A pre-payment penalty is a charge applied if you repay a financing product before the agreed term. Many MCAs do not have traditional interest that declines over time—since the total purchased amount is fixed—so “early payoff” savings may be limited or depend on the provider’s discount policy. Some contracts include fees or restrict discounts. For loans, penalties can appear as a percentage of remaining balance or a set number of months of interest. Always check payoff language and ask for written payoff examples at different dates.

A blanket lien means the creditor claims a security interest in most or all of the business’s assets (inventory, equipment, receivables, and sometimes more). It is often documented through a UCC filing. Blanket liens can make it harder to obtain additional financing because new lenders may require the lien to be released, subordinated, or limited. Always understand what assets are included, whether there are exclusions, and what conditions apply for release once the obligation is satisfied.

An MCA and a business loan are different products with different risks and costs. With an MCA, you sell a fixed amount of future receivables and the provider collects until that purchased amount is reached; the timing can vary, but the total payback is typically fixed up front. With a loan, you borrow principal and repay it with interest on a defined amortization schedule, usually with clearer APR disclosure. Loans tend to be cheaper but require stronger qualifications and may take longer to fund. MCAs can fund quickly and be more flexible, but they can carry a much higher effective annual cost and can put heavy pressure on cash flow—especially with daily or high-percentage remittances.

Revenue-Based Financing (RBF) is a broad category of funding where repayment is tied to revenue, usually as a percentage of monthly revenue, until a capped total payback is reached. The cap is often expressed as a multiple (for example, repay 1.2x what you received). RBF can be structured in different ways depending on the provider—sometimes closer to a loan, sometimes closer to a receivables purchase. The most important factors are the repayment percentage (cash-flow impact), the total payback (cap), the expected time to repay under realistic revenue scenarios, and whether there are clear adjustment/reconciliation mechanics when revenue drops.

An exit strategy is your plan for how you’ll end the obligation in a healthy way. For short-term products like MCAs, this usually means paying off from operating cash flow, refinancing into a longer-term and lower-cost product, or using a known cash event (like a large contract payout or seasonal peak). A strong exit strategy includes a realistic timeline, cash-flow projections, and contingency plans if revenue comes in lower than expected. It helps prevent a cycle of repeated renewals that can increase total cost and pressure daily cash flow.

Stack position describes priority when multiple funding products are being repaid from the same cash flow. A “first position” provider expects to be the primary collector; “second position” is behind them, and so on. Lower positions are riskier because earlier obligations may consume most available deposits, leaving less to cover later payments. Because of that risk, later positions often come with higher cost, lower approval rates, or stricter monitoring. Knowing your stack position is important when refinancing, consolidating, or adding new financing, because new providers will evaluate how existing obligations impact your ability to repay.

Time in business is one of the most common eligibility requirements because it correlates with business stability. Many lenders/providers set minimums such as 6 months, 12 months, or 2 years. More time in business can qualify you for better pricing and higher limits. Underwriters may validate this using business registration, tax filings, bank history, or merchant account history. Newer businesses can still qualify for certain products, but terms may be more conservative.

DSCR measures whether a business generates enough cash flow to cover required debt payments. A DSCR of 1.00 means cash flow exactly equals debt obligations; above 1.00 indicates a cushion, and below 1.00 indicates shortfall. For example, if a business has $12,000 of monthly net operating income and $10,000 of monthly debt payments, DSCR is 1.20. Some lenders require minimum DSCR thresholds (e.g., 1.15–1.25) for approval. DSCR is especially common in term loans and commercial real estate financing but may influence other underwriting too.

Minimum monthly volume is an underwriting threshold—often based on total deposits, card sales, or gross revenue. Providers use it to ensure the business can support repayments. For example, a provider may require at least $10,000–$20,000 in monthly deposits. Volume is different from profit: even high-revenue businesses can struggle if margins are thin. If you’re near the minimum, strengthen your application by showing consistent deposits, healthy balances, and low NSF frequency.

Business bank statements are a primary underwriting document because they show deposits, withdrawals, average daily balance, overdrafts/NSF events, and the consistency of revenue. Providers typically review the last 3–6 months (sometimes more) to understand cash-flow patterns and identify risks like frequent low balances. Strong statements show steady deposits, healthy average balances, and limited negative events. Make sure statements are complete and unaltered, and be ready to explain unusual spikes, large withdrawals, or irregular deposits.

Trailing 12 months (TTM) is a way to measure business performance over the most recent 12-month period, updating each month. Underwriters use TTM revenue or deposits to assess seasonality, stability, and overall trend. TTM is often more informative than a single calendar year because it includes the most current data. When applying for financing, providers may request reports or bank statements to compute your TTM numbers.

