Merchant Cash Advance Glossary: 50+ MCA Terms Explained

This merchant cash advance glossary defines more than 50 terms you’re likely to see in MCA offers, contracts, and conversations with funders or brokers. Each definition is written in plain English so you can read an agreement with confidence and ask better questions.

Terms are listed alphabetically. If you’re brand new to MCAs, start with what is a merchant cash advance and then use this page as a reference.

Quick reference: the five terms that matter most

Term	What it tells you
Purchase price	Cash the funder pays you (before fees)
Factor rate	The multiplier that sets the total you deliver
Purchased amount	Total of future receivables you deliver
Specified percentage (holdback)	Share of sales that goes to the funder
Reconciliation	Your right to adjust remittances when sales change

Illustrative example: a $30,000 purchase price at a 1.30 factor rate creates a $39,000 purchased amount. With a 10% holdback on $50,000 in monthly sales, remittances would be about $5,000 a month, for an estimated term of about 7.8 months.

A

ACH (Automated Clearing House)

The U.S. electronic network for bank-to-bank transfers. In an ACH-based MCA, the funder debits a fixed daily or weekly amount from your business bank account.

Administrative fee

A fee some funders charge to cover processing or servicing costs. It’s often deducted from the purchase price, so it reduces the cash you receive.

Advance amount

Another way to say purchase price: the up-front capital you receive in an MCA.

Annualized cost (estimated APR)

An estimate of the MCA’s cost expressed as a yearly rate so it can be compared with loans. Some states require it in commercial financing disclosures.

B

Balloon payment

A large lump-sum payment due at the end of a loan. True MCAs don’t use balloon payments, since there is no fixed maturity date.

Bank statements

The core document in MCA underwriting. Funders usually review three to six months to see deposits, balances, and existing debits.

Broker

A person or company that connects businesses with funders, often called an ISO in this industry. See what is an ISO in business funding.

Buyout

Using a new advance to pay off the remaining balance on an existing one. Sometimes called a consolidation or refinance of an MCA position.

C

Commercial financing disclosure

A state-required document showing key terms of a commercial financing offer, such as total cost and estimated annualized rate. Several states have these rules, and they change over time.

Confession of judgment (COJ)

A clause where the business owner agrees in advance that the funder can obtain a court judgment without a lawsuit if there’s a default. COJs are now restricted or unenforceable in some states.

Consolidation

Combining multiple advances into one new financing arrangement, ideally with a lower total remittance. It can help or hurt depending on terms.

Cost of capital

The total dollars you pay for the funding: purchased amount minus the cash you actually received.

Credit card split

Another name for split funding, where your card processor sends a percentage of each card batch to the funder.

D

Daily remittance

A remittance collected every business day, either as a percentage of card sales or a fixed ACH debit.

Default

A breach of the agreement, such as blocking debits, diverting sales, or switching accounts without consent. Defaults can trigger fees, collection actions, and enforcement of the personal guaranty.

Default fee

A fee charged when a default occurs. Review how large it is and what triggers it before signing.

E

Early payoff discount

A reduction in the purchased amount if you deliver it ahead of schedule. Not all MCAs include one.

Estimated term

The funder’s projection of how long delivery will take based on your sales and remittance amount. Since MCAs usually have no fixed maturity, it’s an estimate.

F

Factor rate

The multiplier applied to the purchase price to set the purchased amount, commonly around 1.10 to 1.50. See factor rate explained.

First position

The first open advance on a business. A second advance is “second position,” and so on. Later positions are typically riskier and more expensive.

Funder

The company that purchases your future receivables and provides the capital. Also called the MCA provider or funding partner.

G

Guaranty of performance

A personal guaranty where the owner promises the business will follow the contract (not divert sales, not block debits). It’s different from guaranteeing repayment no matter what.

H

Holdback

The percentage of your sales that goes to the funder until the purchased amount is delivered, often in a range of roughly 5% to 20%. Also called the specified percentage.

I

ISO (Independent Sales Organization)

A company that helps businesses apply for funding and matches them with funders. ISOs are usually paid a commission by the funder. Tnufa is an ISO.

L

Lien

A legal claim on property. MCA funders commonly file a UCC lien on business assets.

