Merchant Cash Advance Rates, Factor Rates & True Cost

Merchant cash advances are not priced as an APR. Instead they use a factor rate, which can make comparison confusing. Here is how to read the true cost.

Factor rates explained

A factor rate is a simple multiplier, usually between 1.1 and 1.5. Multiply the advance by the factor rate to get the total repayable. Borrow £25,000 at 1.3 and you repay £32,500 — a £7,500 cost, regardless of how quickly you repay.

What drives the rate

• Card turnover volume and consistency.
• Time trading and industry risk.
• The holdback percentage and expected repayment speed.
• Your card processing history.

Converting to an effective rate

Because the fee is fixed, repaying faster makes the effective annual cost higher, not lower. Always compare the total fee in pounds, the expected repayment period, and the holdback — not just the factor rate. A 1.2 factor repaid in 6 months is far pricier in annualised terms than 1.2 over 18 months.

Comparing fairly

Ask every provider for: the advance amount, factor rate, total repayable, holdback percentage, and any setup fees. Then weigh it against a fixed-rate business loan to see which is genuinely cheaper for your situation.

This article is general information, not financial advice. Eligibility, rates and terms vary by lender and your circumstances. The Loans Hub is a finance broker, not a lender.