Business Funding Glossary
This glossary defines the terms you'll see in business funding offers and contracts — from factor rate and holdback to UCC-1 filings, stacking and reconciliation — so you can compare offers with confidence.
Last updated October 23, 2026
- ACH
- Automated Clearing House — the electronic network used to debit or credit bank accounts. Most MCAs collect payments by daily or weekly ACH debit.
- Advance amount
- The purchase price paid to a business in a merchant cash advance before any fees are deducted.
- APR
- Annual percentage rate — the yearly cost of financing including interest and certain fees, expressed as a percentage. Useful for comparing products with different terms.
- Average daily balance
- The average end-of-day balance in a bank account over a statement period; a key underwriting metric for MCAs.
- Confession of judgment (COJ)
- A contract clause allowing a creditor to obtain a judgment without a lawsuit if the borrower defaults. Restricted or banned in some states.
- Debt service coverage ratio (DSCR)
- Net operating income divided by total debt payments. Lenders often want 1.25 or higher.
- Factor rate
- A decimal multiplier (e.g. 1.30) used to price MCAs and some short-term loans. Total payback equals the amount funded multiplied by the factor rate.
- Holdback
- The percentage of daily card sales or deposits remitted to an MCA provider until the purchased amount is collected, often 8%–20%.
- NSF
- Non-sufficient funds — a returned payment due to an insufficient balance. Frequent NSFs reduce approval odds.
- Origination fee
- An upfront fee, often 1%–5%, charged to process a loan or advance, usually deducted from the funded amount.
- Payback amount
- The total amount to be repaid on an advance: amount funded × factor rate.
- Personal guarantee
- A promise by the owner to be personally responsible if the business defaults on its obligations.
- Position
- Each open advance is a 'position'. A business with two open MCAs has a first and second position.
- Prepayment penalty
- A fee for paying off a loan before the end of its term.
- Reconciliation
- A contractual process where an MCA provider adjusts fixed payments to match the agreed holdback percentage of actual revenue, typically when sales decline.
- Recourse factoring
- Factoring where the business must buy back invoices its customers fail to pay.
- Renewal
- A new advance offered once a portion (often 50%+) of an existing advance is paid, usually paying off the remaining balance first.
- SBA guarantee
- The portion of an SBA loan the Small Business Administration guarantees to the lender if the borrower defaults.
- Split funding
- An MCA collection method where the card processor sends the holdback percentage directly to the provider.
- Stacking
- Taking a new merchant cash advance while one or more advances are still open. Stacking increases total daily payments and risk.
- Time in business (TIB)
- How long a business has been operating, typically measured from its formation date or first deposits.
- UCC-1 filing
- A public notice filed by a lender or funder claiming a security interest in a business's assets or receivables.
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