An origination fee is charged for underwriting and processing a financing product. It may be paid upfront or deducted from the disbursed proceeds (meaning you receive less cash than the contract’s face amount). For example, a 3% origination fee on $100,000 could mean $97,000 is actually deposited to your account. Origination fees affect your net funding and increase your effective cost, so include them when comparing offers.

Effective Annual Rate (EAR) expresses the true annual cost of financing when compounding is considered. While APR is often used as a standard annual measure, EAR can better reflect products with frequent payments (daily/weekly) and compounding effects. For MCAs, the key driver is repayment speed: paying back a fixed cost quickly increases the annualized rate substantially. EAR is useful for comparing different repayment frequencies and understanding the real cost of fast-turn financing.

Weekly remittance means payments are collected once per week instead of daily. This schedule can help businesses with predictable weekly cash cycles, reducing day-to-day pressure. However, the weekly amount may be larger, so it still needs to fit within cash flow. Weekly remittance is common for certain industries or for providers that prefer fewer transactions. Review the exact day of the week payments occur and how holidays affect the schedule.

A soft credit check allows a lender/provider to review certain credit information without recording a hard inquiry that can affect your score. It’s commonly used for pre-qualification or initial screening. A soft check may still require your authorization, and later steps might involve a hard pull. Ask upfront whether the process includes a hard inquiry and at what point it would occur.

A chargeback happens when a customer disputes a card transaction and the payment is reversed, often after the merchant temporarily loses the funds. High chargeback rates can signal risk (fraud, customer disputes, poor service) and reduce net receivables available for repayment. For MCA underwriting, frequent or large chargebacks may lower approval odds or increase cost because they create volatility and uncertainty in card revenue.

Seasoning refers to how much operating history a business has—often measured in months since launch—or how long a bank account, merchant account, or revenue stream has been active. More seasoning generally reduces perceived risk because it provides more evidence of stable revenue and management. Some providers require a minimum time in business (e.g., 6–12 months) before approval or better pricing. Seasoning can also apply to how long you’ve maintained consistent deposits in a specific account.

A modification agreement updates the terms of an existing contract—such as changing the payment amount, payment schedule, remittal rate, or adding a temporary hardship plan. Modifications can help avoid default if cash flow drops, but they may also add fees, extend the term, or change enforcement provisions. Get modifications in writing, confirm the new total payback, and verify that the modification supersedes conflicting language in the original contract.

NSF occurs when an automatic withdrawal (such as an ACH deduction) is attempted but your bank account doesn’t have enough money to cover it. NSF events can trigger bank fees and provider fees, and repeated NSF returns may be considered a default under the agreement. To reduce NSF risk, maintain a cash cushion, track payment timing, and consider sales-based repayment options when revenue is volatile.

Reconciliation is intended to align payments with actual receivables when your agreement is based on a percentage of sales. If you’re on a fixed daily ACH schedule but sales drop significantly, reconciliation may allow the payment to be reduced temporarily—often by providing sales statements or processor reports. Not all contracts offer meaningful reconciliation, and some may make it difficult to request. Before signing, check whether reconciliation exists, how often you can request it, what documentation is required, and how quickly adjustments take effect.

Advance rate describes how much capital you receive compared with a revenue measure (such as average monthly deposits or card sales). For example, a provider might advance 80% of one month’s average card volume. A higher advance rate means more cash upfront but may come with stricter terms, higher cost, or a heavier repayment burden. Underwriters use advance rate alongside risk factors like volatility, time in business, and banking trends.

In an MCA, the purchased amount is the fixed dollar amount of receivables the provider buys from you. It is the total target collection amount, usually equal to the funded amount multiplied by the factor rate. For example, $40,000 funded with a 1.35 factor yields a $54,000 purchased amount. This figure is central because it sets your total obligation; the timing of repayment can vary, but the purchased amount generally does not.

Remittal rate is the portion of revenue you remit to the provider during repayment, typically expressed as a percentage of daily card sales or total receipts. It functions much like a holdback rate. A higher remittal rate speeds up collection but reduces daily cash available for payroll, inventory, and operating expenses. When analyzing an offer, model how the remittal rate affects cash flow during low-revenue weeks, not just average weeks.

A broker helps businesses find financing by submitting applications to one or more lenders/providers. Brokers can save time and increase options, but they may be compensated through commissions that can influence recommendations. Ask how the broker is paid (percentage, flat fee, lender-paid), whether fees are disclosed, and which providers they work with. A reputable broker should explain trade-offs clearly, not pressure you into the fastest or highest-commission option.

A renewal is when a provider offers additional funding based on your payment history and remaining balance. Many providers consider renewals once you’ve repaid a certain percentage of the purchased amount (for example, 50%–70%). A renewal can provide fresh capital quickly, but it often includes paying off the remaining balance of the old advance and starting a new obligation—sometimes increasing total cost. Evaluate whether the renewal improves cash flow, lowers your effective cost, or simply extends expensive financing.

