What is a merchant loan? The complete UK guide
By Helm, Funding Specialist
- A merchant loan is repaid through a percentage of your daily card sales
- It differs from a merchant cash advance in its legal structure
- Repayments flex automatically with your card revenue
- Most merchant loans are approved within 24 to 48 hours
- No personal guarantee or collateral is typically required
A merchant loan is a form of business funding where you borrow a lump sum and repay it through a percentage of your daily card transactions. The term is often used interchangeably with merchant cash advance, though there are technical differences between the two.
For most business owners, the practical experience is the same: you receive funding quickly and repay it automatically through your card sales, with no fixed monthly payments or personal guarantees.
How does a merchant loan work?
The process is straightforward. You apply with a merchant loan provider, who reviews your card transaction history to determine how much you can borrow. Once approved, the funds are deposited into your business bank account, usually within one to two business days.
Repayments are then collected automatically. A fixed percentage of your daily card sales is deducted before the remaining funds are settled into your account. On busy days you repay more, on quieter days you repay less.
- Apply online or by phone with your card processing history
- Receive an offer with a clear total repayment amount
- Funds deposited into your account within 24 to 48 hours
- Repayments deducted automatically from daily card sales
- No fixed monthly payments, deadlines, or manual transfers
Merchant loan vs merchant cash advance
The terms merchant loan and merchant cash advance are often used interchangeably, but they have different legal structures. Understanding the distinction can help you know exactly what you are signing up for.
| Feature | Merchant Loan | Merchant Cash Advance |
|---|---|---|
| Legal structure | Loan agreement | Purchase of future receivables |
| Regulation | May be FCA regulated | Generally unregulated |
| Repayment method | % of card sales or fixed deductions | % of card sales |
| Total cost | May be fixed or variable | Fixed (factor rate) |
| Credit file impact | May appear on credit file | Does not appear |
| Early repayment | May reduce total cost | Total cost stays the same |
What does a merchant loan cost?
The cost of a merchant loan depends on the provider and the terms offered. Some merchant loans use a factor rate similar to an MCA, while others charge a fixed fee or a percentage-based cost.
Typical costs range from 15 to 40 percent of the amount borrowed. For example, borrowing £10,000 might cost between £1,500 and £4,000 in total fees, meaning you repay between £11,500 and £14,000.
| Amount Borrowed | Typical Cost Range | Total Repayment |
|---|---|---|
| £10,000 | £750 to £2,000 | £5,750 to £7,000 |
| £10,000 | £1,500 to £4,000 | £11,500 to £14,000 |
| £20,000 | £3,000 to £8,000 | £23,000 to £28,000 |
| £50,000 | £7,500 to £20,000 | £57,500 to £70,000 |
Who qualifies for a merchant loan?
Merchant loan eligibility is based primarily on your card transaction revenue. The typical requirements are:
- A UK-registered business with at least three months of trading
- A minimum of £10,000 per month in card transactions
- An active card terminal or online payment gateway
- No minimum credit score, though some providers may run a soft check
What can you use a merchant loan for?
Most merchant loan providers do not restrict how you use the funds. Common uses include:
- Purchasing stock or inventory
- Refurbishing or expanding your premises
- Buying new equipment or technology
- Funding marketing campaigns
- Hiring additional staff
- Covering seasonal cash flow gaps
Advantages of a merchant loan
Merchant loans offer several benefits over traditional bank finance.
- Fast approval and funding, typically within 48 hours
- Flexible repayments that adjust with your card revenue
- No personal guarantee in most cases
- No collateral or security required
- Simple application with minimal paperwork
- Available to businesses with poor credit
Disadvantages to consider
Like any financial product, merchant loans have some drawbacks.
- Higher total cost compared to some traditional bank loans
- Only available to businesses processing card payments
- Daily deductions reduce your available cash flow
- Some merchant loans may require a personal guarantee
- Not all providers are equally transparent about costs
Frequently asked questions
Is a merchant loan the same as a merchant cash advance?
Not exactly. While both are repaid through card transactions, a merchant loan is legally structured as a loan, while an MCA is a purchase of future receivables. The practical experience for business owners is very similar.
How long does it take to repay a merchant loan?
Most merchant loans are repaid within 3 to 12 months, depending on your card transaction volume and the repayment percentage.
Can I get a merchant loan with bad credit?
Yes. Merchant loan providers focus primarily on your card revenue rather than your personal credit score. Many businesses with poor credit are approved.
Will a merchant loan affect my credit score?
This depends on the provider. Some merchant loans may appear on your credit file, while others do not. Check with your provider before applying.
How much can I borrow with a merchant loan?
Most providers offer between one and one-and-a-half times your monthly card turnover. A business processing £20,000 per month could typically access between £20,000 and £30,000.