Cash flow challenges don’t disappear just because a business has bad credit. For many SMEs, poor credit history can make it difficult to secure traditional loans or overdrafts, even when the business is trading well. A merchant cash advance (MCA) offers an alternative form of funding, designed around your daily sales rather than your credit score.
In this guide, we’ll explain how merchant cash advances work, who they’re suitable for, and why they’re often accessible to businesses with bad credit.
What is a Merchant Cash Advance?
A merchant cash advance is a type of business funding where you receive a lump sum upfront in exchange for a percentage of your future debit and credit card sales.
Rather than fixed monthly repayments, the advance is repaid automatically as your customers make card payments. This means payments rise and fall in line with your sales performance.
Unlike a traditional loan, an MCA is not based on fixed interest rates or long-term repayment schedules. Instead, it’s a flexible funding option linked directly to how your business trades.
How do Merchant Cash Advances work?
Merchant cash advances (MCAs) are linked directly to your sales. This means repayments rise and fall with your daily card transactions. If sales are slower, repayments take longer, but the total repayment amount stays the same. The process is straightforward:
1. Apply: The provider reviews your recent card or POS sales.
2. Receive your advance: You get a lump sum, often based on a multiple of your monthly card turnover.
3. Automatic repayments: A fixed percentage of your daily card sales is automatically collected.
4. Repay in full: Repayments continue until the agreed total amount is fully repaid.
Because repayments are linked to revenue, MCAs can feel more manageable for businesses with fluctuating income, especially in retail, hospitality, and service-based sectors.
💡 Example
If you take a £20,000 advance with a 10% repayment rate and make £1,000 in card sales in a day, £100 is automatically deducted that day. On slower sales days, the deduction is smaller, giving your business flexibility while still repaying the advance.
Can I get a Merchant Cash Advance with bad credit?
Yes. Merchant cash advances are often accessible to businesses with bad credit because lenders focus on recent trading performance rather than personal or business credit scores. As long as your business demonstrates consistent card sales, approval is possible, even if you have CCJs, IVAs, or previous loan rejections.
Who are Merchant Cash Advances suitable for?
Merchant cash advances are best suited to trading businesses that generate consistent card or point-of-sale (POS) sales and need quick access to working capital. Because approval is based on sales performance rather than credit history, they are often used by businesses that have struggled to secure traditional finance.
MCAs are particularly helpful for businesses that:
- Need fast funding for short-term cash flow gaps
- Take regular card payments through tills or online checkouts
- Experience seasonal peaks and quieter trading periods
- Have been declined loans or overdrafts due to bad credit
- Prefer repayments that automatically adjust with daily sales
They are commonly used by customer-facing sectors such as:
- Retail stores
- Restaurants, cafés, and takeaways
- Bars and pubs
- Hair and beauty salons
- Gyms and fitness studios
- E-commerce businesses
- Hospitality and leisure venues
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Merchant cash advances are generally less suitable for businesses that don’t accept card payments, have low or inconsistent transaction volumes, or require long-term, lower-cost funding. In these cases, alternative finance options may be more appropriate.
How Merchant Cash Advances help businesses with bad credit
For businesses with poor credit, cash flow pressure can limit growth and create operational stress. Merchant cash advances provide an alternative route to funding by focusing on sales rather than credit history.
Even with bad credit, an MCA can help you:
- Access funds quickly: Approval and funding are often completed within days.
- Avoid fixed repayments: Payments adjust automatically with your daily sales.
- Bypass credit score barriers: Decisions are based on trading performance, not credit files.
- Manage short-term cash flow gaps: Cover stock, wages, rent, or unexpected expenses.
- Stay trading during slow periods: Lower sales mean lower repayments, reducing strain.
What can a Merchant Cash Advance be used for?
Merchant cash advances are flexible and can be used for a wide range of business needs, including:
- Purchasing stock or inventory
- Paying suppliers or staff wages
- Covering rent, utilities, or tax bills
- Investing in equipment or refurbishments
- Managing seasonal dips in cash flow
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As there are usually no restrictions on usage, businesses can apply the funds where they’re needed most.
How much does a bad credit Merchant Cash Advance cost?
Merchant cash advances do not use traditional interest rates. Instead, the total repayment amount is agreed upfront, using a factor rate rather than an interest rate. The factor rate is a multiplier applied to the advance to calculate the total repayment.
How costs are calculated:
- Size of the advance: Larger advances generally result in higher total repayment amounts.
- Average monthly card sales: Lenders use your recent sales history to determine repayment capacity and speed.
- Agreed repayment percentage: A fixed percentage of daily card sales is deducted until the advance plus fees is repaid.
💡 Factor rate example
If you take a £10,000 advance with a factor rate of 1.25, the total repayment would be:
£10,000 × 1.25 = £12,500
If your daily card sales are £1,000 and the repayment percentage is 10%, £100 would be collected each day until the £12,500 total repayment is reached. On slower sales days, the repayment amount decreases automatically.
⚠️ Important to know
Merchant cash advances can be more expensive than traditional loans. Before committing, make sure you fully understand the total repayment amount, the factor rate, and how daily repayment percentages will affect your cash flow.
Should businesses with bad credit consider a Merchant Cash Advance?
A merchant cash advance can be a practical funding option for businesses with bad credit that take regular card payments and need fast, flexible access to cash.
Unlike traditional loans, approval is not heavily dependent on credit history. Instead, funding is based on sales performance, making MCAs accessible to many SMEs that struggle to secure a bank loan or other types of business funding.
For businesses facing short-term cash flow pressure, seasonal fluctuations, or repeated loan rejections, a merchant cash advance can provide working capital to keep trading and stabilise finances, provided the costs and repayment structure are fully understood.
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