Lending glossary

Plain-English definitions of merchant cash advance and business lending terms, with the formulas and worked examples brokers and funders use every day.

Pricing and math

Advance amount: The advance amount is the gross purchase price a funder pays for a merchant's receivables, before fees and payoffs are taken out.
Buy rate: The buy rate is the lowest factor a funder will accept on a deal from an ISO. The ISO can sell above it, and the gap becomes upsell commission.
Effective APR (estimate): An effective APR estimate annualizes an MCA's cost from its payment schedule so it can be compared with loans. It is an estimate, not a disclosure figure.
Factor rate: The multiplier that sets what a merchant repays on a cash advance: advance amount times factor rate equals the total payback, usually 1.10 to 1.55.
Holdback: Holdback is the share of a merchant's revenue that goes to repaying a cash advance, either a fixed split of card sales or the effective share taken by fixed ACH payments.
Net funding: Net funding is the cash a merchant actually receives: the advance minus origination and other fees and minus any payoffs of existing advances.
Origination fee: An origination fee is a charge the funder deducts from the advance at funding, usually a percent of the advance (often 2 to 5%) or a flat amount.
Points: Points are ISO commission expressed as a percent of the funded amount: base points paid by the funder plus upsell points from selling above the buy rate.
RTR (right to receive): RTR is the total amount of future receivables a funder buys in a merchant cash advance: the advance times the factor rate, also called the payback.
Sell rate: The sell rate is the factor rate the merchant actually signs, set by the ISO at or above the funder's buy rate. It decides the payback and the ISO's upsell.
Split funding: Split funding is an MCA repayment method where the card processor sends a fixed percentage of each card settlement to the funder before the merchant is paid.

Underwriting

Average daily balance (ADB): Average daily balance (ADB) is the mean of a bank account's end-of-day balances over a month. Funders use it to judge whether a merchant can carry daily payments.
DataMerch: DataMerch is an industry database where MCA funders and brokers report and look up merchants with defaults, fraud or stacking problems before funding.
MTD statement: An MTD (month-to-date) statement shows a merchant's bank activity from the start of the current month to today, so funders see what happened after the last full statement.
Negative days: Negative days are the days in a month when a merchant's bank account ends below zero. Funders cap them because each one risks a returned debit.
NSF: NSF means non-sufficient funds: a payment bounced because the account was short. In MCA underwriting, NSF counts per month are a core risk signal.
Paper grade: Paper grade is shorthand for deal quality, A through D. A paper has strong revenue, credit and statements and gets the lowest factors; D paper is the riskiest.
Positions: A position is one open cash advance on a merchant's account, numbered in the order taken: first position, second position and so on.
Stacking: Stacking means a merchant takes more than one cash advance at the same time, so several funders debit the same bank account and the combined holdback climbs.
Time in business (TIB): Time in business (TIB) is how long a business has operated, usually counted in months from formation or start date. Funders set minimums by product.
True revenue: True revenue is a merchant's real monthly sales on the bank statements: total deposits minus transfers, loan and MCA proceeds, refunds, reversals and owner money.

Deal flow

Consolidation: An MCA consolidation is a new advance that pays off one or more existing advances at funding, so the merchant ends up with fewer debits and, ideally, a lower total payment.
Decline reason: A decline reason is why a funder turned a deal down: revenue too low, too many positions, NSFs, restricted industry or state, credit, missing stips and similar.
Merchant cash advance (MCA): A merchant cash advance is a funder buying part of a business's future receivables at a discount, repaid by a share of sales or fixed debits until the RTR is delivered.
Reverse consolidation: A reverse consolidation gives an over-stacked merchant weekly funding that covers existing MCA payments, replacing several daily debits with one smaller payment over a longer term.
Stips: Stips (stipulations) are the documents or conditions a funder requires before or after approval: bank statements, ID, a voided check, payoff letters and so on.
Submission package: A submission package is the email or upload an ISO sends a funder: the application, bank statements, MTD, ID and voided check, with a clear subject line and summary.

After funding

ACH remittance: ACH remittance is repaying an MCA through fixed daily or weekly debits from the merchant's bank account until the full RTR is delivered.
Clawback: A clawback is a funder taking back an ISO's commission because the merchant defaulted or stopped paying within a set window after funding, often 30 to 90 days.
Commission split: A commission split divides the commission a funder pays on a deal between the house, the closer and any sub-ISO or referral partner, by agreed percentages.
Default: In an MCA, a default is a breach of the contract, such as blocking the funder's debits, switching banks, diverting receipts or stacking against terms.
Paid-in percentage: Paid-in percentage is how much of an advance's payback a merchant has remitted so far. Funders use it to decide when a merchant can renew.
Renewal: A renewal is a new advance to a merchant who has paid down an existing one. It pays off the remaining balance, and eligibility usually starts at 40 to 60% paid in.

Industry roles

Funder: A funder is the company that underwrites and pays out a cash advance or business loan. ISOs submit deals to funders and are paid commission when they fund.
ISO: In merchant cash advance, an ISO (independent sales organization) is the broker that finds merchants, packages their files and submits them to funders for a commission.
Sub-ISO: A sub-ISO is a smaller broker or agent that sends deals through a larger ISO instead of contracting with funders directly, and splits the commission.
Syndication: Syndication is when investors fund part of an MCA alongside the funder and receive a matching share of the payments, minus fees, as the merchant pays.

Legal and compliance

Confession of judgment (COJ): A confession of judgment is a signed document letting a creditor obtain a court judgment without a lawsuit if the signer defaults. Its use in MCA has been restricted.
ISO agreement: An ISO agreement is the contract between a broker and a funder that sets commission rates, clawbacks, submission rules and restrictions before any deal is sent.
Personal guaranty: A personal guaranty makes a business owner personally answerable for the merchant's obligations. In MCAs it is usually a performance guaranty, not a payment guaranty.
Reconciliation: Reconciliation is a merchant's contractual right to have fixed MCA payments adjusted to match actual receipts when sales fall, a key feature of the true-sale structure.
UCC-1 filing: A UCC-1 is a public financing statement a funder files with a state to record its interest in a merchant's receivables; brokers search them to find existing positions.

All of this, worked out on every deal.

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