24 terms
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
- The annual percentage rate a loan would have to carry to cost the same as an advance over the same term. A 1.30 factor over six months works out near 100% APR-equivalent; the calculator shows the arithmetic.
- Average daily balancealso: ADB
- The mean end-of-day bank balance over a month. Underwriters read it beside deposits and negative days to judge how much daily remittance a business can carry.
B
- Brokeralso: ISO, funding advisor
- An intermediary paid by the funder when a deal closes, usually 8–15% of the amount, which the factor rate absorbs. Ask any broker how they are paid; this site explains how it is.
- Business line of creditalso: line of credit, LOC
- A revolving limit you draw on as needed and pay interest only on what is outstanding. The right tool for recurring gaps rather than one-time projects.
C
- Confession of judgmentalso: COJ
- A signed admission that lets a funder enter judgment without a trial if the merchant defaults. Banned for out-of-state merchants in New York since 2019; still used elsewhere.
D
- Defaultalso: breach
- Any event the agreement names — bounced remittances, a changed bank account, a new position when forbidden. The funder may accelerate the balance and enforce the guaranty; most prefer a restructured remittance to a lawsuit.
E
- Early payoff discountalso: prepayment discount, early payoff
- A reduction of the purchased amount if the balance is paid within a window, typically 10–25% of what remains. Without it, paying early saves nothing on an advance.
- Equipment financingalso: equipment loan, equipment lease
- A loan or lease secured by the equipment itself, which usually means a lower rate and a term matched to the asset's life.
F
- Factor ratealso: factor
- The multiplier that sets what an advance costs: amount × factor rate = purchased amount. 1.30 on $50,000 means $65,000 back, a $15,000 cost. Fixed at signing, so it does not fall if you remit early.
H
- Holdbackalso: holdback percentage, split
- The share of each day's card sales a split-funded advance keeps — typically 8–20% — until the purchased amount is delivered. Payments move with sales.
I
- Invoice factoringalso: factoring, receivables financing
- Selling unpaid invoices to a factor for 70–90% up front and the rest, minus a fee of 1–5% per month outstanding, when the customer pays. Costs depend on your customers' credit, not yours.
M
- Merchant cash advancealso: MCA, cash advance
- A purchase of a fixed amount of a business's future receivables at a discount: a lump sum now, remitted daily or weekly until the purchased amount is delivered. Not a loan, so it carries a factor rate, not an interest rate.
N
- Negative daysalso: NSF, overdraft days
- Days a bank account closed below zero or returned a payment. More than three or four in a month marks a file as high-risk for most funders.
P
- Personal guarantyalso: personal guarantee, PG
- The owner's promise to cover what the business does not. Most advances carry one for performance (not for the business's sales falling); it is what puts personal assets at risk in a default.
- Positionalso: positions, stacking, stacked
- An open advance. A second advance on top of a first is a second position; stacking several raises the daily load past what most businesses can carry and usually breaks the first agreement.
- Purchased amountalso: payback amount, right to receive
- The total the funder is owed: the advance times the factor rate. Also called the payback or the right-to-receive amount.
R
- Reconciliationalso: true-up
- A clause letting a merchant whose sales have fallen reset the daily remittance to the agreed percentage of actual receivables. Its presence is one mark of a true receivables purchase.
- Remittancealso: daily remittance, weekly remittance
- The fixed daily or weekly debit that delivers the purchased amount. Legally a remittance of receivables, not a loan payment.
- Renewalalso: refinance, refi
- A new advance taken when roughly half of the current one is delivered, netting off the balance. Convenient, and the point at which many businesses start paying a factor on money they already paid a factor on.
- Revenue-based financingalso: RBF
- Capital repaid as a fixed percentage of monthly revenue until a cap is reached. Slower months cost less; the cap is usually 1.2–1.6× the amount.
S
- SBA 7(a) loanalso: SBA loan, 7(a)
- A bank loan partly guaranteed by the U.S. Small Business Administration: the lowest cost most small businesses can reach, with the longest paperwork and timeline.
T
- Term loanalso: business term loan, bank loan
- A fixed sum repaid in equal monthly instalments over one to ten years at an interest rate. Banks and credit unions price qualified borrowers around 8–14% APR; online lenders higher, faster.
- Time in businessalso: TIB
- How long the business has operated, counted from formation or first revenue. Most advance programs start at six months; most banks want two years.
U
- UCC lienalso: UCC-1, UCC filing
- A public notice filed against the business's assets that secures the funder's claim. It stays on record until released, and later funders see it.
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