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The walk-in fridge fails on a Friday, or the VAT payment is due in four days and the account can't cover it. Your payment processor — the one already handling every card tap you take — offers an advance within two clicks. No annual accounts, no bank meeting, money in the account tomorrow. It isn't called a loan. It can behave like one of the most expensive you'll ever take out.
A merchant cash advance (MCA) — sometimes called revenue-based financing, long established in the US and growing fast across Europe — isn't credit in the traditional sense. You 'sell' a slice of your future card sales for a fixed lump sum today. Repayment doesn't happen through a monthly direct debit you initiate; it happens through an automatic daily or weekly 'holdback' — a fixed percentage of every card payment that comes in, deducted before the money ever reaches your account.
The product is rarely sold on its own. It's embedded in the card terminal or POS system you already use: Adyen Capital offers it directly to its own merchants, SumUp has a similar advance built into its app, and Liberis powers comparable 'cash advance' products behind several European acquirers and POS providers — including restaurant-specific ones, like the Maitre'D Capital product launched through a Canadian-European hospitality POS. iwoca, better known as an SME lender, has built a similar advance in partnership with FundingXchange. The offer appears literally inside the dashboard you already log into every day to check your takings.
That's exactly why it works so well as a product — and why it's so risky as a decision. Because it's structured legally as a purchase of future receivables rather than a loan, it falls outside the consumer-credit rules that constrain an actual business loan in most EU member states: no statutory APR cap, no mandatory pre-contract disclosure of the real annual cost, no cooling-off period. A restaurant can sign one without ever seeing the number that would make it hesitate.
This article walks through seven verified numbers — drawn from specialist US and European MCA sources, cross-checked against the EU/UK providers' own materials — that together make that number visible. The calculator further down runs entirely in your own browser: enter your own advance amount, factor rate and average card sales and see straight away what it really costs, next to what the same amount would cost as a conventional term loan.
Why 'not a loan' is the whole problem
A bank loan comes with an interest rate — a percentage per year, legally required to be disclosed, easy to compare across lenders. A merchant cash advance comes with a 'factor rate' — a multiplier, not a percentage, and not tied to any annual basis at all. €20,000 at 1.35 means you repay €27,000, full stop. Whether that happens over three months or twelve, the factor rate itself never changes.
That distinction sounds technical, but it's the entire sales pitch. 1.35 sounds like 35% — far from unreasonable for fast, unsecured money with no bank meeting. But 35% over three months isn't 35% a year: it's close to 140%. And because there's no legal requirement to show that annual figure, almost nobody sees that number before signing — the provider shows the factor rate, not the equivalent APR.
The seven numbers below take that mechanism apart piece by piece: what a 'normal' factor rate looks like, what it actually means in real annual cost, how repayment vanishes out of your card takings before you ever see the money, how often it goes wrong, why some owners end up taking a second advance just to service the first — and why the very speed that makes the product so appealing is exactly what hides the rest.
The ultimate guide Restaurant Finance: 6 Numbers That Decide Your Profit From equity to bank credit: every financing option for your restaurant, in one guide. Open the guideThe 7 numbers behind a merchant cash advance
Every number below comes from specialist MCA trade literature, cross-checked between several independent sources and against the EU/UK providers' own published materials. Together they form exactly the picture a sales screen inside your payment app never shows in one go.
1. 1.10 to 1.55 — the factor rate, not an interest rate
The price of a merchant cash advance is expressed as a factor rate, usually somewhere between 1.10 and 1.55, with restaurants typically quoted between 1.15 and 1.49. It's a multiplier on the advance itself: at a factor rate of 1.35, a €20,000 advance means you repay €27,000 in total, regardless of how long repayment actually takes.
That's fundamentally different from an interest rate. An interest rate accrues per year; a factor rate is a fixed, one-off figure applied to the whole sum, from day one to the final repayment. You don't pay 'less interest' for repaying faster — if anything, as number two below shows, repaying faster makes the deal more expensive the moment you convert it to an annual basis.
Anchor everything else in this article to this number: a factor rate of 1.35 IS the full price. Nothing extra gets added on top, but nothing ever gets knocked off either — however your card sales that month happen to go.
2. 40% to 300%+ — the real annual cost once you annualise it
The moment you annualise that same factor rate — convert the cost into a yearly percentage, exactly what every other type of loan is legally required to disclose — the effective APR typically runs from 40% to well over 300%, depending on how fast the holdback repays the advance. For comparison, the term-loan and equipment-financing alternatives covered elsewhere on this site typically sit between 6% and 12% APR.
