Reference

MCA Glossary

Key terms and definitions for merchant cash advances, A to Z.

A

Accounts Receivable Financing: A type of financing where a business uses its outstanding invoices as collateral to receive immediate cash. Different from invoice factoring because the business retains collection responsibility rather than selling the invoice. Learn more →
ACH (Automated Clearing House): An electronic funds transfer system used by MCA companies to withdraw daily or weekly payments directly from a business bank account. Most MCA agreements grant the funder ACH authorization that allows them to debit without requesting permission each time.
Advance Amount: The total cash amount provided to a business by an MCA provider, which must be repaid with the factor rate applied. Sometimes reduced by an origination fee before funding.
Affiliate Marketing: A common arrangement where websites (including educational ones) receive commissions for referring MCA applicants to funders. Must be disclosed under FTC rules.
Amortization: The process of paying off a loan through regular payments over time. Most MCAs do not technically amortize since the factor rate locks in total cost regardless of payoff speed.
Annual Percentage Rate (APR): The annualized cost of borrowing expressed as a percentage. MCAs do not technically have an APR since they are not loans, but an equivalent APR can be calculated for comparison purposes. A factor rate of 1.35 on a 6-month MCA typically translates to 70-90% APR. Learn more →
Approval Rate: The percentage of applicants that receive an MCA offer. Typically 60-80% at most MCA providers, much higher than traditional bank loans (which approve 20-30% of small business applicants).

B

Bank Statement Review: Core underwriting method for MCAs. Funders analyze 3-6 months of business bank statements to assess deposits, cash flow patterns, NSF incidents, and daily ending balances before making an offer.
Broker: A third-party intermediary who connects businesses with MCA providers. Brokers earn commissions (typically 8-15% of the advance amount) and may or may not disclose all available options. Working through a broker usually costs more than going direct. Learn more →
Broker Commission: The fee paid to an MCA broker for placing a funded advance, typically 8-15% of the advance amount. This commission is added to the factor rate, meaning business owners effectively pay the broker fee through higher repayment costs.
Business Credit Score: Numerical rating of a business's creditworthiness, reported by Dun & Bradstreet (PAYDEX), Experian Business, and Equifax Business. Some MCA providers like OnDeck report to these bureaus; most do not.

C

Cease and Desist Letter: A formal letter sent to an MCA company demanding they stop collection calls, UCC filings, or other actions. Often used by business debt attorneys as an initial step in negotiating debt settlement. Learn more →
Commercial Financing Disclosure Law (CFDL): State laws requiring MCA companies to provide standardized disclosures including estimated APR, total cost, and payment details. Currently enacted in California (SB 1235), New York, Utah, Virginia, and other states. Learn more →
Confession of Judgment (COJ): A legal document signed by the business owner allowing the MCA company to obtain a court judgment without trial if the business defaults. Heavily restricted in New York since 2019. Banned or unenforceable in California and several other states. Learn more →
Consolidation Loan: A new loan or advance used to pay off existing MCAs. Different from reverse consolidation, which doesn't actually pay off the old MCAs but rather redirects payments. Learn more →
Cross-Default Clause: Language in an MCA contract stating that default on one related obligation (like another MCA from an affiliated funder) triggers default on this one. Dangerous for businesses with multiple advances. Learn more →

D

Daily Holdback: The fixed or percentage-based amount withheld from daily revenues to repay an MCA. Fixed daily payments pull the same amount regardless of sales; percentage-based holdbacks adjust with daily revenue.
Default: Failure to meet the repayment terms of an MCA agreement. Can trigger additional fees, legal action, UCC lien enforcement, and in some states a confession of judgment filing. Learn more →
Direct Lender (Direct Funder): An MCA company that provides capital directly, without going through a broker. Examples: OnDeck, Credibly, CAN Capital, Rapid Finance, Fora Financial. Working direct typically saves 8-15% versus a broker.
Double Dipping: When an MCA provider takes two payments in a single day, either intentionally or due to a processing error. Also refers to when a refinancing MCA rolls the old balance (plus new fees) into a new advance, causing the business to pay fees twice. Learn more →

E

Equipment Financing: A loan or lease secured by specific business equipment. Runs 8-20% APR and is dramatically cheaper than using an MCA to buy equipment. The equipment itself serves as collateral. Learn more →
Estoppel Agreement: A legal document some MCA companies require, waiving the business's right to dispute certain facts later. Common in renewal agreements. Read carefully before signing.

F

Factor Rate: A multiplier (typically 1.1 to 1.5) applied to the advance amount to determine the total repayment. A factor rate of 1.3 on a $50,000 advance means $65,000 total repayment. Does NOT equal APR; a 1.35 factor rate on 6 months is roughly 70% APR. Learn more →
Factoring (Invoice Factoring): Selling unpaid B2B invoices to a factoring company for immediate cash, typically at 1.5-4% of invoice value. Dramatically cheaper than an MCA for businesses with slow-paying commercial clients. Learn more →
Fintech Lender: Online-first lending companies using technology-driven underwriting. Includes both MCA providers (Credibly, OnDeck) and non-MCA alternatives (Fundbox, BlueVine).
Fixed Daily Payment: An MCA repayment structure where a set dollar amount is deducted from the business bank account every business day, regardless of daily sales. Distinct from percentage-based holdbacks.
Funding Amount: Same as advance amount. The cash received by the business at the start of the MCA (before any origination fee deduction).

