24 terms, A–Z

Glossary

The words business-funding agreements use, defined in plain English — with the arithmetic where a definition needs it.

A

APR-equivalentalso: APR equivalent, annualized cost: In short; The annual percentage rate at which a loan would cost exactly what an advance costs over an identical term.; Over six months, a 1.30 factor comes out to roughly 100% APR-equivalent; the calculator walks through the math.
Average daily balancealso: ADB: In short; Your average closing bank balance across a month.; To decide how much daily remittance a business can handle, underwriters look at it together with deposits and negative days.

B

Brokeralso: ISO, funding advisor: In short; A middleman the funder pays once a deal closes, typically 8–15% of the amount, with that cost built into the factor rate.; You can ask any broker about their pay, and here we spell out exactly how this site gets paid.
Credit lines for businessesother names: LOC, line of credit: In short; A credit limit that refills as you repay, which you tap when you need it, paying interest only on the balance you owe.; It's best suited to gaps that keep coming back, not to one-off projects.

C

Confession of judgmentalso: COJ: In short; A signed statement admitting liability ahead of time, so a funder can get a judgment without going to trial if the merchant defaults.; New York has prohibited it for merchants outside the state since 2019, though other places still use it.

D

Defaultalso: breach: In short; Whatever the agreement lists as a trigger, such as bounced remittances, switching bank accounts, or taking a new position when that is prohibited.; The funder can demand the full balance at once and enforce the guaranty, though most would rather rework the remittance than file a lawsuit.

E

Discount for paying off earlyother names: prepayment discount, early payoff: In short; If the balance is paid off within a set window, the purchased amount drops, usually by 10–25% of what's left.; On an advance, there's no savings from paying early unless this is in place.
Equipment financingalso: equipment loan, equipment lease: In short; Financing in the form of a loan or lease backed by the equipment, which generally brings a lower rate and a term that fits how long the asset lasts.

F

Factor ratealso: factor: In short; The number that determines an advance's cost: multiply the amount by the factor rate to get the purchased amount.; At 1.30, $50,000 becomes $65,000 to pay back, so the cost is $15,000. Set when you sign, so remitting early won't lower it.

H

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

I

Invoice factoringalso: factoring, receivables financing: In short; Selling your unpaid invoices to a factor for 70–90% at the outset, with the remainder, less a fee of 1–5% for each month outstanding, paid when the customer settles.; What you pay is driven by how creditworthy your customers are, not by your own credit.

M

Merchant cash advancealso: MCA, cash advance: In short; The sale of a set slice of a business's future receivables at a discount, which brings in a lump sum today that is paid back daily or weekly until the purchased amount is delivered.; Because it is not a loan, its cost is expressed as a factor rate rather than an interest rate.

N

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

P

Personal guarantyalso: personal guarantee, PG: In short; A personal pledge by the owner to pay whatever the business can't.; Most advances include one that covers performance rather than a drop in the business's sales, and it is what exposes personal assets if there is a default.
Positionalso: positions, stacking, stacked: In short; An open advance.; Taking a second advance while the first is still open puts it in second position; piling on several pushes the daily payments beyond what most businesses can handle and usually violates the first agreement.
Purchased amountother names: right to receive, payback amount: In short; What you owe the funder in total, found by multiplying the advance by the factor rate.; You may also see it named the right-to-receive amount or the payback.

R

Reconciliationalso: true-up: In short; A provision that lets a merchant with declining sales adjust the daily remittance back to the agreed percentage of the receivables actually coming in.; When it's there, that's one sign of a genuine receivables purchase.
Remittancealso: daily remittance, weekly remittance: In short; The set daily or weekly debit through which the purchased amount is delivered.; In legal terms it is a remittance of receivables rather than a loan payment.
Renewalalso: refinance, refi: In short; A second advance, taken once about half of the current one has been delivered, that nets out the remaining balance.; It's handy, and it's often where businesses begin paying a factor again on money they've already paid a factor for.
Revenue-based financingalso: RBF: In short; Funding paid back as a set share of each month's revenue until it hits a cap.; You pay less in slower months, and the cap typically sits at 1.2–1.6× the amount.

S

The SBA 7(a) loanother names: SBA loan, 7(a): In short; A loan made by a bank, with part of it guaranteed by the U.S. Small Business Administration: no option most small businesses can reach costs less, but the paperwork and timeline are the longest.

T

Term loansee also: bank loans and business term loans: In short; A set amount paid back at an interest rate in equal monthly instalments over one to ten years.; For qualified borrowers, banks and credit unions charge roughly 8–14% APR, while online lenders cost more but move faster.
Time in businessalso: TIB: In short; The length of time the business has been running, measured from when it was formed or first earned revenue.; Banks generally look for two years in business, while most advance programs will begin at six months.

U

UCC lienalso: UCC-1, UCC filing: In short; A publicly filed notice on the business's assets that backs up the funder's claim.; Later funders can see it, because it remains on file until it is released.

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