount from the original advance.

For example:

£30,000 × 1.20 = £36,000.

The calculation itself does not tell you whether the £36,000 will be collected over:

• four months
• six months
• nine months
• twelve months.

That difference in timing matters when considering the economic cost of finance.

Why a 1.20 factor rate is not 20% APR

It is easy to look at a 1.20 factor rate and assume:

“I'm paying 20%, so this is equivalent to 20% APR.”

That is not correct.

APR incorporates time and other assumptions required by the relevant calculation methodology.

A factor rate calculation by itself does not.

If £30,000 is provided and £36,000 is collected quickly, the economic cost of using the £30,000 for that shorter period will be very different from borrowing £30,000 and paying £6,000 over several years.

This is why Merchant Advice Service recommends comparing merchant finance using the actual pounds received, pounds repaid or collected and expected repayment period rather than trying to convert one headline number casually into another.

What is the total repayment on a merchant cash advance?

The terminology varies between agreements, but businesses should establish the total contractual amount expected to be collected.

If the advance is:

£40,000

and the agreed fixed cost is:

£8,000

the total collection would be:

£48,000.

That number should be easy to identify before accepting the finance.

Ask the provider:

“If everything proceeds normally, what is the exact total amount my business will have paid or had collected once this agreement is finished?”

If there are circumstances where that figure could change, ask the provider to explain them.

What is a holdback percentage on a merchant cash advance?

In merchant cash advance terminology, holdback can be used to describe the percentage of eligible sales allocated towards repaying or collecting the advance.

It may also be called:

• repayment percentage
• collection percentage
• sweep percentage
• revenue share.

For example, if a business has:

£50,000 monthly eligible card sales

and:

15% collection percentage

the approximate monthly collection at that level of sales would be:

£7,500.

The calculation is:

£50,000 × 15% = £7,500.

If eligible sales changed, the amount collected would change accordingly under a genuinely percentage-of-sales structure.

MCA holdback is not the same as a rolling reserve

This distinction is particularly important for card-taking businesses.

The term holdback is sometimes used in merchant cash advance discussions, while payment processors and acquirers may separately operate a rolling reserve.

They serve different purposes.

Merchant cash advance collection

A percentage of defined sales is allocated towards reducing the outstanding merchant finance balance.

Rolling reserve

An acquirer or payment provider may retain part of processed funds as a risk-management measure, commonly to help cover potential future liabilities such as chargebacks.

A merchant can potentially experience both at the same time.

That means a business should not simply ask:

“What percentage is my MCA?”

It should ask:

“After processing fees, reserves, refunds and the MCA collection, how much of my sales revenue will actually be available to the business?”

How does the repayment percentage affect cash flow?

Consider a business processing an average of:

£50,000 per month.

If the MCA collection percentage is:

These figures exclude card-processing charges, refunds, chargebacks, reserves, taxes and other business costs.

A higher collection percentage does not necessarily mean the finance itself costs more.

It can instead mean the outstanding balance is collected more quickly.

This is why the factor or fixed cost and collection percentage should not be confused.

Does a higher holdback percentage mean a more expensive MCA?

Not necessarily.

Suppose two businesses both receive £30,000 and both have an agreed total collection of £36,000.

Business A has a 10% collection percentage.

Business B has a 15% collection percentage.

If all other contractual terms were identical, both would still have the same £6,000 fixed finance cost.

Business B would simply be expected to clear the balance more quickly at the same level of eligible sales.

The higher percentage would, however, remove more cash from each period's sales.

That can make a significant difference to working capital.

Worked example: £30,000 MCA with a 1.20 factor rate

Consider the following simplified offer:

• advance: £30,000
• factor rate: 1.20
• total collection: £36,000
• finance cost: £6,000
• collection percentage: 15%
• average eligible monthly sales: £50,000.

Step 1: calculate total collection

£30,000 × 1.20 = £36,000

Step 2: calculate cash finance cost

£36,000 - £30,000 = £6,000

Step 3: estimate monthly collection

£50,000 × 15% = £7,500

Step 4: estimate the collection period

If sales remained exactly at £50,000 every month:

£36,000 ÷ £7,500 = approximately 4.8 months.

This is only a simple estimate.

Real sales fluctuate and the particular agreement may define eligible revenue differently.

What happens if sales rise or fall?