G

Guarantee (Personal Guarantee): A legally binding commitment from the business owner to personally repay the MCA if the business cannot. Sometimes called a 'validity guarantee' or 'performance guarantee' to avoid the word 'personal guarantee' while achieving the same effect. Learn more →

H

Holdback Percentage: The percentage of daily credit card sales or revenue retained by the MCA company as repayment. Typically 10-25%. Higher holdbacks pay off the MCA faster but strain daily cash flow. Learn more →

I

Interest Rate: The percentage charged for borrowing money over time. MCAs do not use interest rates; they use factor rates. This is a deliberate distinction by the industry to maintain the legal position that MCAs are not loans.

L

Loan Stacking: See Stacking.
Lockbox: An arrangement where a business's customers send payments to an account controlled by the MCA company or a third party, rather than directly to the business. Gives the MCA company first claim on incoming revenue.

M

MCA (Merchant Cash Advance): A financing option where a business receives a lump sum in exchange for a percentage of future credit card sales or revenue. Technically a purchase of future receivables, not a loan, which keeps MCAs outside most lending regulations. Learn more →
Merchant Processor: The company handling credit card transactions for a business (Square, Stripe, Clover, Worldpay, etc.). MCA repayment is sometimes linked directly to the processor's daily batch to take a percentage.

O

Origination Fee: A one-time fee charged at funding, typically 0-4% of the advance amount. Deducted from the funding before it reaches the business, so a $50,000 advance with a 3% origination fee actually pays out $48,500.

P

Pass-Through MCA: An MCA structure where the funder receives payments from the business's merchant processor directly, rather than ACH debits from the bank account. More common in pure percentage-of-sales MCAs.
Payoff Discount: A reduction to the total repayment amount offered if the business pays off the MCA early. Common on term loan products (OnDeck) but rare on traditional MCAs.
Performance Guarantee: Contract language making the business owner personally responsible if the business fails to 'perform' on the MCA (i.e., fails to pay). A personal guarantee in disguise. Read carefully. Learn more →
Prepayment Penalty: A fee charged for paying off an MCA early. Uncommon on MCAs (most have no early payoff benefit OR penalty) but more common on term loans. Fundbox and Kabbage both offer no-prepayment-penalty lines of credit.
Purchase of Future Receivables: The legal framing that distinguishes an MCA from a loan. The funder is buying a portion of the business's future revenue, not lending money. This framing keeps MCAs outside most lending laws.

R

Reconciliation: The process of adjusting MCA payments when actual revenue differs from projected revenue. Proper reconciliation clauses should automatically reduce payments when sales drop. Many MCA contracts include reconciliation language that is effectively unenforceable.
Renewal: A new MCA taken after the first is largely paid off. Renewal factor rates are often higher than the original, and unused balance from the prior MCA may be rolled into the new one (see Double Dipping).
Retrieval Rate: The percentage of daily sales that is automatically deducted to repay the MCA. Same as holdback percentage.
Revenue-Based Financing (RBF): Capital provided in exchange for a percentage of future monthly revenue over a longer period than MCAs (typically 3-5 years vs 6-18 months). Popular with SaaS and subscription businesses. Effective APR typically 15-25%, much cheaper than MCAs. Learn more →
Reverse Consolidation: A debt relief strategy where a new advance is used to make the daily payments on existing MCAs, rather than paying them off. Doesn't reduce total debt but can temporarily improve cash flow.

S

SBA Loan: A loan partially guaranteed by the U.S. Small Business Administration. SBA 7(a) loans run 10-13% APR and are dramatically cheaper than MCAs, but require stronger credit, revenue, and longer underwriting. Learn more →
Securities and Exchange Commission (SEC): Federal regulator that has occasionally pursued MCA companies for deceptive practices related to investor disclosures, but does not primarily regulate the MCA industry's customer-facing practices.
Settlement: Negotiating with an MCA company to accept less than the full balance owed, typically 40-60 cents on the dollar. Available when the business is in default or facing default. Learn more →
Small Business Administration (SBA): Federal agency that guarantees portions of loans made by participating lenders to small businesses. SBA 7(a) and SBA Express programs are the main alternatives to MCAs for qualified borrowers.
Specific Performance: A legal remedy where a court orders a party to fulfill contractual obligations. Rarely invoked in MCA collection, but some MCA contracts reference it.
Stacking: Taking out multiple MCAs simultaneously from different providers. Considered high-risk as it multiplies daily payment obligations and often leads to default within 6-12 months. Learn more →

T

Term Loan: A traditional loan with a fixed amount, fixed interest rate, and fixed repayment schedule over a defined period. Most term loans run 8-25% APR, far cheaper than MCAs. Learn more →
True-Up: A payment reconciliation process where the MCA company adjusts payments based on actual revenue versus projected. Different from reconciliation in that true-up typically refers to single-period adjustments.

U

UCC Filing (Uniform Commercial Code): A legal filing that gives the MCA provider a lien on business assets, including future receivables. Used as collateral and recorded publicly with the Secretary of State. Multiple UCC filings can block traditional financing. Learn more →
Underwriting: The process an MCA funder uses to evaluate a business's creditworthiness, usually focused on 3-6 months of bank statements, monthly revenue, NSF incidents, and existing debt.

V

Validity Guarantee: Contract language making the business owner personally responsible for the accuracy of information provided. Often used as a de facto personal guarantee. A red flag if you think you are getting an MCA without personal liability. Learn more →

W

Working Capital: Capital available for day-to-day business operations. MCAs, lines of credit, term loans, and invoice factoring are all forms of working capital financing with very different cost structures. Learn more →

Y

Yield: The MCA funder's return on their capital. Factor rates translate to yields of 20-50% annually for the funder, explaining why MCAs are a profitable business model despite high default rates.