Merchant cash advance: what the fee really costs

A merchant cash advance charges one fixed fee, and that fee has no clock. Repay quickly and the same fee works out at a far higher yearly rate: a £1,300 fee on a £10,000 advance looks like 13%, but if steady card sales clear it in under four months, the true cost is around 40% a year. That is the one thing to understand about this product, and this guide shows the working so you can run the same sum on any offer.

This is not an argument that advances are a rip-off. Repayments that rise and fall with your card takings are genuinely useful, especially for seasonal trade. The point is to know the honest yearly cost before signing, so the offer can sit next to a plain loan quote and win or lose on real numbers.

How the fee works, and why it looks cheap

A merchant cash advance gives you a lump sum now. In return, the provider takes a set slice of your card sales until you have handed back the advance plus one fixed fee. The fee is agreed on day one. It never grows, and it never shrinks.

That last part is the bit that matters. Interest has a clock: borrow for longer, pay more. A fixed fee has no clock. Whether the advance takes three months or eighteen to clear, the pound cost is identical. That sounds friendly. It is also why the headline number looks much cheaper than the real yearly cost.

Here are the examples the big providers were publishing at the time of checking (September 2026):

Those fee percentages, 10% to 13.25%, are the numbers most people remember from the offer screen. None of them is a yearly rate. Turning them into one takes about a minute of arithmetic, which is what the rest of this guide does.

The worked example: how a 13% fee becomes 40% a year

Take a made-up but realistic offer, the same shape as the real ones above.

• The offer: a £10,000 advance with a £1,300 fee. Total to repay: £11,300. The fee is 13% of the advance.
• The business: £20,000 a month in card sales, with 15% of each day's takings going to repayments.
• Monthly repayment: 15% of £20,000 is £3,000 a month.
• Time to clear: £11,300 divided by £3,000 a month is just under four months.

So the business paid £1,300 to use £10,000 for roughly four months. Now put a clock on it. Four months is a third of a year, and three lots of 13% is about 39%. This "13%" advance costs the equivalent of an annual rate of around 40%, far above what the fee suggests.

And that is the gentle version. A proper APR calculation comes out higher still, because repayments start on day one, so on average the business is holding a lot less than £10,000. Square's own published example shows the effect: a £1,325 fee is 13.25% of £10,000, but Square states it as 18.90% APR.

The honest way to compare any offer

Three steps turn any advance offer into a number that can sit next to a loan quote.

• 1. Pound cost. Total to repay minus the cash received. That is the fee, and it is fixed.
• 2. Months to clear. Total to repay, divided by your monthly card sales times the repayment percentage. Use a realistic sales figure, not your best month ever.
• 3. Annualise. The fee as a percentage of the advance, times 12, divided by the months from step 2. That is roughly what the advance costs per year.

Here is the same £10,000 advance with a £1,300 fee at different repayment speeds:

Notice the uncomfortable pattern. The faster the tills ring, the faster the advance clears, and the more it costs per year. Strong trade makes this product dearer, not cheaper. A full APR would sit above every figure in the table, for the declining-balance reason above.

Work out your own numbers

What advances genuinely do well

The fixed fee deserves the scrutiny, but the repayment design has real merit.

• Repayments track your takings. A quiet week means a small repayment. There is no fixed monthly amount to find in January if you make your money in July. Genuinely useful for seasonal trade.
• Nothing extra to manage. The repayment comes off card takings before the money reaches your account, so there is no separate bill to remember.
• Watch out: minimums still exist. At the time of checking, Square requires at least 1/18th of the total every 60 days and full repayment within 18 months, and PayPal Working Capital requires a minimum of 5% or 10% of the total every 90 days. A genuinely bad quarter still comes with a bill.

The renewal treadmill

The moment an advance clears, taking another is typically easy, because the provider already sees your sales and already knows you repay.

Each new advance means a new fixed fee. A business that clears a 13% fee in four months and takes a fresh advance straight away, then another after that, pays that fee three times a year. That is the roughly 40% annual cost from the worked example, running permanently. It rarely feels expensive, because no single fee looks big.

Works if one advance bridges a one-off gap and then stops. Watch out if the reason for the next advance is the hole left by repaying the last one. That is the treadmill, and the honest cost of staying on it is the yearly figure, not the fee.

Who is actually behind these advances

The name on the dashboard is often not the company putting up the money. At the time of checking, YouLend is the named UK funding partner behind Stripe Capital and Shopify Capital, works with Dojo and Teya (alongside Liberis), and is one of Amazon's two UK funding partners. PayPal Working Capital is PayPal's own product, and SumUp's UK advances are SumUp's own.

This matters for comparison. If the same underwriter sits behind several of the platforms you use, you may see more than one offer for the same business, priced differently. Running the three-step sum on each is the quickest way to spot the cheapest of the bunch. Our cash advance comparison lists the UK providers side by side.

When a plain loan works better

A cash advance answers one question well: how do I get money now and repay it in step with my card sales? For a planned purchase, a different question matters more: what does this cost per year, and does the cost fall if I clear it early?

With an interest-bearing term loan or credit line, the answer to that second part is usually yes. Interest builds over time, so repaying early generally cuts the total cost. An advance is the exact opposite: the fee is fixed, so repaying early raises the yearly rate and saves nothing.

Good for a term loan or credit line: planned kit, a fit-out, stock for a confirmed order, anything where the amount and rough payback are known. Our pages on iwoca and Fleximize cover how that style of borrowing prices up. Good for an advance: lumpy, card-based income where a fixed monthly repayment would hurt in the quiet months.

Common questions

Facts checked on 7 September 2026. Information, not advice: check terms with the lender or scheme and speak to an accountant or FCA-authorised broker if unsure.