A factor rate is not
an interest rate
A merchant cash advance quotes one fixed fee and takes it as a share of your card takings. A loan charges interest on what you still owe. That one difference decides which is cheaper, and it turns on how fast you trade rather than on the headline number.
No credit check to enquire.
One flexes with your takings. One does not
- A loan: interest on the reducing balance
A fixed monthly payment by direct debit. The interest is charged on what is left, so every payment makes the next one cheaper in interest terms, and clearing it early genuinely saves you money.
- An advance: one fixed fee, taken as you trade
You agree a total to repay up front — the advance times a factor rate — and the provider takes a percentage of your card takings until it is cleared. Quiet month, smaller payment. Good month, bigger one.
- Clearing an advance early saves you nothing
The fee was fixed on day one, so finishing in six months instead of twelve costs the same pounds over half the time. In annual terms that makes it dearer, not cheaper. It is the exact opposite of how a loan behaves and it catches people out.
- Which is why the flexibility is the point
An advance is worth paying for when takings are genuinely unpredictable and a fixed direct debit in a quiet month would hurt. If your income is steady, you are paying for a flexibility you will not use.
The same £20,000, both ways
A 12-month loan at an illustrative 12% a year, against an advance priced at a factor of 1.2. Both figures are representative of the market rather than an offer.
Illustrative figures. Factor rates vary widely with your card turnover and how long you have been trading, and a loan rate varies with your filed accounts. The highlighted row is the one worth understanding before you sign anything.
- Clearing an advance in six months rather than twelve roughly doubles the annual cost. The same £4,000 over half the time is about 40% a year rather than about 20%. A loan does the opposite.
- You cannot compare a factor rate with an APR by eye. They are not the same unit. The same trap sits behind monthly and annual loan rates — flat rate against APR.
Who we would approach
Which of these an enquiry reaches depends on whether you take card payments at all, and on how steady the takings are.
- YouLendRevenue-based funder
- Merchant MoneyIndependent lender
- iwocaIndependent lender
- Funding CircleMarketplace lender
- FleximizeIndependent lender
- ShawbrookSpecialist bank
We publish no rates or factor rates for them here. Both are priced against your own takings and filed accounts, and a published number would be out of date before it helped anybody.
Common questions
Is a merchant cash advance a loan?
Not in form. It is usually the purchase of a slice of your future card receipts rather than a credit agreement, which is why it is quoted as a factor rate and not an APR. In practice it is money now repaid with a fee, and you should compare the pounds rather than the labels.
What is a factor rate?
The multiplier on the advance. Multiply what you are given by it and you have the total to repay: at 1.2 on £20,000 that is £24,000, so the fee is £4,000 whether you clear it in six months or sixteen. It is a total rather than an annual rate, and it cannot be set beside an APR without knowing how fast you will repay.
Does paying it off early save me money?
No, and this is the single most common misunderstanding. The fee is set when you sign. Finishing early means the same pounds over a shorter period, which raises the effective annual cost. On a loan, early repayment genuinely does save interest.
Will it affect my card processing?
Usually the provider takes its share through your card processor, so the deduction happens before the money reaches you. Changing processor mid-advance is generally something you need their agreement for, which is worth knowing if you were planning to.
Can I get an advance with no card takings?
Not a merchant cash advance as such, because there is nothing to take a share of. Some revenue-based funding looks at bank turnover rather than card receipts instead. If neither fits, an unsecured loan is the straightforward answer.
Which is better for a seasonal business?
That is the strongest case for an advance: it takes less in your quiet months by design, where a fixed direct debit does not care what the weather did. Price that flexibility honestly though, because on these illustrative figures it costs about £2,700 more over the year.
Price both shapes before you pick one
Tell us what you turn over and how much of it comes through a card machine. We will show you what each would actually cost.
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