Every term, A to Z
If a funder used a word you did not recognise, it is almost certainly here.
A
ACH Debit — An automatic withdrawal pulled directly from a business bank account, used by most funders to collect daily or weekly payments.
Average Daily Balance — The average amount held in a business bank account across a statement period, measured every day rather than at month end.
B
Bank Statement Loan — Funding underwritten primarily from business bank statements rather than tax returns or financial statements.
Blanket Lien — A security interest covering substantially all of a business's assets rather than one specific item.
Business Credit Score — A score assessing the creditworthiness of the business entity rather than its owner, issued by bureaus such as Dun & Bradstreet or Experian Business.
Business Line of Credit — A revolving facility a business can draw from as needed, repay, and draw from again up to a set limit.
C
Cash Flow Gap — The period between paying for work and being paid for it.
Collateral — A specific asset pledged to secure financing, which the lender can claim if the debt is not repaid.
Confession of Judgment (COJ) — A clause in some funding agreements in which the business waives the right to contest a claim in court if it defaults.
D
Daily Payments — A repayment structure that withdraws from the business bank account every business day.
Debt Service Coverage Ratio (DSCR) — A measure of whether a business generates enough income to cover its debt payments, calculated as net operating income divided by total debt service.
F
Factor Rate — A multiplier — not an interest rate — used to price a merchant cash advance. A $50,000 advance at a 1.4 factor rate means you repay $70,000 in total.
First Position — The funder with the senior claim on repayment, typically the first one to fund the business and the first to be repaid.
Funding Position — The order in which funders are repaid when a business holds more than one advance or loan.
H
Hard Credit Pull — A formal credit inquiry that is recorded on the credit report and can temporarily lower the score.
Holdback — The fixed percentage of daily or weekly card and bank deposits that a funder withholds to repay an advance, commonly 10% to 20%.
I
Invoice Factoring — Selling unpaid invoices to a third party at a discount in exchange for immediate cash.
M
MCA Buyout — When a new funder pays off an existing advance in full and replaces it with a single new facility.
Merchant Cash Advance — The purchase of a portion of a business's future revenue at a discount, repaid through a percentage of daily or weekly deposits.
N
NAICS Code — The six-digit North American Industry Classification System code identifying what a business does.
NSF (Non-Sufficient Funds) — A returned or declined transaction caused by too little money in the account.
Negative Days — Any day on which a business bank account balance falls below zero, even briefly.
Net Funding — The amount that actually reaches the business bank account after fees and any payoff of existing balances.
O
Origination Fee — A charge deducted by the funder for issuing the facility, usually a percentage of the amount funded.
P
Personal Guarantee — A commitment by the business owner to be personally responsible for the debt if the business does not repay.
Prepayment Penalty — A fee charged for repaying a facility ahead of schedule.
R
Renewal — Additional funding offered to an existing customer, usually once a set portion of the original balance has been repaid.
Restricted Industry — A business category a funder will not finance, regardless of how strong the file is.
Revenue-Based Financing — Funding repaid as an agreed percentage of ongoing revenue rather than on a fixed schedule.
Reverse Consolidation — New funding that supplies a business with capital to cover its existing advance payments, restructuring the payment schedule without formally paying off the original positions.
S
Seasonality — Predictable variation in revenue across the year that affects both funding need and repayment capacity.
Second Position — A funder that repays after the first-position funder, taking on more risk in exchange for higher pricing.
Soft Credit Pull — A credit check that does not affect the credit score and is not visible to other lenders.
Stacking — Taking a second, third or fourth advance while an earlier one is still outstanding, leaving multiple funders collecting from the same deposits at once.
T
Term Loan — A fixed sum borrowed and repaid on a set schedule over a defined period.
Time in Business — How long a business has been operating, usually measured from formation or first revenue.
Total Payback — The full amount a business will repay over the life of a facility, including all costs.
U
UCC Filing — A public notice filed by a funder recording a security interest in a business's assets.
W
Weekly Payments — A repayment structure that withdraws once per week rather than every business day.
Working Capital — The money available to cover day-to-day operating costs — the gap between current assets and current liabilities.
More terms, A to Z
The next layer of vocabulary, as explained by Merchant Fund Express: cash-flow measures, credit terms, repayment structures and the words that appear in agreements.
A
Accounts Payable — Money your business owes to suppliers and vendors for goods or services it has already received.
Accounts Receivable — Money customers owe your business for goods or services you have already delivered.
Advance Rate — The percentage of an invoice’s face value that a factor pays you up front.
Amortization — The gradual repayment of a loan through scheduled payments that cover both principal and interest.
APR — Annual percentage rate: the yearly cost of borrowing expressed as a percentage, including certain fees.
Asset-Based Lending — Borrowing against the value of assets such as receivables, inventory or equipment.
Average Monthly Revenue — The average of your business’s monthly deposits or sales over a defined period, often three to twelve months.
B
Balloon Payment — A large final payment due at the end of a loan after smaller payments through its term.
Bankruptcy — A legal process that restructures or discharges debts when a person or business cannot pay them.
Bridge Loan — Short-term financing that covers a gap until a longer-term source of capital or a known payment arrives.
Broker — An intermediary that connects a business to funders without lending its own money.
Business Bank Account — A bank account in the business’s name, used for its deposits and payments.
Business Credit Card — A revolving credit card issued to a business for purchases and expenses.
Business Purpose — The stated reason for requesting funding.
Business Valuation — An estimate of what a business is worth.
C
Capital Expenditure — Spending on assets that last more than a year, such as equipment, vehicles or a build-out.
Cash Conversion Cycle — The number of days it takes to turn money spent on inventory and operations back into cash from sales.
