24 terms, A–Z
Glossary
Plain-English definitions of the terms found in business-funding agreements, showing the math wherever a definition calls for it.
A
- APR-equivalentalso: APR equivalent, annualized cost
- In short
- This is the yearly rate a loan would need to charge for its cost to match an advance's over the same term.
- A factor of 1.30 across six months lands close to 100% APR-equivalent, and the calculator shows how that is worked out.
- Average daily balancealso: ADB
- In short
- The average balance left in the bank account at the close of each day across a month.
- An underwriter looks at it alongside deposits and negative days to decide how much daily remittance the business can handle.
B
- Brokeralso: ISO, funding advisor
- In short
- A go-between the funder pays at closing, typically 8–15% of the amount, with that cost built into the factor rate.
- You can ask any broker where their pay comes from; here, we lay out how this site earns its money.
- Business credit linealso called: LOC, or a line of credit
- In short
- A revolving limit you can tap whenever you need it, paying interest only on the balance you owe.
- Made for shortfalls that come back again and again, not one-off projects.
C
- Confession of judgmentalso: COJ
- In short
- A document the merchant signs admitting liability, so the funder can get a judgment without a trial in case of default.
- New York has prohibited it for out-of-state merchants since 2019, though it remains in use in other places.
D
- Defaultalso: breach
- In short
- Any event listed in the agreement, such as bounced remittances, a switched bank account, or taking a new position when that is prohibited.
- The funder can accelerate the balance and enforce the guaranty, although most would rather restructure the remittance than sue.
E
- Discount for paying off earlyOther names: prepayment discount, early payoff
- In short
- The purchased amount goes down when you pay off the balance within a set window, usually by 10–25% of what's still owed.
- If it's missing, an early payoff on an advance won't save you anything.
- Equipment financingalso: equipment loan, equipment lease
- In short
- A loan or lease where the equipment serves as the collateral, which tends to bring a lower rate and a term set to the asset's useful life.
F
- Factor ratealso: factor
- In short
- The number that determines what an advance will cost: amount × factor rate gives you the purchased amount.
- Apply 1.30 to $50,000 and you pay back $65,000, a cost of $15,000. It's locked in when you sign, so remitting early won'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
- Getting 70–90% up front by selling unpaid invoices to a factor, then the balance when your customer pays, less a fee of 1–5% for each month it stays outstanding.
- What you pay is driven by how creditworthy your customers are rather than by your own credit.
M
- Merchant cash advancealso: MCA, cash advance
- In short
- A discounted purchase of a set amount of a business's future receivables: you get a lump sum up front and remit daily or weekly until the purchased amount has been delivered.
- Since this is not a loan, its cost comes as a factor rate instead of an interest rate.
N
- Negative daysalso: NSF, overdraft days
- In short
- The days when the bank account ended below zero or sent a payment back.
- 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 pledge from the owner to pay whatever the business cannot.
- Most advances include one covering performance (not a drop in the business's sales), and that is what exposes personal assets in a default.
- Positionalso: positions, stacking, stacked
- In short
- An open advance.
- Taking a second advance on top of the first puts it in second position; stacking several pushes the daily load beyond what most businesses can handle and usually breaches the first agreement.
- Purchased amountsometimes called the payback amount or right to receive
- In short
- What the funder is owed in total, which is the advance multiplied by the factor rate.
- You may also see it named the right-to-receive amount or simply the payback.
R
- Reconciliationalso: true-up
- In short
- A clause that lets a merchant whose sales have dropped bring the daily remittance back in line with the agreed percentage of actual receivables.
- When you see it, that's one sign the deal is a genuine purchase of receivables.
- Remittancealso: daily remittance, weekly remittance
- In short
- The set debit, daily or weekly, through which the purchased amount is delivered.
- In legal terms it is not a loan payment but a remittance of receivables.
- Renewalalso: refinance, refi
- In short
- Taking a fresh advance once about half of the current one has been delivered, with the remaining balance netted out of it.
- Handy, and also where many businesses begin paying a factor again on money they have already paid a factor for.
- Revenue-based financingalso: RBF
- In short
- Money paid back through a set share of each month's revenue until it hits a cap.
- You pay less in slow months, and the cap typically lands between 1.2× and 1.6× the amount.
S
- SBA 7(a) loansalso called: 7(a), SBA loan
- In short
- A bank loan partly guaranteed by the U.S. Small Business Administration: for most small businesses, nothing within reach costs less, though it takes the most paperwork and the longest wait.
T
- Term loanalso called: bank loan, business term loan
- In short
- A lump sum you pay back with interest in equal monthly instalments over a period of one to ten years.
- Qualified borrowers usually 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 time the business has been running, measured from when it was formed or first brought in revenue.
- Six months in business is where most advance programs begin, while most banks ask for two years.
U
- UCC lienalso: UCC-1, UCC filing
- In short
- A publicly filed notice on the company's assets that protects what the funder is owed.
- It remains on file until it is released, and any funder who comes later can see it.
Want to find out what your numbers return?
Send one request with three months of statements and get options from our network of funding partners in plain dollars, or a straight answer that a bank would serve you better.