The language of
working capital, decoded.

Repayment of a merchant cash advance via scheduled Automated Clearing House (ACH) debits from the business bank account, typically daily or weekly. ACH remittance replaced older lockbox and split-funding methods for most modern advances because it works regardless of which card processor the merchant uses.

See also: Daily Remittance, Holdback, Split Funding

The lump sum a funder pays a business up front in exchange for a fixed amount of the business's future receivables. The advance is the purchase price; the receivables purchased are worth more than the advance, and the difference is the funder's return, expressed as a factor rate.

See also: Factor Rate, Purchased Amount (Specified Amount), Receivables Purchase

The gradual paydown of a loan's principal and interest over a set schedule. True amortization applies to loans, not to merchant cash advances: an MCA has no principal balance that amortizes, because the obligation is a fixed purchased amount of receivables rather than a borrowed sum accruing interest.

See also: Factor Rate, Interest Rate, Receivables Purchase

Total gross sales a business generates over a twelve-month period. Funders use annual (and monthly) revenue as the primary measure of how much working capital a business can support, since repayment is tied to sales volume rather than to a credit score alone.

See also: Gross Sales, Underwriting

The annualized cost of borrowing on a loan, expressed as a percentage and inclusive of interest and certain fees. Because a merchant cash advance is a purchase of receivables, not a loan, it does not carry a true APR. Some state disclosure laws nonetheless require funders to present an estimated or equivalent APR so business owners can compare costs across products.

See also: Factor Rate, Cost of Capital, State Commercial-Financing Disclosure

The mean balance held in a business's bank account across a statement period. Funders watch this figure to gauge whether a business can comfortably absorb daily or weekly remittances without overdrafting.

See also: Bank-Statement Underwriting, Negative Days

An underwriting approach that evaluates a business's recent bank statements (average daily balances, deposit consistency, and existing obligations) rather than relying primarily on credit score. It's the standard method for working-capital advances because it reflects how the business actually moves cash.

See also: Underwriting, Average Daily Balance

The wholesale factor rate a direct funder sets for a deal before any broker markup. In a brokered transaction, the buy rate is what the funder charges; the rate the merchant sees may be higher if an intermediary adds points. With a direct lender, the buy rate and the offered rate are the same.

See also: Factor Rate, Direct Lender, Stacking

A clause in which a borrower pre-agrees that a creditor may enter a court judgment against them without notice if they default. COJs have been heavily restricted (New York, for example, no longer permits out-of-state entities to use them against businesses) and reputable funders increasingly avoid them.

See also: Default, Personal Guarantee

The total amount a business pays to access financing, above the amount it receives. For a merchant cash advance, cost of capital is the difference between the purchased amount and the advance, driven by the factor rate, not by an interest rate accruing over time.

See also: Factor Rate, APR (Annual Percentage Rate), Purchased Amount (Specified Amount)

A repayment structure where a fixed amount is debited from the business's bank account every business day until the purchased amount is delivered. Daily remittance keeps individual payments small relative to a monthly loan installment, which suits businesses with steady daily sales.

See also: Weekly Remittance, ACH Remittance, Holdback

Failure to meet the terms of a financing agreement. For an advance, that typically means blocking or stopping the agreed remittances, or breaching covenants such as switching bank accounts to evade debits. Default can trigger acceleration of the purchased amount and collection action.

See also: Reconciliation (True-Up), Personal Guarantee

A company that underwrites, prices, and funds advances with its own capital, rather than brokering deals to third parties. Working with a direct lender means the entity making the decision is the same one writing the check, which usually means faster decisions and no marked-up broker pricing.

See also: Buy Rate, ISO (Independent Sales Organization), Funder

A decimal multiplier (commonly 1.10–1.49) that sets the total cost of a merchant cash advance. Multiply the advance by the factor rate to get the purchased amount you'll repay. A $100,000 advance at a 1.30 factor rate means delivering $130,000 in receivables. Unlike an interest rate, a factor rate is fixed up front and does not compound over time.

See also: Purchased Amount (Specified Amount), Advance, Cost of Capital, APR (Annual Percentage Rate)

The party that purchases a business's future receivables and provides the advance. In MCA terminology the term 'funder' is preferred over 'lender' because the transaction is a purchase, not a loan, though 'lender' is widely used in marketing.

See also: Direct Lender, Advance, Receivables Purchase

Total sales revenue before deducting costs, returns, or fees. Funders look at gross sales (often from card processing statements or bank deposits) because the receivables being purchased are a slice of this top-line figure.

See also: Annual Revenue, Specified Percentage

The portion of daily sales withheld to repay an advance, historically expressed as a percentage of card receipts (for example, 12% of daily credit-card volume). True percentage-of-sales holdback flexes with revenue; many modern advances instead use a fixed daily/weekly ACH debit with a reconciliation provision to approximate the same effect.

See also: Specified Percentage, Reconciliation (True-Up), Split Funding

The percentage a lender charges on the outstanding principal of a loan, accruing over time. Merchant cash advances do not carry an interest rate; their cost is set by a fixed factor rate determined at funding, which is one of the core legal distinctions between an advance and a loan.

