How each works
A merchant cash advance buys a fixed slice of future card takings. You receive a lump sum, and a set percentage of each day's card settlement is retained until the agreed total is repaid. There is no fixed term and no fixed monthly payment.
A term loan advances a sum repaid in equal instalments over a set period at an interest rate, usually with a personal guarantee and sometimes with security.
A worked comparison
Take GBP 60,000. An advance at a factor rate of 1.22 repays GBP 73,200. At 15% of card takings, a business turning over GBP 40,000 a month on cards clears it in about twelve months, giving an annualised cost near 24% — and much higher if trading is strong and it repays in seven months.
A term loan of GBP 60,000 over 24 months at 14% costs roughly GBP 9,100 in interest. On the same money, the loan is materially cheaper unless the flexibility of variable repayment is worth the premium.
When an advance is the right call
Advances suit seasonal retail and hospitality where card income swings sharply, where accounts are too thin for a term lender, or where speed matters more than price. Repayments fall automatically in a quiet month, which a fixed loan will not do.
They suit poorly where margins are thin, where card income is a small share of revenue, or where advances are being stacked one on another — a pattern that closes off cheaper markets later.
Frequently asked questions
Is a merchant cash advance a loan?
Legally it is usually a purchase of future receivables rather than a loan, which is why it is quoted as a factor rate and typically sits outside consumer-style credit regulation.
Does repaying early save money?
Usually not. The repayable total is fixed at the outset, so early repayment raises the effective annualised cost rather than lowering the amount paid.
What is a cheaper alternative?
Where invoices or assets exist, receivables or asset finance is normally far cheaper. Where trading is profitable and documented, an unsecured term loan usually wins on cost.
Last reviewed: 2026-08-15