Business Funding Glossary

Funding contracts hide their cost in vocabulary. This glossary defines the terms our guides use, in plain English and with the number that matters where one exists. Terms link to the guide that covers them in depth.

Advance amount

The money you actually receive. Always compare every cost against this number, not against the total repayment figure.

ACH (Automated Clearing House)

The bank-to-bank network most providers use for collections. Daily ACH deductions are the MCA standard.

APR (Annual Percentage Rate)

The yearly cost of financing expressed as a single percentage, including interest and the fees regulators require lenders to disclose. It is the only fair comparison number.

APR-equivalent

Our translation of any pricing into APR terms. A 1.3 factor over six months works out to roughly 55-65% APR-equivalent. The arithmetic lives on the methodology page.

Bridge financing

Short-term funding that covers a temporary gap until permanent money arrives, priced for short holding periods. Useful pattern, expensive habit.

Closing costs

The fees paid at the closing table in a property transaction. The closing guide walks through them.

Confession of judgment

You pre-agree to lose in court. The provider can enter a judgment without a trial. Banned for consumer debt in most states, the clause survives in MCA contracts because advances are structured as purchases of receivables rather than loans.

Contingency

A contract condition that must be met before a sale closes, such as inspection or financing. They also protect your earnest money.

Credit-to-cash

A service that converts available credit card limit into bank cash for a flat fee. Kashu is the reviewed example.

CDFI

Mission-driven community lenders. They lend with lower credit thresholds than banks, funded partly by public programs.

Daily deductions

Fixed amounts withdrawn from your business account every business day until an advance is fully repaid. The mechanism that makes MCAs expensive in slow seasons.

Down payment

The buyer’s upfront equity stake in a purchase. Distinct from earnest money, though one can credit toward the other at closing.

Earnest money (EMD)

A good-faith deposit submitted with an offer on a property, held in escrow, credited at closing, and forfeitable if you breach the contract. Start with the EMD guide.

Escrow

A neutral third party that holds funds until contract conditions are met. Earnest money lives there.

Factor rate

A decimal multiplier, typically between 1.2 and 1.5, applied to the advance to compute your total repayment in dollars. It ignores time entirely. Four months or ten: same dollars.

Holdback

A percentage of daily card sales taken by a provider instead of a fixed amount. Revenue falls, the payment falls, and the collection period stretches into months.

Invoice factoring

Selling unpaid invoices to a factor at a discount for immediate cash. The factor collects from your customers.

Line of credit

A pre-approved pool you draw from, paying interest only on what you use. Unsecured versions need 600+ credit.

MCA (merchant cash advance)

A purchase of your future receivables, deliberately structured to avoid loan classification and the protections that come with it. See what an MCA is.

Personal guarantee

A promise to repay business debt from personal assets. Common in term loans, structurally absent from true MCAs.

Revenue-based financing

Repayment set as an agreed percentage of your monthly revenue, rather than a fixed amount deducted every business day.

SBA microloan

A government-backed loan of up to $50,000 through intermediary lenders. Cheap but slow.

Stacking

Taking another advance while the first is still collecting. Each layer multiplies the daily deductions, and stacking is how MCA debt spirals into default. See getting out of an MCA.

Term loan

A lump sum repaid with interest on a fixed schedule. Our benchmark: 12% APR.

UCC-1 lien

A public filing that claims a security interest in your business assets, restricting additional financing until it is released. See asset risks.

Wire transfer

Same-day bank settlement for time-critical payments. The standard for urgent earnest money deadlines.