The mechanism is simple but rarely said out loud: the shorter the actual repayment period, the higher the annualised percentage for the exact same factor rate. A strong month — a festival nearby, good weather for the terrace — pays the holdback off faster. That feels like a win, but annualised it makes the deal more expensive, not cheaper. The second chart further down this article shows that curve directly.
This is the number that sums up the whole gap with a bank loan — and the number no merchant cash advance provider is legally required to show. Work it out yourself, with the calculator further down this article, before you sign, not after.
1.35 sounds identical whatever the term. Annualised, the picture changes completely — the faster the holdback repays it, the higher the effective rate.
Simplified annualisation: (fee ÷ advance) ÷ (term ÷ 12) × 100 — the same method the MCA industry's own cost-transparency critics use to set it against a regulated APR. A strong month that repays the holdback faster shortens the term — and, by exactly that, raises this figure.
3. 10% to 20% — the holdback on your daily card sales
Repayment runs through a 'holdback': a fixed percentage of every card payment that comes in, most commonly between 10% and 20% and most often around 15%. That percentage is automatically deducted by the payment processor before the remainder ever reaches your own account — you don't initiate anything, and you can't pause it on a bad day.
For a restaurant that's a fundamentally different rhythm from a bank loan. A bank loan pulls a fixed amount on a fixed date, whatever the business does that month — predictable, but rigid. A holdback moves automatically with your takings: a quiet Tuesday repays little, a busy Saturday repays a lot. That feels flexible, but it also means repayment never actually stops as long as card sales keep coming in — there's no 'pause' button the way a bank loan can offer a payment holiday.
And because the holdback is deducted before the money reaches your account, it also disappears out of any figure you see on your bank statement as gross revenue: you see the net deposit, not the gross card takings minus the deduction, unless you set that against your own till report yourself.
4. 11% to 20% — the industry-wide default rate
The default rate on merchant cash advances runs industry-wide between 11% and 20%, against 1% to 2% for the lowest-risk bank or government-backed business loans and 3% to 7% for a conventional bank loan. That gap isn't an accident — it reflects exactly the kind of business that turns to an MCA in the first place: often one a bank has already turned down, or one that needs the money faster than a bank file can move.
For the provider, that risk is priced into the factor rate itself: the higher the average default rate across the portfolio, the higher the factor rate needs to be to stay profitable overall. For you as an individual operator, that means something else: you're paying, in part, for the risk of everyone else in that same portfolio, even if your own business is running perfectly.
The figure is also a warning in itself. A product where somewhere between one in five and one in nine customers ultimately doesn't repay in full isn't an edge case — it's a structural feature of how the product is priced. And, as number five below shows, that structural risk gets a good deal worse once a business takes out a second advance to carry the first.
5. ~25% — the share of users carrying two or more concurrent advances
Roughly one in four merchant cash advance users is carrying two or more advances at once at any given time — a practice the industry calls 'stacking'. The reasoning is usually defensive rather than ambitious: the first holdback bites so deep into daily takings that not enough is left to cover ordinary running costs, and a second advance plugs that gap, temporarily.
The problem is arithmetic, not moral. Every holdback is calculated on the same gross card takings. Two advances at 15% each together deduct 30% of every card payment — often more than an average restaurant's gross margin. What starts as a fix for a temporary shortfall becomes a structural one that grows a little every single day.
The consequence is measurable: default risk on stacked advances runs 3 to 5 times higher than on a single advance. If you're considering taking one out while another is already running — or if a rep proposes 'refinancing the existing advance into' a new, larger one — this is exactly the figure to watch.
6. 24 to 72 hours — the speed that explains everything
A merchant cash advance is typically funded within 24 to 72 hours, against typically several weeks for a conventional bank loan with annual accounts, a business plan and a credit committee. That difference isn't marginal — it's the entire reason the product exists and the entire reason the other six numbers in this article get skipped over so easily.
A walk-in failing on a Friday night, a supplier demanding cash up front, a VAT payment due in four days: those are moments where 'within a few weeks' isn't an answer. The speed of an MCA isn't the problem — it's precisely why the product earns its place in an independent restaurant's toolkit. The problem is that the same urgency switches off judgement at the exact moment it's most needed.
That tension is what this whole article is about: the product that gets money into your account fastest is also the one whose real cost is least visible at the point you sign. Both are true. The calculator further down this article takes under a minute — just long enough not to get in the way of the urgency, but long enough to see the number the provider doesn't show you.