ACH (Automated Clearing House) deduction means the provider automatically pulls a fixed amount (daily/weekly) from your business bank account. Many MCAs use ACH even when pricing is based on receivables. ACH is convenient but can create cash-flow pressure because it often pulls a set amount regardless of daily sales. If the account balance is insufficient, you may incur NSF fees and risk default. Businesses should maintain a cash buffer and align the payment schedule with expected revenue cycles.

Split withholding is common for card-based MCAs. Instead of a daily ACH pull from your bank, your payment processor automatically splits each credit/debit card sale, sending an agreed percentage to the MCA provider and the remainder to your business. This can better match repayments to actual sales and reduce the risk of overdrafts. However, it depends on your processor setup, may limit flexibility in switching processors, and can impact the timing of cash deposits.

Stacking happens when a business has more than one MCA (or similar daily/weekly repayment product) outstanding simultaneously. While it may provide additional capital, stacking can strain cash flow because each provider is drawing payments from the same revenue stream. It can also increase default risk, lead to higher fees, and sometimes violate terms in an existing agreement (some contracts prohibit additional advances). Before stacking, evaluate whether cash flow supports the combined payment burden and consider alternatives like refinancing or longer-term credit.

Default is the point at which the provider considers the agreement violated. Common triggers include repeated NSF returns, missed required remittances, material misrepresentation during underwriting, bankruptcy, closing the business, or blocking the provider’s access to the designated account. In an MCA, default terms can also be tied to actions that prevent collection of the purchased receivables. Default can lead to increased collection actions, acceleration (demanding the full remaining amount), legal enforcement, and damage to business credit or banking relationships.

A Confession of Judgment (COJ) is a legal provision where the borrower pre-authorizes the creditor to enter a judgment against them upon default, often without the usual opportunity to contest in court first. It can speed up collections and reduce due process protections for the borrower. COJs are restricted or prohibited in some states and contexts. If a contract includes a COJ, it’s important to understand where it is enforceable, what counts as a default, and how quickly a judgment could be entered.

A personal guarantee (PG) makes the business owner (or another guarantor) personally liable for repayment if the business defaults. In practice, this can mean the provider may pursue the guarantor’s personal assets or income—subject to the agreement and applicable laws. Some products require a PG, while others may offer limited or no guarantees depending on the borrower profile. Before signing, review what triggers enforcement (e.g., missed payments, fraud, bankruptcy), whether the guarantee is unlimited or limited, and any protections in your state.

A Merchant Cash Advance (MCA) is not a traditional loan. Instead of borrowing a principal amount with an interest rate, the business sells a fixed amount of its future receivables (future card sales or bank deposits) to the provider. The provider gives a lump sum upfront, and the business repays by sending a percentage of daily sales (or a fixed daily/weekly amount) until the purchased amount is collected. Because repayment is tied to sales, payments typically rise when revenue rises and fall when revenue falls. MCAs can fund quickly and have flexible underwriting, but they can be expensive and require careful cash-flow planning.

A factor rate is how most MCAs price cost. You multiply the amount funded by the factor rate to get the total amount you must repay (the purchased amount). For example, $50,000 funded at a 1.30 factor rate means a $65,000 total payback. Unlike APR, a factor rate does not account for the time it takes to repay; paying back faster makes the effective annual cost much higher. When comparing offers, always look at total payback, estimated term (how long repayment is expected to take), and the effective annualized rate—not just the factor rate.

APR is a standardized way to express financing cost as an annual rate. With loans, APR includes interest and many fees spread over the repayment term. MCAs often quote factor rates instead of APR, but you can still estimate an “effective APR” by annualizing the cost based on the expected repayment speed. This matters because a deal with a modest-looking factor rate can translate to a very high annualized cost if it is repaid quickly. APR helps you compare different products (term loans, lines of credit, MCAs) on a more apples-to-apples basis.

A UCC filing is typically a Uniform Commercial Code (UCC-1) financing statement filed with the state to publicly record a creditor’s claim (security interest) in certain business assets. It can be specific (e.g., equipment) or broad (covering many assets). A UCC filing can affect your ability to obtain additional financing because other lenders see it and may require it to be released or subordinated. Always confirm exactly what collateral is covered, whether it’s a blanket lien, and what is required to remove the filing once obligations are satisfied.

The holdback rate is the portion of your daily sales the provider takes to collect the purchased receivables. A common range is around 5%–20% of card sales, but it depends on the deal and payment method. If sales are strong, more dollars are withheld; if sales dip, fewer dollars are withheld. Holdback rate is not the same as the factor rate (cost). It’s a repayment mechanism that affects daily cash flow and how quickly the balance is collected. A lower holdback can ease cash flow but may extend the repayment period.