24 terms, A–Z

Glossary

Plain-English definitions of the terms found in business-funding agreements, with the math shown wherever a definition depends on it.

A

APR-equivalentalso: APR equivalent, annualized cost: In short; The annual percentage rate a loan would need for its cost to match an advance taken over the same term.; A 1.30 factor on a six-month term lands at about 100% APR-equivalent, and the calculator shows how that's worked out.
Average daily balancealso: ADB: In short; The average of the account's end-of-day bank balances across a month.; An underwriter weighs it alongside deposits and negative days to decide how much daily remittance the business can handle.

B

Brokeralso: ISO, funding advisor: In short; An intermediary who gets paid by the funder once a deal closes, typically 8–15% of the amount, a cost built into the factor rate.; You can ask any broker how they earn their money; here, we spell out exactly how this site gets paid.
Credit lines for businessesother names: line of credit, LOC: In short; A revolving limit you can draw from whenever needed, paying interest only on the balance outstanding.; Best used for gaps that recur, not for one-time projects.

C

Confession of judgmentalso: COJ: In short; A statement the merchant signs agreeing that, on default, the funder can have a judgment entered with no trial.; New York has prohibited it for out-of-state merchants since 2019, but it remains in use elsewhere.

D

Defaultalso: breach: In short; Whatever events the agreement lists, such as bounced remittances, a switched bank account, or taking a new position when that's prohibited.; Most funders would rather restructure the remittance than file a lawsuit, though they may accelerate the balance and enforce the guaranty.

E

Discount for paying earlyalso known as: prepayment discount, early payoff: In short; If you pay off the balance inside a set window, the purchased amount drops, usually by 10–25% of what's left.; If that clause is missing, you save nothing by paying off an advance early.
Equipment financingalso: equipment loan, equipment lease: In short; Financing in loan or lease form where the equipment is the collateral, typically bringing a lower rate and a term that tracks how long the asset lasts.

F

Factor ratealso: factor: In short; The figure an advance is multiplied by to set its cost: purchased amount = amount × factor rate.; At 1.30, a $50,000 advance means remitting $65,000, so the cost is $15,000. It's set when you sign, so remitting early doesn't lower it.

H

Holdbackalso: holdback percentage, split: In short; The portion of daily card sales, usually 8–20%, that a split-funded advance holds back until the purchased amount has been delivered.; Payments move with sales.

I

Invoice factoringalso: factoring, receivables financing: In short; You sell unpaid invoices to a factor, get 70–90% up front, and receive the rest when the customer pays, less a fee of 1–5% for each month it's outstanding.; What you pay hinges on your customers' credit rather than your own.

M

Merchant cash advancealso: MCA, cash advance: In short; The funder buys a set amount of a business's future receivables at a discount and pays a lump sum up front, which the business remits daily or weekly until the purchased amount has been delivered.; Since this isn't a loan, its cost is set as a factor rate rather than an interest rate.

N

Negative daysalso: NSF, overdraft days: In short; The count of days a bank account ended below zero or had a payment returned.; Most funders treat a file as high-risk once it shows more than three or four in a month.

P

Personal guarantyalso: personal guarantee, PG: In short; A personal promise from the owner to pay whatever the business can't.; Most advances include one covering performance, not a drop in the business's sales, and it is the reason personal assets are exposed if there is a default.
Positionalso: positions, stacking, stacked: In short; An open advance.; When a second advance sits on top of the first, it is in second position, and stacking several usually breaks the first agreement and pushes the daily load beyond what most businesses can carry.
Purchased amountsometimes called the right to receive or the payback amount: In short; Multiply the advance by the factor rate and you get the total owed to the funder.; You may also see it called the right-to-receive amount or the payback.

R

Reconciliationalso: true-up: In short; A clause that lets a merchant with falling sales bring the daily remittance back to the agreed percentage of actual receivables.; Seeing it is one sign that you're looking at a true receivables purchase.
Remittancealso: daily remittance, weekly remittance: In short; The set amount debited each day or week until the purchased amount is delivered.; In legal terms it is not a loan payment but a remittance of receivables.
Renewalalso: refinance, refi: In short; A fresh advance taken once about half of the current one has been delivered, with the remaining balance netted out.; It's convenient, and it's where plenty of businesses begin paying a factor on money they have already paid a factor on.
Revenue-based financingalso: RBF: In short; Funding paid back through a fixed share of each month's revenue until it hits a cap.; The cap usually lands at 1.2–1.6× the amount, and slower months cost you less.

S

SBA 7(a) loansalso called: 7(a), SBA loan: In short; A bank loan partly guaranteed by the U.S. Small Business Administration: the lowest cost most small businesses can reach, with the longest paperwork and timeline.

T

Term loanalso called: bank loan, business term loan: In short; A set amount paid back in equal monthly instalments, at an interest rate, over a term of one to ten years.; Qualified borrowers typically get around 8–14% APR from banks and credit unions, while online lenders charge more but move faster.
Time in businessalso: TIB: In short; The length of time the business has been running, measured from formation or first revenue.; Most advance programs will look at a business from six months, while most banks want to see two years.

U

UCC lienalso: UCC-1, UCC filing: In short; The funder secures its claim by filing a public notice against the business's assets.; Later funders can see it, since it remains on record until it is released.

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