This is where a sales-linked structure behaves differently from a conventional fixed repayment.

Using the same £36,000 total collection and 15% collection percentage:

These are simplified mathematical illustrations assuming sales stay at the stated level and the full percentage is applied consistently.

Actual repayment or collection timing will vary.

The table demonstrates an important point:

the total fixed cost can stay the same while the speed of repayment changes significantly.

Why strong sales can make an MCA repay very quickly

A successful sales month sounds entirely positive, but businesses using revenue-linked finance should understand what it does to their available cash.

If sales reach £100,000 and the collection percentage is 15%:

£15,000 could be allocated towards the advance.

That rapidly reduces the balance.

But the business only retains £85,000 before considering:

• card-processing costs
• refunds
• chargebacks
• rolling reserves
• tax
• supplier costs
• payroll
• stock
• other overheads.

This matters particularly when businesses need strong seasonal sales to fund stock or operating costs for the following period.

What happens in a weak sales month?

If the arrangement genuinely collects a fixed percentage of defined sales, lower sales should result in a lower collection amount.

For example:

£20,000 eligible sales × 15% = £3,000.

This can provide more flexibility than a fixed repayment that remains unchanged when turnover falls.

However, merchants should still review the actual agreement for:

• minimum collection requirements
• minimum trading requirements
• maximum expected terms
• reconciliation mechanisms
• events of default
• restrictions on diverting sales
• requirements to maintain particular payment arrangements.

How do current UK providers structure sales-based repayments?

Current market structures demonstrate why businesses should examine the individual offer rather than assume every MCA works identically.

YouLend currently describes its UK business funding as having a single fixed fee agreed upfront and an automatic fixed percentage of future daily sales.

View YouLend's current business funding information.

365 Finance currently describes an agreed percentage of credit and debit card sales being automatically deducted, with its published example showing how sales are split between the merchant and the finance provider.

View 365 Finance's current repayment information.

iwoca's current Revenue Based Loan provides another example of sales-linked business finance. It says borrowers select a percentage of revenue for monthly repayment and that its product uses a fixed cost rather than an interest rate.

View iwoca's current Revenue Based Loan information.

These are market examples, not an indication that all providers use the same pricing or repayment structure.

Can an MCA have a fixed cost but a variable repayment period?

Yes.

This is one of the concepts that can initially seem confusing.

An agreement could establish:

• a fixed amount advanced
• a fixed finance cost
• a fixed total collection
• a fixed percentage of future sales.

What is not necessarily fixed is the exact amount collected each day or month.

If sales change, collections change.

The time needed to reach the agreed total can therefore change as well.

This is why businesses should distinguish:

fixed cost

from:

fixed repayment.

They are not the same thing.

What does “no interest” actually mean?

Some MCA and revenue-based finance providers advertise that their product has no interest.

That does not mean the funding is free.

It generally means the provider charges using another pricing structure, such as:

• a fixed fee
• a factor rate
• an agreed total collection.

The useful question is therefore not simply:

“Does this have interest?”

It is:

“How much am I receiving, and how much will my business ultimately pay or have collected?”

What happens if you repay an MCA early?

Do not assume early repayment automatically reduces the finance cost.

If the cost has been fixed at the beginning of the agreement, paying the balance sooner may simply shorten the repayment period.

Other providers or products may offer an early-settlement reduction.

The exact position depends on the agreement.

For example, YouLend currently states that merchants can make additional one-off payments without charge, while its public product information describes the finance cost as a single fixed fee agreed upfront.

View YouLend's current funding information.

Before accepting an MCA, ask:

“If I settle the full balance significantly earlier than expected, what exact amount will I need to pay?”

Then compare that with the contractual total collection.

No early repayment fee does not necessarily mean an early repayment saving

These two statements sound similar but can mean very different things.

No early repayment fee can simply mean the provider will not add an extra charge for settling early.

An early settlement saving means the actual finance cost is reduced because you settle sooner.

Always ask for the early settlement figure rather than relying on the wording alone.

Are there other merchant cash advance fees?

The answer depends on the provider.

Some products are marketed using one all-inclusive or fixed finance cost.

Others may have additional contractual charges in particular circumstances.

Before proceeding, check for:

• arrangement fees
• broker or introduction fees
• administration charges
• late or default-related charges
• legal costs
• charges connected with settlement or collection arrangements
• payment-processing costs if a provider change is required.