Cash Flow — The movement of money into and out of a business over a period.
Cash Flow Statement — A financial statement that shows cash coming in and going out over a period, by operating, investing and financing activity.
Chargeback — A reversal of a card payment that a customer disputes with their card issuer.
Closing Costs — Fees paid to complete a loan, such as origination, documentation and legal fees.
Consolidation — Combining several obligations into one new obligation, usually with a single payment.
Contract Value — The total amount a customer has agreed to pay under a contract.
Credit Card Processing — The system that accepts card payments from customers and settles them into a business account.
Credit Limit — The maximum amount available to borrow on a line or card.
Credit Utilization — The share of available revolving credit that is in use.
Current Ratio — A measure of short-term financial health: current assets divided by current liabilities.
Customer Refund — Money returned to a customer for cancelled or returned goods or services.
D
Daily Sales — The amount a business takes in each day.
Days Sales Outstanding — The average number of days it takes a business to collect payment after a sale.
Default — Failure to meet the terms of a financing agreement, most often missed payments.
Deposit Count — The number of separate deposits into a business account in a month.
Draw — Taking money from a line of credit.
Draw Fee — A fee charged each time money is drawn from a line of credit.
Draw Period — The time during which you can borrow from a line of credit.
E
EBITDA — Earnings before interest, taxes, depreciation and amortization.
EIN — Employer Identification Number: a nine-digit tax ID the IRS assigns to a business.
Equipment Financing — Financing used to buy or lease equipment, with the equipment itself as collateral.
Equity Financing — Raising money by selling an ownership stake in the business.
F
Factoring Reserve — The portion of an invoice a factor holds back until your customer pays.
Fee on a Cash Advance — A charge added to the amount repaid in return for receiving cash now.
FICO Score — A widely used personal credit score ranging from 300 to 850.
Fixed Payment — A payment of the same amount on each due date, regardless of sales.
Funding Timeline — The time from application to money in the account.
G
Good Standing — A status showing a business is compliant with state filings and fees.
Gross Margin — Revenue minus the direct cost of goods or services, as a percentage of revenue.
Gross Profit — Revenue minus the direct cost of producing goods or services.
Gross Revenue — Total sales before deducting any costs.
Guarantor — A person who agrees to repay a debt if the business cannot.
I
Inventory Financing — Financing used to buy inventory, often secured by the stock itself.
ISO — Independent sales organization: a company that sources business for funders or processors.
L
Lease Buyout — Paying a lessor to take ownership of leased equipment or a vehicle.
Lien — A legal claim on property or assets to secure a debt.
Liquidity — How quickly assets can be turned into cash to meet obligations.
Loan Covenant — A condition in a loan agreement that the borrower must meet or avoid.
Loan Term — The length of time over which a loan is repaid.
M
Merchant Account — An account that allows a business to accept card payments and receive settlements.
Minimum Balance Requirement — A required amount that must stay in an account.
N
Net 30 — Payment terms that give a customer 30 days to pay an invoice.
Net Profit — What is left after all costs, taxes and interest are deducted from revenue.
O
Operating Expenses — The costs of running a business day to day, such as rent, payroll and utilities.
Operating History — The record of a business’s revenue, expenses and activity over time.
Overdraft — A bank account balance below zero, usually with a fee.
P
Payment History — The record of whether payments have been made on time.
Payoff Amount — The total required to fully repay a debt on a given date.
Payoff Letter — A written statement from a funder of the amount needed to close out a debt.
Percentage-of-Sales Repayment — A repayment structure where a set percentage of revenue goes to the funder.
Personal Credit Score — A numerical summary of an individual’s credit history.
Pre-Qualification — A preliminary check of whether you are likely to qualify for financing.
Principal — The original amount borrowed, before interest and fees.
Purchase Order Financing — Funding to pay suppliers so a business can fulfil a customer’s confirmed order.
Purchased Amount — In a merchant cash advance, the total amount of future receivables the funder buys.
R
Receivables — Money owed to a business by customers.
Reconciliation — A right in many true merchant cash advances to adjust payments to actual receivables.
Remittance — A payment sent from the business to the funder to repay an advance.
Repayment Term — The period over which a financing is expected to be repaid.
Reserve Account — A balance held back by a processor or funder to cover potential losses such as chargebacks.
Retainage — A portion of a contract payment withheld until the work is complete.
Revenue Concentration — The share of revenue that comes from a small number of customers.
S
SBA Loan — A small business loan from a bank partly guaranteed by the U.S. Small Business Administration.
Seasonal Line of Credit — A line of credit sized or timed to a business’s seasonal peaks and troughs.
Seasonal Revenue — Income that rises and falls in a predictable annual pattern.
Secured Loan — A loan backed by collateral that the lender can claim if it is not repaid.
Settlement — The movement of funds from a transaction into a bank account.
Short-Term Loan — A loan repaid over a period of months, often under 18 months.
Specified Percentage — In an MCA, the share of receivables used to calculate remittances.
Split Funding — A repayment method where a share of each card settlement goes directly to the funder.
Startup Loan — Financing aimed at a new business with little operating history.
T
Tax Lien — A legal claim by a tax authority against property for unpaid taxes.
True Cost of Capital — The total dollars paid for financing, including all fees, divided by the amount received.
U
Underwriting — The review that decides whether and on what terms to fund an application.
Unsecured Loan — A loan not backed by specific collateral.
V
Variable Remittance — Payments that change with the business’s revenue.
W
Working Capital Ratio — Current assets divided by current liabilities.
Write-Off — Removing a debt or asset from the books because it is not expected to be collected or recovered.