← SproutHub

Merchant Cash Advance vs Business Loan

Turn a factor rate into a real annual rate, and see what the same money would cost as an ordinary loan

01 — The cash advance offer

The cash you'd actually receive.
Usually 1.1 to 1.5. Most UK offers land between 1.20 and 1.35. A 1.3 means you repay £1.30 for every £1 advanced.
Your typical card turnover — this is what the repayments are taken from, so it sets how fast you clear it.
Sometimes called the retrieval rate. Typically 10–25%, most commonly 15%.
Some providers deduct this from the cash you receive. Anything charged on top of the factor rate goes here.

02 — The loan you'd compare it with

A rate you could realistically be offered on an unsecured business loan — commonly 8–20% depending on trading history.
Charged once at the start. Often 1–3% of the amount borrowed.
Comparing over the same period is the only fair way to do this. A longer loan term always looks cheaper per month and costs more overall.

Nothing here is stored or sent anywhere — it all runs in your browser.

04 — Keep this accurate

A merchant cash advance isn't regulated as a loan, so providers aren't required to quote an APR — which is why one rarely appears on the paperwork. The effective rate here is calculated the same way an APR is: from the cash you actually receive, the payments you actually make, and how long they take. It assumes your card takings hold steady at the figure you entered; in reality they'll move, and the repayment period moves with them. Two things worth checking in any offer that this calculator can't see: whether the holdback applies to all revenue or card sales only, and what happens if you switch card provider mid-term — some agreements treat that as a default. Also ask whether early settlement reduces the amount repayable. With most advances it does not; the factor rate is fixed at the outset, so paying it off early simply means paying the same total over a shorter period.

If the effective rate above is well into the double or triple digits, it's worth seeing what else you'd qualify for before signing. Swoop compares loans, overdrafts and invoice finance against your real numbers. Compare finance options →

05 — About this tool

A merchant cash advance gives you a lump sum in exchange for a fixed share of your future card takings until an agreed total is repaid. The price isn't quoted as an interest rate but as a factor rate — a multiplier like 1.3, meaning £20,000 advanced becomes £26,000 repayable. Because that total never changes and there's no interest accruing over time, the cost looks fixed and modest. What it doesn't tell you is the one thing that matters for comparison: how much you're paying for the use of the money, per year.

That's what this merchant cash advance calculator works out. It takes the advance, the factor rate, your card turnover and the holdback percentage, calculates how long the repayments take to clear the balance, and converts the whole cash flow into an effective annual rate — then prices the same amount as an ordinary amortising business loan over the identical period so you can see both totals side by side. UK factor rates typically run 1.1 to 1.5 with holdbacks of 10–25%, and the resulting effective rates commonly land anywhere from around 40% to well over 200% a year. Figures reflect the UK market as at July 2026.

Why does a 1.3 factor rate work out at far more than 30% a year?

Because you don't have the full advance for the full period. Repayments start immediately and chip away at the balance, so on average you're only holding a fraction of the money — but you're paying the whole 30% regardless. Repay a 1.3 factor rate over six months and the effective annual rate is roughly 160%, not 30%. The shorter the repayment period, the higher that figure climbs.

So a good month makes the advance more expensive?

In effective-rate terms, yes — and this is the part that catches people out. The total repayable is fixed, so strong sales just clear it faster, meaning you paid the same amount for the use of the money over less time. A quiet month works the other way: the term stretches and the effective rate falls. The flip side is genuine, though — repayments flex with your takings, so a bad month doesn't produce a fixed direct debit you can't meet.

When does a merchant cash advance actually make sense?

When speed or flexibility is worth the premium and the alternatives aren't open to you: funding a short, well-defined opportunity that pays back quickly, bridging a seasonal gap where fixed repayments would be dangerous, or when a thin trading history rules out a bank. Where it goes wrong is using one to cover an ongoing shortfall — the holdback reduces the takings available to service the next advance, and stacking them is how businesses end up refinancing repeatedly at these rates.

Designed by Atlas Digital - Hosted by Netlify - Atlas Digital site coming soon - Contact Us