Ask for the costs in pounds rather than relying only on percentages.

Does changing card processor add to the cost?

Potentially.

The MCA finance cost and card-processing cost are separate, but the two can become commercially connected.

If obtaining the finance requires a different processor, consider:

• new transaction rates
• authorisation fees
• gateway charges
• terminal rental
• contract terms
• integration costs
• implementation costs
• settlement arrangements.

A £5,000 saving on finance could be undermined if the business then pays substantially more for card processing over a long contract.

Equally, a processor move may be commercially beneficial in its own right.

The two costs simply need to be assessed together.

Read our guide to Merchant Cash Advance and Your Payment Processor: Do You Need to Switch?.

Merchant Advice Service view: calculate how much of every £100 you keep

For a card-taking business, one of the most practical ways to assess an MCA is to work out what happens to every £100 of sales.

Imagine a business has:

• £100 card sale
• 15% MCA collection
• card-processing costs
• a separate rolling reserve.

The MCA alone would allocate:

£15 towards the outstanding finance.

But that does not mean the merchant receives the other £85 in usable cash.

Processing fees, reserves, refunds and other deductions may also apply.

Merchant Advice Service therefore recommends modelling:

customer sales → payment costs → reserve → MCA collection → usable business cash.

This is particularly important for merchants with narrow margins, seasonal stock requirements or significant refund exposure.

How do rolling reserves affect the calculation?

A rolling reserve can create a second reduction in immediately available settlement.

For example, suppose a merchant processes:

£100,000.

Its MCA collection is:

15% = £15,000.

If the acquirer also retains a separate reserve, the business could have another portion of settlement temporarily unavailable.

Those amounts should not be added together and described as the cost of the MCA because they have different purposes.

But they should be considered together when forecasting cash flow.

Do refunds and chargebacks affect MCA repayments?

This depends on how the agreement defines the sales figure used for collections.

A business should establish whether calculations are based on:

• gross processed sales
• net card sales
• settled revenue
• another defined measure.

This can matter considerably for sectors with:

• high refund rates
• long fulfilment periods
• significant chargeback exposure
• seasonal cancellations.

Do not assume a provider uses the same definition of revenue as your accounting system or card-processing statement.

What if you have more than one Merchant ID or processor?

Businesses increasingly take payments through several different channels.

For example:

• card terminals
• website checkout
• subscriptions
• marketplaces
• telephone payments
• multiple acquirers.

Before accepting an MCA, establish which revenue is included in the repayment calculation.

Ask:

• Which Merchant IDs are included?
• Which processors are included?
• Are online sales included?
• Are marketplace sales included?
• What happens if I open another Merchant ID?
• What happens if I change processor?

For more information, read our guide to multiple merchant accounts and MIDs.

How to compare two merchant cash advance offers

Do not compare offers using only the advance amount.

Put the following figures next to each other:

Offer B has the lower headline cash finance cost in this hypothetical example.

But before deciding, the merchant still needs to understand:

• how quickly 15% of sales could clear the balance
• whether its existing processor can be retained
• whether additional fees apply
• what happens if sales fall
• what happens on early settlement
• whether guarantees or other obligations apply.

How to stress-test an MCA before accepting it

Rather than modelling repayments against one average month, test at least three scenarios.

Weak month

What happens if sales fall by 30%?

Normal month

What is the expected collection based on typical revenue?

Strong month

What happens if sales increase by 30%?

This tells you much more about the cash-flow impact than the average repayment estimate alone.

It also highlights whether a strong trading period could divert more cash than the business is comfortable giving up.

How long will an MCA take to repay?

There is no universal answer.

For a simple percentage-of-sales model, an approximate starting calculation is:

Average monthly eligible sales × collection percentage = estimated monthly collection.

Then:

Total collection ÷ estimated monthly collection = rough repayment period.

But this is only an estimate because:

• sales fluctuate
• seasonality matters
• refunds may affect eligible revenue
• the agreement may contain additional terms
• the business may make additional payments.

Businesses should therefore avoid treating a simple repayment estimate as a guaranteed completion date.

What should an MCA quote clearly show?

