MCA vs Bank Loan UK 2025: Which is Cheaper? [Complete Comparison]

When your business needs funding, choosing between a Merchant Cash Advance (MCA) and a traditional bank loan can be confusing. This comprehensive guide breaks down the key differences, costs, and use cases to help you make the right decision for your business.

What is a Merchant Cash Advance?

A Merchant Cash Advance is not technically a loan. It's an advance on your future card sales. A provider gives you a lump sum upfront, and you repay it through a percentage of your daily card transactions.

How MCA Works:

You receive £10,000-£250,000 upfront
Provider takes 10-20% of daily card sales until repaid
Repayment flexes with your sales volume
Lower sales days = lower repayments

What is a Traditional Bank Loan?

A bank loan provides a fixed amount of capital that you repay in regular monthly installments over an agreed term, typically 1-5 years, with interest.

How Bank Loans Work:

Apply with business plan and financial statements
Bank assesses creditworthiness and security
Fixed monthly repayments regardless of revenue
Lower interest rates but stricter requirements

Side-by-Side Comparison

Feature	Merchant Cash Advance	Bank Loan
Approval Time	24-48 hours	2-6 weeks
Approval Rate	70-80%	20-30%
Credit Score Required	Not essential	Good-Excellent
Typical Cost	1.2-1.5x repayment	5-12% APR
Repayment	% of daily sales	Fixed monthly
Security Required	None (unsecured)	Often yes
Paperwork	Minimal	Extensive

Real Cost Examples

Merchant Cash Advance

Amount: £20,000
Factor Rate: 1.35
Total Repayment: £27,000
Total Cost: £7,000
Typical Term: 6-12 months
Daily Repayment: ~£150

Bank Loan

Amount: £20,000
Interest Rate: 8% APR
Total Repayment: £21,680
Total Cost: £1,680
Term: 24 months
Monthly Payment: £903

Important Note:

While bank loans are cheaper, many businesses can't qualify due to credit score, trading history, or lack of collateral. MCAs fill this gap but cost significantly more.

Compare Both Options For Your Business

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When to Choose a Merchant Cash Advance

You need funding urgently (within 48 hours)

You have poor credit or limited trading history

You process over £5,000/month in card payments

Your business has seasonal fluctuations

You have been declined by traditional lenders

You need short-term working capital (6-12 months)

You cannot offer security/collateral

When to Choose a Bank Loan

You have good credit (700+ score)

You can wait 2-6 weeks for approval

You have at least 2 years trading history

You need larger amounts (£50,000+)

You prefer fixed monthly repayments

You can provide security/collateral

You want the lowest overall cost

Common Misconceptions

MCAs have no credit checks

Most providers do soft credit checks, but bad credit will not automatically disqualify you.

Bank loans are always cheaper

For businesses that cannot qualify for bank loans, MCAs provide access to capital that would otherwise be unavailable.

MCA repayments are crippling

Because repayments flex with sales, businesses typically find them manageable. On a £100,000 monthly turnover, a 15% holdback is £15,000/month.

You cannot get an MCA with low card sales

Minimum requirements are typically £2,500/month in card transactions - achievable for most businesses.

The Verdict

Choose a Bank Loan if: You have excellent credit, can wait for approval, and want the lowest cost of capital. Bank loans are ideal for established businesses with strong financials looking to fund long-term investments.

Choose a Merchant Cash Advance if: You need fast access to working capital, have been declined by banks, or want flexible repayments that match your sales. MCAs are perfect for businesses that need to seize opportunities quickly or manage cash flow gaps.

Remember: The "best" funding option depends entirely on your specific situation. Consider your urgency, credit profile, and ability to repay before making a decision. Use our funding calculator to compare actual costs.

Frequently Asked Questions

Which is faster: merchant cash advance or bank loan?

Merchant cash advances are significantly faster, with approval in 24-48 hours vs 2-6 weeks for bank loans. Funds are typically in your account within 2-3 business days after approval.

Which is cheaper: MCA or bank loan?

Bank loans are significantly cheaper (5-15% APR) compared to MCAs (1.1-1.5x factor rate, equivalent to 30-60% APR when annualized). However, MCAs are often the only option for businesses that don't qualify for bank loans.

Can I get a merchant cash advance with bad credit?

Yes! MCAs focus on your card sales volume, not credit score. Most providers approve businesses with credit scores as low as 500. See our guide on business loans with bad credit for more options.

What credit score do I need for a bank loan?

Most UK banks require a minimum credit score of 650-680 for business loans. Some high-street banks require 700+. Alternative lenders may accept lower scores but at higher interest rates.

Can I have both an MCA and a bank loan?

Yes, there's no restriction on having both. However, lenders will consider your existing commitments when assessing affordability. Make sure total repayments don't exceed 30-40% of your monthly revenue.

How much does an MCA cost compared to a bank loan?

Example: Borrowing £20,000. MCA with 1.35 factor = £27,000 repayment (£7,000 cost). Bank loan at 8% APR over 24 months = £21,680 repayment (£1,680 cost). The MCA costs 4x more but is much easier to qualify for.

Merchant Cash Advance vs Bank Loan: Complete Guide