MCA Eligibility: What UK SMEs Need to Qualify
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A merchant cash advance suits UK businesses that take card payments regularly. Lenders assess your monthly card turnover rather than credit scores alone, making it accessible to businesses that struggle with conventional lending. Typical requirements include six months of card processing history, a minimum monthly card turnover, and a UK-registered business structure.
What Is a Merchant Cash Advance?
A merchant cash advance (MCA) provides a lump sum of working capital in exchange for a fixed percentage of your future card sales until the advance plus a factor-rate fee is repaid. Because repayments move up and down with your daily card receipts, there's no fixed monthly instalment. This structure suits seasonal businesses and those with variable income, since slower months mean smaller repayments automatically.
MCAs aren't loans in the traditional sense. They're a purchase of future receivables, which means they fall outside the Consumer Credit Act for business borrowers. The FCA does not currently regulate commercial MCA agreements, so it is important to read the terms carefully before signing and to compare the total cost, not just the factor rate quoted.
Core Eligibility Criteria
To qualify for an MCA in the UK, your business usually needs several months of consistent card processing history (often around six, though some lenders accept less) and a minimum monthly card turnover, which each lender sets for itself. The business must be based in the UK (which structures are accepted varies by provider), and you must be the account holder for your card terminal or payment gateway.
Lenders will review your card processing statements, usually the last three to six months, to calculate an average monthly figure. They use that average to determine how much they will advance, usually as a multiple of your average monthly card turnover that the lender sets. A poor credit score doesn't automatically disqualify you, because the lender is primarily assessing the reliability and volume of your card income rather than your credit file.
Businesses That Typically Qualify
Retail shops, restaurants, cafes, hotels, gyms, salons, and any other business that processes a meaningful proportion of its revenue through card payments are the most natural fit for an MCA. The key factor is that a significant share of income must flow through a card terminal or online payment gateway, because the repayment mechanism is tied directly to those transactions.
Service businesses that invoice clients and receive bank transfers rather than card payments will generally not qualify, because there's no card-processing stream for the lender to attach a repayment percentage to. Some lenders have expanded into online merchants whose income flows through platforms such as Shopify or Stripe, accepting platform settlement data as evidence of card-equivalent turnover. Check with your proposed lender whether your payment method qualifies before you apply.
How Factor Rates and Total Cost Work
An MCA lender quotes a factor rate rather than an annual percentage rate (APR). A factor rate of 1.25 means you repay £1.25 for every £1.00 advanced. On a £40,000 advance, the total repayment would be £50,000, giving a cost of capital of £10,000. The actual effective APR depends entirely on how quickly your card turnover repays the advance, so a faster repayment produces a higher implied APR even though the cash cost is identical.
Factor rates vary by lender and by risk. Rates toward the lower end are available to businesses with strong, consistent card volumes and a clean trading history. Rates at the upper end apply to newer businesses, those with irregular turnover, or sectors the lender considers higher risk. Always calculate the total repayment figure, not just the factor rate, and compare it across at least two or three providers before committing.
Documents You Will Need
An MCA application requires fewer documents than a traditional bank loan. Most lenders ask for three to six months of card processing statements from your terminal provider or payment gateway, three months of business bank statements, proof of business registration from Companies House or equivalent, and identification for the director or principal owner.
Some lenders connect directly to your payment processor via an API, which removes the need to upload statements manually and can speed up decisions. If your business uses multiple payment processors, provide statements for all of them, since the combined figure will determine the advance size you're offered. VAT registration certificates and recent management accounts may be requested for larger advances, but aren't always required for smaller facilities.
Risks and Considerations Before You Apply
The main risk with an MCA is the cost of capital relative to other forms of finance. Factor rates translate to effective APRs that can be considerably higher than a business loan or overdraft, particularly when the advance is repaid quickly due to strong card volumes. Before applying, calculate whether the cash injection will generate a return that exceeds the total repayment cost.
A second consideration is the impact on cash flow during busy trading periods. Because the repayment percentage is fixed, a very strong month means a larger absolute sum leaves your business that month. Some businesses find this manageable; others prefer a fixed repayment structure.
Finally, stacking multiple MCAs simultaneously is a known risk: some lenders prohibit it contractually and others check for existing advances during underwriting. Taking on several advances at once can create serious cash flow pressure if trading slows.
Sending an Enquiry Through FundBiz
FundBiz is not a lender or broker, and it does not compare offers or run a credit check. Our enquiry form is for UK limited companies, LLPs and partnerships with four or more partners. If you send an enquiry, we pass your details to a business finance broker, who will contact you about your options and may introduce you to lenders. Any lender makes its own decision, and the broker or a lender may run their own checks, which can include a credit search. They should tell you before they do.
The broker pays FundBiz a fixed fee for each enquiry we pass on. You pay nothing.
Step-by-step
- Check that your business has enough card processing history for the lender (often around six months) and meets the minimum monthly card turnover threshold.
- Gather three to six months of card processing statements and three months of business bank statements.
- Approach MCA lenders directly, or send an enquiry through FundBiz to be contacted by a business finance broker.
- Review any offer a lender makes, checking the advance amount, factor rate, retrieval percentage and estimated repayment period.
- Confirm the offer fits your cash flow before submitting a formal application.
- Receive funds once the offer is approved and the agreement is signed.
Example
This is an illustrative example of how the product works. For example, a restaurant group with three sites processes £55,000 per month across its card terminals and needs £60,000 to refurbish a kitchen before a busy summer period, after a bank loan was declined due to a prior County Court Judgment. An MCA of £60,000 at a factor rate of 1.28 would mean a total repayment of £76,800, collected at a 12 percent daily retrieval rate.
Frequently asked questions
Does my credit score affect an MCA application?
Credit score is a secondary factor rather than the primary one. MCA lenders focus mainly on the volume and consistency of your card processing history. A poor credit score or a prior County Court Judgment won't automatically result in a decline, though it may affect the factor rate you're offered. Lenders will still check your credit file as part of their overall risk assessment.
Can a sole trader apply for a merchant cash advance?
Some UK MCA providers do work with sole traders, while others only fund registered companies, so check each provider's criteria. The FundBiz enquiry form is for limited companies, LLPs and partnerships of four or more partners, so a sole trader would need to approach providers directly.
What retrieval percentage will I be charged?
The retrieval percentage is the share of each day's card takings paid to the MCA lender until the advance is fully repaid. It's set by the lender and depends on your card turnover and the size of the advance. A lower retrieval rate means repayments are smaller each day but the repayment period is longer. Your lender sets this at the outset and the agreement says whether and how it can change.
Is there a minimum trading period to qualify?
Many lenders look for around six months of trading with card payment processing in place, and some accept less: Bizcap, for example, asks for at least 4 months of trading. Start-ups with only a few months of card history are unlikely to qualify for an MCA and should consider alternative start-up finance products instead.
Can I repay an MCA early to reduce the cost?
The cost of an MCA is fixed at the outset via the factor rate, meaning the total repayment amount doesn't reduce if you repay faster. Repaying quickly simply shortens the period over which you're repaying the fixed total. Some lenders offer a discounted early settlement figure, but this isn't standard. Ask your lender explicitly about early settlement terms before you sign the agreement.
By Adam Parker. Last updated: .