Funding terms, in plain English
Every term you will meet on an offer, a contract, or a funding call, defined the way we explain them across the desk. No jargon defined with more jargon.
Merchant cash advanceAdvance amountFactor ratePayback amountNet funded amountSpecified percentageHoldbackACH debitDaily paymentWeekly remittanceTermReconciliationPositionStackingConsolidationReverse consolidationRenewalOrigination feeUCC lienPersonal guaranteeConfession of judgmentDefaultPayoff letterPrepayment discountStipsBank statement underwritingNSF and negative daysAverage daily balanceReceivables purchase agreementFunding callWorking capital
Merchant cash advance (MCA)
A purchase of a business's future receivables at a discount. The funder wires a lump sum today and collects a larger fixed amount out of future deposits, usually through daily debits. It is legally a sale, not a loan, which is why it prices with a factor rate instead of interest.
Advance amount
The lump sum the funder agrees to purchase your receivables for. This is the headline number on the offer, but fees usually come out before the wire, so the amount that lands is smaller. Always ask for the net funded amount.
Factor rate
The multiplier that sets the total payback on an advance. A $50,000 advance at a 1.30 factor means $65,000 paid back. Typical range runs 1.22 to 1.45. It is not an interest rate: the cost is fixed on day one and does not accrue over time.
Payback amount
The total fixed dollar amount you repay: advance times factor rate. Also called the purchase amount or receipts purchased amount in contracts. It never grows, and without a prepayment discount it never shrinks either.
Net funded amount
What actually hits your bank account after origination, underwriting, and wire fees come out of the advance. You still repay against the full advance amount, which is why this number matters more than the headline.
Specified percentage
The share of your revenue the contract says the funder is buying, often 10 to 25 percent. The fixed daily payment is technically an estimate of this percentage, which is what makes reconciliation possible when revenue falls.
Holdback
The older term for the specified percentage, from when advances were repaid as a slice of daily card settlements. Some funders still collect this way, taking their share directly from card processing before the rest reaches you.
ACH debit
The automatic withdrawal the funder pulls from your business bank account, usually every business day. You authorize it in the contract. Blocking it without agreement is a default under nearly every MCA agreement, and it is the single most expensive mistake a struggling merchant can make.
Daily payment
The fixed amount debited each business day: payback divided by the business days in the term, roughly 21 per month. A $65,000 payback over 8 months runs about $387 a business day.
Weekly remittance
The same repayment structure collected once a week instead of daily. More common on longer terms and larger advances. Same total cost, gentler on daily cash flow management.
Term
How long repayment runs, typically 3 to 18 months. Shorter terms mean bigger daily payments for the same payback, and they inflate the APR equivalent even though the dollar cost is identical.
Reconciliation
The contract right to have your payment adjusted down to match the specified percentage of your actual revenue when sales fall. It is the most underused protection in the industry: funders rarely volunteer it, but most contracts contain it and merchants can invoke it in writing.
Position
Where an advance sits relative to other advances on the same business. The first funder in is the first position; each additional advance stacks behind it. Second and third positions carry more risk for the funder and price accordingly.
Stacking
Taking a new advance on top of an existing one. Each position adds another daily debit against the same deposits, and most first-position contracts prohibit it outright, so stacking can put you in default even while every payment clears. It is the most common way healthy businesses fund themselves into failure.
Consolidation
Replacing multiple stacked advances with one new, larger advance that pays the others off, leaving a single daily payment. It fixes the daily cash-flow bleed but usually at a meaningful total cost. Worth pricing out, not worth assuming.
Reverse consolidation
A workaround where a new funder deposits weekly amounts that cover your existing advance payments while collecting its own smaller debit. The stack stays in place but the net daily outflow drops. It buys breathing room rather than a clean exit, and it adds its own cost on top.
Renewal
A new advance from your current funder once you have paid down enough of the original, conventionally around half. The new advance pays off the old balance and you keep the difference. Clean repayment history is the strongest pricing lever a merchant ever has.
Origination fee
The funder's upfront charge, taken out of the wire before it lands. On top of it you may see underwriting, ACH setup, and wire fees. All of them widen the gap between the advance amount and the net funded amount, so get every fee in writing before signing.
UCC lien
A public filing under the Uniform Commercial Code that stakes the funder's claim on your business assets and receivables. Most funders file one. Other lenders see it when they underwrite you, and unreleased liens from paid-off advances are a common, fixable reason banks decline. Ask for a UCC termination when you pay off.
Personal guarantee
Your personal promise that the business will honor the contract terms. In most MCA agreements it is a guarantee of performance, not of payment: it triggers when you break the contract, such as blocking debits or switching bank accounts, rather than when revenue honestly declines.
Confession of judgment (COJ)
A clause where you pre-agree to a court judgment if the funder declares default, skipping the lawsuit. New York banned them against out-of-state merchants in 2019 and they have retreated since, but they still appear. Read for one before signing, and think hard if you find it.
Default
Breaking the contract: blocked debits, a switched bank account, an undisclosed second position, or simply payments that stop without communication. Default typically makes the full remaining payback due at once and puts the personal guarantee and UCC lien in play. Revenue declining on its own is not default under most contracts, which is what reconciliation exists for.
Payoff letter
A written statement from the funder of exactly what settles the contract today, including any prepayment discount. Required before consolidating, refinancing, or paying off early. Any legitimate funder produces one on request.
Prepayment discount
A contract addendum that reduces the total payback if you pay off inside set windows, turning the fixed cost into a sliding scale. Most deals we place carry one. It has to be negotiated before signing, not after.
Stips
Short for stipulations: the documents a funder requires before wiring, beyond the application. Common stips are recent bank statements, a driver's license, a voided check, proof of ownership, and sometimes an accounts receivable aging report. Fast stips are the real secret to fast funding.
Bank statement underwriting
How advances are actually approved: a reader goes through your last four months of business bank statements looking at deposit volume, deposit consistency, average daily balance, negative days, and existing position payments. Credit informs pricing but the statements carry the file.
NSF and negative days
Non-sufficient-funds events and days the account balance sits below zero. These are the loudest red flags in a statement file. A month with several negative days can cost more in offer size and pricing than a mediocre credit score does.
Average daily balance
The typical amount sitting in the account across the month, not just at statement close. Funders read it as your cushion against a bad week. Healthy deposits with a chronically thin balance reads as a business spending everything it makes.
Receivables purchase agreement
The actual contract behind an MCA. It documents the sale of future receivables, the specified percentage, the estimated payment, reconciliation rights, covenants, and default terms. Read all of it, especially the pages after the numbers.
Funding call
A short recorded call most funders require between signing and wiring. They confirm you are the owner, you understand the payback and payment schedule, and nobody is on the line coaching you. Honest answers only: the call protects both sides.
Working capital
Money that runs the business day to day: inventory, payroll, rent, materials, the gap while invoices clear. It is what short-term funding is built to cover, as opposed to long-horizon projects that belong with longer, cheaper money.
Holding an offer full of these terms?
Run it through the repayment calculator or read the contract guide. Or just send it over - we read offers with merchants for free.
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