7. Worked example: €20,000 at a 1.35 factor rate over 6 months = €27,000
Take a concrete advance: €20,000, a factor rate of 1.35, repaid over roughly six months through a holdback on card takings. Total repayment is €27,000 — a €7,000 fee, fixed, whatever happens across those six months. That's the figure on the provider's screen, and the only figure most owners ever actually see.
Annualise that same €7,000 fee across the six months, and the effective rate comes out at roughly 70% — far above even the most expensive conventional business loan. Set a conventional term loan against it: the same €20,000, repaid over the same six months at a bank loan of around 9% APR, costs roughly €20,500 in total — barely €530 in interest instead of €7,000.
That gap of over €6,400 isn't a theoretical difference — it's exactly what the first chart further down this article sets side by side. And it repeats every single time you take an advance for as long as you don't set the amount, the factor rate and the term against a conventional alternative before you sign.
The same €20,000, over the same six months — as a merchant cash advance at a 1.35 factor rate, next to the same sum as a conventional term loan at roughly 9% APR.
gap: €6,472
The term loan is calculated using the same amortising-loan formula as this site's own loan calculator, over the identical six-month term. This is an illustrative example, not a quote — your own factor rate, term and interest rate may differ.
Work out what your advance actually costs
Enter the advance amount, the factor rate you've been quoted, and your average monthly card sales with the proposed holdback percentage. The calculator works out how many months repayment realistically takes at your own sales pace, what that means in real annual cost, and what the exact same € sum would cost as a conventional term loan at roughly 9% APR.
The fields start with plausible figures for a mid-sized restaurant, so you can see straight away how it reads — overwrite them with your own numbers. This is a simplified, illustrative estimate, not financial advice and not a quote from any specific provider.
Merchant cash advance calculator
What your advance really costs on an annual basis, and what the same amount would cost as a term loan.
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Everything runs in your own browser: nothing is sent or stored. The effective annual rate is a simplified annualisation, not a regulated APR calculation as used for consumer credit — treat it as an order of magnitude, not an exact quote.
Notice that the estimated repayment term gets shorter the higher your average card sales are — and that the estimated annual rate goes up exactly when that happens. That isn't a bug in the arithmetic: it's precisely the mechanism from number two above. A strong sales month repays the holdback faster, and that same speed makes the deal more expensive the moment you annualise it.
The term-loan comparison at ~9% APR uses the same amortising-loan formula as this site's own loan calculator — so what you see here is directly comparable to what that tool would show you for a conventional bank loan of the same amount and term.
How to evaluate an offer in 10 minutes
Always ask explicitly for the factor rate, not just the daily or weekly repayment amount. A rep who only quotes the per-day deduction — 'just €95 a day' — gives you nothing to compare the deal against another offer or a bank loan with. The factor rate is the one number you can actually do arithmetic with.
Annualise that factor rate yourself with the calculator above, before you sign, not after. Enter your own advance amount, factor rate and average card sales, and read the result next to what the exact same amount would cost as a conventional term loan via the loan calculator.
Check whether you're already carrying an advance before you consider a second one. As number five above shows, default risk on two stacked advances runs three to five times higher than on one — and a rep who proposes 'rolling the existing advance into' a new one rarely answers what that actually works out to as an effective holdback on your daily takings.
Finally, compare against the alternatives that ARE registered as loans and therefore ARE legally required to show a comparable APR: a conventional bank loan via the loan calculator, a government grant you might qualify for, leasing for a specific piece of equipment, or — if the shortfall is structural rather than one-off — a proper look at your own cash-flow plan before you go looking for outside money at all.
Fast money, made slowly visible
A merchant cash advance solves a real problem: money needed today, faster than a bank can ever deliver it. That's not a myth — it's exactly why the product exists, and exactly why it's offered through your payment processor at the precise moment you're most open to it.
But 'not a loan' on paper doesn't mean 'no cost' in practice. Without a statutory APR ceiling and without any requirement to disclose the real annual cost, the arithmetic lands on you — and as the seven numbers above show, that arithmetic often runs between 40% and well over 300% a year, against 6% to 12% for the conventional alternatives covered elsewhere on this site.
Before you accept an offer: work it out with the calculator above, check whether you're already carrying an advance, and set it against a conventional bank loan, a grant or leasing. And if the gap you're trying to close keeps coming back every month, a financing plan is often the cheaper next step — reading on about how to keep your cash flow healthy year-round or how to evaluate a brewery loan tied to exclusivity covers two other sides of the same question.