Core MCA terms, by stage of a deal

MCA vocabulary is easier to learn in the order you meet it on a deal than alphabetically. Each group below opens with how the terms connect, then lists the short definitions from the glossary, where every term has a full page with formulas and examples. A short scenario at the end strings them together.

Start with the deal itself. The funder pays an advance amount for a set amount of future receivables, the RTR, and the factor rate links the two. Fees come off the top, so the merchant receives net funding. The effective APR is how that cost looks when annualized against the payment schedule.

• 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.
• Advance amountThe advance amount is the gross purchase price a funder pays for a merchant's receivables, before fees and payoffs are taken out.
• Factor rateThe 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.
• 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.
• Origination feeAn 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.
• Net fundingNet funding is the cash a merchant actually receives: the advance minus origination and other fees and minus any payoffs of existing advances.
• 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.

The ISO brings the deal; a sub-ISO may have brought it to the ISO. The funder decides, under an ISO agreement signed long before this merchant called. Syndicators may share the funder's side of the deal.

• ISOIn 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-ISOA 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.
• FunderA 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 agreementAn 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.
• SyndicationSyndication 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.

These are the words of the bank statement review. True revenue is what the merchant really earns; average daily balance, NSFs and negative days show how tight the account runs. Time in business and the MTD statement fill in the picture, positions and UCC-1 filings show existing advances, and together they set the paper grade.

• 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 revenueTrue 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.
• 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.
• NSFNSF means non-sufficient funds: a payment bounced because the account was short. In MCA underwriting, NSF counts per month are a core risk signal.
• Negative daysNegative 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.
• MTD statementAn 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.
• PositionsA position is one open cash advance on a merchant's account, numbered in the order taken: first position, second position and so on.
• UCC-1 filingA 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.
• Paper gradePaper 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.

The file goes out as a submission package once the stips are in. Funders answer with offers or a decline reason, and the reasons, collected over time, tell you which funders actually want which deals.

• StipsStips (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 packageA 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.
• Decline reasonA 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.

The offer arrives at a buy rate; the broker presents a sell rate. Base points plus upsell points make the commission, which is split with reps and partners and can be clawed back if the merchant defaults early.

• Buy rateThe 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.
• Sell rateThe 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.
• PointsPoints 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.
• Commission splitA 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.
• ClawbackA 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.

The contract sets how receivables reach the funder: ACH remittance or split funding, at a holdback that reconciliation can adjust. The owner's personal guaranty and, in some older contracts, a confession of judgment sit behind it. Paid-in percentage tracks progress, and a default is what happens when the contract is breached.

• ACH remittanceACH remittance is repaying an MCA through fixed daily or weekly debits from the merchant's bank account until the full RTR is delivered.
• Split fundingSplit 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.
• HoldbackHoldback 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.
• ReconciliationReconciliation 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.
• Personal guarantyA 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.
• 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.
• Paid-in percentagePaid-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.
• DefaultIn 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.

A merchant who pays well reaches renewal. A merchant who takes more money elsewhere is stacking, and the ways out of a heavy stack are consolidation or, for distressed merchants, reverse consolidation.

• RenewalA 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.
• StackingStacking 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.
• ConsolidationAn 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.
• Reverse consolidationA 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.

A sub-ISO sends an ISO a pizzeria with 30 months of time in business. The processor finds $48,000 a month of true revenue, an average daily balance around $6,000, two NSFs last month and one existing position at $210 a day, which a UCC-1 search confirms. With the stips in, the submission package goes to four funders; one declines with the decline reason too many NSFs. Another approves $20,000 at a buy rate of 1.30; the ISO presents a sell rate of 1.33, so 3 upsell points sit on top of 6 base points. Net of a 2% origination fee, the merchant receives $19,600 of net funding and owes RTR of $26,600 by daily ACH remittance over about six months: 126 payments of about $211. Combined with the existing $210 a day, that is about 18% of revenue, and the merchant knows to ask for reconciliation if sales dip. The ISO's $1,800 commission is paid days later, subject to clawback, and split with the sub-ISO. Three months in (63 of 126 payments), at 50% paid-in, the funder offers a renewal.

RTR            = $20,000 x 1.33          = $26,600
net funding    = $20,000 - $400          = $19,600
daily payment  = $26,600 / 126           = $211.11
burden         = ($211.11 + $210) x 21 / $48,000 = 18.4%
commission     = $20,000 x (6 + 3) / 100 = $1,800

Ferrylend uses the same vocabulary on screen: positions on the merchant, stips and decline reasons on the deal, buy rate, sell rate and points in the offer calculator, paid-in percentage on funded deals and a renewals list built from it. New team members can learn the words here and find them in the same places in the app.