Should my company take a cash advance or a revolving credit facility?
Sterling's answer A cash advance is one lump sum with a fixed price, repaid from takings. A revolving credit facility is a limit you dip into and only pay for what you use, so for a gap that keeps coming back it is usually the better tool.
Want a straight answer for your business?
See who'll fund meA merchant cash advance gives you one lump sum now, at a fixed price, repaid from your takings over a few months. A revolving credit facility gives you a limit you can draw, repay and draw again, and you pay only on what you use. For a one-off need with a clear payback, an advance can work. For a cash gap that keeps coming back, revolving credit is usually the better fit and often the cheaper one.
Side by side
| Merchant cash advance | Revolving credit facility | |
|---|---|---|
| What you get | One lump sum | A limit you draw as needed |
| How it is priced | Factor rate: fixed total, like 1.35 × advance | Interest or fees on what you draw |
| How you repay | Share of takings or fixed daily/weekly debit | Flexible, within the facility terms |
| Repay early | Usually still owe the full total | Usually stops the cost on that drawing |
| Reuse | Need a new advance | Repay and draw again |
| Regulated by the FCA | No | No, for a limited company |
The cost in real terms
A £10,000 advance at a 1.35 factor rate, paid daily over 6 months, costs £3,500, about 126% APR. That cost is the same whether you needed the money for the whole six months or only for six weeks.
A revolving facility charges on the balance you actually draw. If you only need £10,000 for six weeks, you pay for six weeks. That difference matters most when the need is irregular: VAT quarters, seasonal stock, a big customer who pays at 60 days.
Sterling's take: a fixed price for flexible need is how owners overpay. Match the shape of the money to the shape of the gap.
When a cash advance is the better tool
- Takings are card-heavy and seasonal, and a percentage holdback would match your cash flow.
- The bank has declined a facility and the need is short and specific.
- You want one fixed cost you can see on day one.
When revolving credit is the better tool
- The gap comes back every month or quarter.
- You do not know exactly how much you will need, or when.
- You want to repay as soon as cash comes in and stop paying for it.
What to watch on each
- Advance: fixed daily debits that do not flex in a quiet week, personal guarantees, and the true APR.
- Revolving facility: non-utilisation or arrangement fees, annual reviews where the limit can be cut, and whether it is repayable on demand.
What to do next
If you have quotes for both, put them into the offer checker to see the real cost side by side. Then read the full guides to the merchant cash advance and the revolving credit facility, and if customers paying late is the real cause, look at invoice finance.
Run your own numbers: Am I being overcharged?
Estimated APR
82.0%
Expensive short-term money.
50% to 100% APR. Worth it only if the money earns more than it costs, quickly. Ask what a longer term would cost.
- You actually receive
- £97,000
- Cost of the money
- £33,000
- Cost per £1 received
- £0.34
- Factor rate equivalent
- 1.300
- 189 payments of
- £687.83
- Daily debits come out on quiet days too. Check a slow week still covers them.
- Ask in writing whether paying early reduces the total. With many advances it doesn't.
The verdict bands are Sterling's rule of thumb, not market averages.
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Questions owners ask
Which is cheaper?
It depends on the offers, but a revolving facility charges on what you draw, while an advance has a fixed total. Convert both to an APR and compare them in the offer checker.
Which is easier to get?
Cash advances often lean on card takings and can suit companies a bank would turn down. Revolving facilities tend to look harder at accounts and credit history.
Can I have both?
Yes, but each repayment comes out of the same cash. Our funding partner looks for two or fewer loans or advances running at once.
Is a revolving credit facility the same as an overdraft?
They are similar in spirit: a limit you draw and repay. A revolving credit facility is usually a separate account with its own terms, rather than part of your current account.