See also: Factor Rate, APR (Annual Percentage Rate), Amortization

A broker or sales organization that originates financing deals and submits them to funders, typically earning commission. ISOs expand a funder's reach but add a layer between the merchant and the decision-maker; working with a direct lender removes that layer.

See also: Direct Lender, Buy Rate, Stacking

A legal claim against a business's assets that secures an obligation. In working-capital financing, a funder may file a UCC-1 to perfect a lien on business receivables or general assets, establishing priority relative to other creditors.

See also: UCC Filing (UCC-1), Subordination, Stacking

Days within a statement period when a business's bank balance fell below zero. Frequent negative days signal cash-flow strain and weigh against approval or reduce the size of an advance a funder will offer.

See also: Average Daily Balance, Underwriting

The process of sourcing, evaluating, and structuring a financing deal from first contact through funding. Origination fees, where charged, cover the cost of underwriting and setting up the advance.

See also: Underwriting, ISO (Independent Sales Organization)

The remaining purchased amount still owed on an advance at a given point. Because the obligation is a fixed purchased amount rather than an amortizing balance, an early payoff usually reduces the total cost only if the agreement provides an early-delivery or prepayment discount.

See also: Purchased Amount (Specified Amount), Renewal, Cost of Capital

A commitment by a business owner to be personally responsible for the obligation if the business cannot deliver. Many advances include a limited personal guarantee covering breach or fraud rather than ordinary business decline, since repayment is tied to actual sales.

See also: Default, Confession of Judgment (COJ)

The total dollar value of future receivables a funder buys: the figure the business delivers over the life of the advance. It equals the advance multiplied by the factor rate, and it is fixed: it does not grow with time the way a loan balance accrues interest.

See also: Advance, Factor Rate, Specified Percentage

The core legal structure of a merchant cash advance: the funder buys a defined amount of the business's future sales receivables at a discount. Because it's a true sale of assets, not a loan of money to be repaid with interest, it falls outside most usury and lending statutes, though it is increasingly governed by state commercial-financing disclosure laws.

See also: Advance, Purchased Amount (Specified Amount), State Commercial-Financing Disclosure

A contractual right that lets a business adjust its remittances to match actual sales. If a fixed daily debit ends up exceeding the agreed percentage of receipts during a slow stretch, the merchant can request a reconciliation so the funder refunds or reduces debits. Reconciliation is what keeps a fixed-debit advance tied to real revenue.

See also: Holdback, Specified Percentage, Daily Remittance

A new advance extended to a business that has paid down a meaningful portion of an existing one, often used to access additional capital. Renewals reflect a track record with the funder and are a normal part of a healthy working-capital relationship.

See also: Payoff Balance, Stacking

The agreed share of a business's future sales that the funder is purchasing, for example 10% of daily receipts. The specified percentage is the conceptual basis for remittances even when payments are collected as a fixed daily debit, and it anchors the reconciliation calculation.

See also: Holdback, Reconciliation (True-Up), Gross Sales

A legacy repayment method where the card processor automatically diverts an agreed percentage of each batch of card sales to the funder before the rest reaches the merchant. Most funders now use ACH debits instead, which don't depend on the merchant's processor.

See also: ACH Remittance, Holdback

Taking on a second (or third) advance from a different funder while an existing advance is still outstanding. Stacking compounds the daily remittance burden and is a leading cause of merchant distress; many funder agreements prohibit it without consent, and underwriters watch for it carefully.

See also: Subordination, Lien, Default

Laws in states including California, New York, Virginia, Utah, and Georgia that require funders to disclose standardized cost and term information, sometimes including an estimated APR, before a business signs. The laws aim to make working-capital products easier to compare, even though an MCA isn't a loan.

See also: APR (Annual Percentage Rate), Receivables Purchase, Cost of Capital

An agreement in which one creditor's claim is placed behind another's in priority. A funder may agree to subordinate to a senior lender (or require junior creditors to subordinate to it), which is common when a business has a bank line alongside a working-capital advance.

See also: Lien, UCC Filing (UCC-1), Stacking

The expected length of time over which an advance is delivered, based on projected sales and the remittance schedule. Because remittances flex with revenue (via reconciliation), the term of an advance is an estimate rather than a fixed maturity date like a loan's.

See also: Daily Remittance, Reconciliation (True-Up), Purchased Amount (Specified Amount)

A public financing statement filed under the Uniform Commercial Code that notifies other creditors of a funder's secured interest in a business's assets or receivables. A UCC-1 establishes priority and is a routine part of perfecting a working-capital advance.

See also: Lien, Subordination

The evaluation a funder performs to decide whether to extend an advance, how much, and at what factor rate. Working-capital underwriting leans heavily on bank statements and sales history rather than credit score alone, which is why many businesses that banks decline still qualify.

See also: Bank-Statement Underwriting, Annual Revenue, Negative Days

A repayment structure that debits a fixed amount once per week instead of every business day. Weekly remittance suits businesses with lumpier or less predictable daily sales, smoothing the impact of any single slow day.

See also: Daily Remittance, ACH Remittance

Funds a business uses to cover day-to-day operations: payroll, inventory, rent, and growth investments. 'Working capital' is the marketing term for the use of funds; a merchant cash advance is one financing product a business can use to obtain it.

See also: Advance, Receivables Purchase