Before comparing an offer, try to obtain the following information in writing:

1. Amount of funding received.
2. Fixed fee or factor rate where applicable.
3. Total contractual collection or repayment.
4. Percentage of sales collected.
5. Definition of the sales used in the calculation.
6. Expected repayment or collection period.
7. Position if sales fall significantly.
8. Early settlement amount and any potential saving.
9. Additional fees or default-related costs.
10. Personal guarantees or security where applicable.
11. Payment-processor and settlement requirements.

Don't judge an MCA on speed alone

One of the attractions of sales-based finance can be a relatively streamlined application process because providers may be able to assess existing transaction or revenue data.

But a quick funding decision does not remove the need to compare the commercial terms.

The most useful numbers remain:

amount received

total cost

percentage of revenue collected

expected duration

cash remaining after repayment and payment costs.

Merchant Advice Service's five-number MCA check

When looking at an MCA offer, Merchant Advice Service recommends starting with five numbers:

1. How much will I actually receive?
2. How much will ultimately be collected?
3. What is the difference between those two amounts?
4. What percentage of my sales will be deducted?
5. How much usable cash will remain in a weak, normal and strong trading month?

Once those figures are understood, the business can then examine the wider contractual terms, payment-processing impact and alternatives.

This avoids relying on a factor rate, “no interest” statement or headline funding amount in isolation.

Find Your New Processor

How Merchant Advice Service helps businesses understand MCA costs

Merchant Advice Service looks at merchant cash advance costs from both a finance and payments perspective.

That means considering more than the headline advance.

We look at areas including:

• amount advanced
• total contractual collection
• factor rates and fixed fees
• sales-based collection percentages
• estimated repayment timing
• weak and strong sales scenarios
• early settlement
• payment-processor compatibility
• settlement arrangements
• Merchant IDs
• rolling reserves
• the wider effect on merchant cash flow.

This combination is particularly important because merchant finance can sit directly within a business's payment flow.

MAS can help businesses understand their requirements and identify potentially relevant commercial finance or payment partners where appropriate.

You can also view merchant cash advance options through the Merchant Advice Service Payments Directory®.

About Merchant Advice Service

Merchant Advice Service is a UK business-to-business payments information, comparison and provider-matching service.

Founded in 2016, MAS helps businesses understand their payment requirements and identify payment providers or specialist partners that may be relevant to the way they operate.

We provide information and support across areas including:

• merchant accounts
• payment gateways
• integrated payments
• merchant cash advance and payment-linked finance
• higher-risk merchant accounts
• international acquiring
• multiple currencies
• specialist payment integrations
• more complex provider requirements.

Merchant Advice Service is not an acquiring bank, lender or payment processor and does not make final underwriting decisions.

The MAS information, matching and introduction service is free to businesses. MAS may receive commission or a referral fee from some commercial partners where an introduction results in a completed product or account.

For full information about how our service operates, provider matching, independence and commercial relationships, read How Merchant Advice Service Works.

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Sources and market examples

YouLend — Sales-Based Business Funding

YouLend's current UK business funding information describes a fixed fee agreed upfront with repayments automatically collected as a fixed percentage of sales.

YouLend: Business Funding

365 Finance — Merchant Cash Advance Repayments

365 Finance publishes information explaining its sales-based collection mechanism, including examples where an agreed percentage of card transactions is automatically allocated towards the outstanding finance.

365 Finance: Merchant Cash Advance Repayments

iwoca — Revenue Based Loan

iwoca provides a current example of revenue-based business finance where monthly repayments change with revenue and the product uses a fixed cost rather than a conventional interest rate.

iwoca: Revenue Based Loan

Editorial and commercial disclosure

Merchant Advice Service is an independent payments information, comparison and provider-matching service.

Merchant cash advance and revenue-based finance pricing, collection methods and contractual structures vary between providers. Examples in this guide are designed to illustrate how common calculations can operate and should not be treated as quotations or offers of finance.

References to individual providers are included because their publicly available information provides current examples of different UK market structures. Inclusion does not constitute a recommendation and should not be taken to mean Merchant Advice Service can introduce businesses to every provider referenced.

MAS may receive commission or a referral fee from some commercial partners where a business chooses to proceed following an introduction. Commercial relationships do not determine which providers may be referenced within our independent educational content.

Providers have not paid for inclusion in this article unless explicitly stated.

Factor rates, fixed fees, repayment percentages, early settlement terms, security and payment arrangements should always be confirmed using the specific agreement offered to the business.

This article provides general information and should not be treated as legal, tax, accounting or regulated financial advice.