Merchant loan rates in the UK: what to expect
By Helm, Funding Specialist
- Merchant loan rates are expressed as factor rates, not traditional percentages
- Factor rates typically range from 1.15 to 1.50
- Your rate depends on your card revenue, industry, and risk profile
- Always compare the total repayment amount, not just the rate
- Shopping around can save you thousands
Understanding merchant loan rates is essential for making a smart funding decision. Unlike traditional loans that use annual percentage rates, merchant loans typically use factor rates, which work quite differently.
This guide explains how merchant loan pricing works in the UK, what determines your rate, and how to ensure you are getting a fair deal.
How merchant loan rates work
Merchant loan rates are usually expressed as a factor rate rather than an annual percentage. A factor rate is a simple multiplier applied to the amount you borrow to determine the total repayment.
For example, a factor rate of 1.25 on a £10,000 loan means you repay £12,500 in total. The cost of the funding is £2,500. This amount does not change regardless of how long repayment takes.
Typical UK merchant loan rates
Factor rates vary between providers and depend on your business profile. Here is a guide to typical rates in the UK market.
| Factor Rate | Cost per £10,000 | Total Repayment | Risk Level |
|---|---|---|---|
| 1.15 | £1,500 | £11,500 | Low risk, strong revenue |
| 1.20 | £2,000 | £12,000 | Low to moderate risk |
| 1.25 | £2,500 | £12,500 | Moderate risk |
| 1.30 | £3,000 | £13,000 | Moderate risk |
| 1.35 | £3,500 | £13,500 | Higher risk |
| 1.40 | £4,000 | £14,000 | Higher risk |
| 1.50 | £10,000 | £15,000 | Highest risk |
What affects your rate
Several factors influence the factor rate you are offered.
- Monthly card transaction volume: higher revenue generally means lower rates
- Trading history: longer track records can lead to better rates
- Industry: some sectors are considered lower risk than others
- Existing debt: outstanding advances or loans may increase your rate
- Repayment track record: previous successful repayments can improve your rate
- Amount borrowed: larger advances relative to revenue may carry higher rates
Factor rate vs APR
Factor rates and APR measure cost in very different ways. APR accounts for time and compounding, while a factor rate is a flat multiplier.
Because merchant loans are repaid over a short period (typically 3 to 12 months), comparing them to annual percentage rates can be misleading. A factor rate of 1.30 is not the same as 30 percent APR. Always focus on the total repayment amount rather than trying to convert between the two.
How to get the best rate
There are several things you can do to improve the rate you are offered.
- Compare offers from at least two or three providers
- Apply when your card revenue is at its strongest
- Build a track record by repaying your first advance on time
- Avoid stacking multiple advances, as this increases your risk profile
- Be transparent with providers about your financial situation
- Negotiate, especially if you have strong card revenue
Frequently asked questions
Can I negotiate my merchant loan rate?
In some cases, yes. If you have strong card revenue and a good trading history, providers may be willing to offer a more competitive rate.
Do rates change during repayment?
No. Once you agree to a factor rate, the total repayment amount is fixed. It does not change regardless of how quickly or slowly you repay.
Are merchant loan rates higher than bank loan rates?
On a total cost basis, merchant loans are typically more expensive than bank loans. However, they offer speed, flexibility, and accessibility that bank loans cannot match.
Will my rate be lower for a second advance?
Possibly. If you repaid your first advance smoothly and your card revenue has grown, providers may offer a lower factor rate on your next advance.