Lockbox

An arrangement where card settlements go to a controlled account, the funder takes its percentage, and the rest is forwarded to you.

M

Merchant

In MCA contracts, the business selling its future receivables.

Merchant cash advance (MCA)

A lump sum provided in exchange for a defined amount of a business’s future receivables, delivered through a percentage of sales or scheduled debits.

N

Net funding

The amount that actually lands in your account after fees and any payoffs are deducted from the purchase price.

NSF (non-sufficient funds)

A returned debit because your account didn’t have enough money. Repeated NSFs can trigger fees or default provisions.

O

Origination fee

A one-time fee for setting up the advance, typically deducted from the purchase price.

P

Personal guaranty

A promise by the owner tied to the business’s obligations. In MCAs this is often a guaranty of performance; read the wording carefully.

Position

Where an advance ranks among open advances (first, second, third). Multiple positions mean stacking.

Purchase price

The cash the funder pays for your future receivables, before fees.

Purchased amount

The total amount of future receivables you agree to deliver. Purchase price times factor rate.

R

Receivables

Money your business will collect from future sales. In an MCA, this is what the funder buys.

Reconciliation

The contract process for adjusting remittances so they match the agreed percentage of actual sales. See merchant cash advance reconciliation.

Recharacterization

When a court treats an agreement labeled as an MCA as a loan, usually because the funder carried little real risk.

Remittance

Each payment delivered to the funder toward the purchased amount.

Renewal

A new advance offered once you’ve delivered part of the current one, often paying off the remaining balance first.

Revenue-based financing

Financing paid back as a share of revenue. MCAs are one form.

S

Sales-based financing

A term used in some state laws for financing repaid as a share of sales, which can include MCAs.

Specified percentage

The contract term for holdback: the share of receipts owed to the funder.

Split funding

A remittance method where your card processor sends a set percentage of each batch to the funder.

Stacking

Taking another advance while an existing one is still open. See merchant cash advance stacking.

Stip (stipulation)

A condition or document the funder requires before funding, such as a voided check, ID, landlord letter, or updated bank statements.

T

Time in business (TIB)

How long the business has been operating. Many funders want roughly 4 to 6 months or more.

True sale

A transaction where the funder genuinely buys receivables and takes on risk, as opposed to a disguised loan.

U

UCC-1 filing

A public notice filed under the Uniform Commercial Code that the funder has a security interest in business assets, including receivables.

Underwriting

The funder’s review of your application, bank statements, credit, and business details to decide whether to approve and on what terms.

V

Verification call

A short call before funding to confirm your identity, business details, and understanding of the agreement.

W

Weekly remittance

A fixed debit collected once a week instead of daily.

Working capital

Money available for day-to-day operations such as payroll, inventory, and rent. MCAs are often used as short-term working capital.

The bottom line

A merchant cash advance glossary is most useful when you have an offer in front of you. Focus first on purchase price, factor rate, purchased amount, holdback, fees, and reconciliation, then read the default, guaranty, and lien sections closely. If any term is still unclear, ask the funder or your broker to explain it in writing, and consider having an attorney review the contract. You can learn more on our merchant cash advance page.

Want to see what you qualify for? Check your options. Applying with Tnufa doesn’t affect your personal credit score.

Quick answers

What is the most important term in a merchant cash advance?

The factor rate, because it sets the purchased amount, which is the total you will deliver. The holdback percentage and fees are close behind because they determine cash flow and net funding.

What is the difference between purchase price and purchased amount?

The purchase price is the cash the funder pays you. The purchased amount is the larger total of future receivables you agree to deliver. The gap between them is the cost of the advance.

What does holdback mean in an MCA?

Holdback, or specified percentage, is the share of your sales that goes to the funder until the purchased amount is delivered.

What is reconciliation in a merchant cash advance?

Reconciliation is a contract process that adjusts your remittances to match the agreed percentage of your actual sales, usually after you request it and provide records.

What does stacking mean in MCA funding?

Stacking means taking a new advance while you still have an open one, so multiple remittances draw from the same revenue. Many agreements restrict it.

This article is for general educational purposes only and is not legal, tax or financial advice. Terms, pricing and eligibility are set by funding partners and vary by business and state. Tnufa Finance is not a lender.