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, that same fee works out at around 40% a year on the simplest sum, and roughly three times that once you allow for the balance falling from day one. 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. The sum above treats the business as holding all £10,000 for the whole four months, which it never does. Repayments come out of the first day’s takings, so the balance starts falling straight away and across the four months the business had the use of about half the money, not all of it. Allow for that and the yearly figure roughly trebles. This is also why a fee percentage and a headline APR are not the same kind of number: an APR only means something next to the repayment period it assumes.

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.

The number a loan quote would use

Loan quotes come with an APR. Advance offers come with a fee. To set them side by side you need the advance as an APR too, and that is a different sum from the one above.

The three-step method treats the advance as though you held every pound of it for the whole term. You did not. Repayments start with the first day’s takings, so the balance falls a little every day, and by the end you are paying for money you handed back weeks ago. Averaged across the term you had the use of roughly half the advance. An APR prices that properly, which is why it lands well above the rough figure.

Here is the same £10,000 advance with a £1,300 fee, repaid from steady daily takings, worked both ways:

The worked example earlier, cleared in just under four months, comes out at about 41% on the rough sum and about 120% as an APR. Both describe the same £1,300.

Two things follow from that table, and they pull in opposite directions.

• An APR on an advance is only readable with its repayment period attached. The same £1,300 fee is about 28% a year if the advance takes twelve months to clear and about 169% if it clears in three. A published APR built on a long, slow clearance says very little about an advance your own takings would clear in a quarter of that time. The useful question about any APR on this product is which repayment period it assumes.
• A high rate is not the same as a big bill. The pound cost does not move: £1,300 is £1,300 whether it is called a 13% fee, 41% a year, or an APR near 120%. A rate is a price per year, and this is money held for a few months. For a one-off bridge that gets cleared and left alone, a steep APR on a small fixed fee can still be a fair trade. Where the rate bites is the comparison against a loan for the same job, and the renewal treadmill below, because that is where the fee gets paid several times a year.

These figures assume steady sales and an even daily repayment. Lumpy takings change how fast the balance falls, and so change the APR, usually pushing it up when trade is strong.

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 original loan amount every 60 days and full repayment within 18 months, and PayPal Working Capital requires a minimum of 5% or 10% of the advance plus its fee 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.