📓 The Glossary

The true yearly cost of borrowing expressed as a percentage. Unlike a factor rate, APR accounts for the time value of money — making it the only honest way to compare two funding products. A 1.35 factor rate on a 6-month MCA can equal 85–140% APR. Always convert factor rates to APR before comparing to any loan product.

A revolving credit line secured by accounts receivable, inventory, or equipment. The borrowing base adjusts as assets change. Rates are typically 8–20% APR. Excellent option for product-based businesses with significant inventory or receivables that can't qualify for unsecured financing.

Money owed to your business by customers for goods or services delivered but not yet paid for. A/R can be used as collateral for invoice factoring or asset-based lending. Lenders care about the age (how long outstanding) and creditworthiness of the customers who owe you.

A UCC-1 filing that gives a lender a security interest in ALL of your business assets — equipment, inventory, receivables, intellectual property, even future assets. Most MCA funders file blanket liens. Every blanket lien on your file makes future financing harder and reduces what future lenders will offer.

Short-term financing (3–18 months) used to bridge a gap until permanent financing closes. Common uses: covering the period while an SBA loan is being approved, bridging a real estate transaction, or covering a specific known cash gap. Rates: 12–36% APR. Only use a bridge loan if you know exactly how you'll pay it off. Never use it as general working capital without a clear exit.

A revolving credit facility allowing you to borrow up to a limit, repay, and borrow again. Interest accrues only on the outstanding balance. Rates: 8–40% APR depending on creditworthiness. Unlike an MCA, early payoff saves money. This is the most flexible non-MCA product available to most businesses.

A legal clause in which you waive your right to notice and a court hearing before a lender can obtain a judgment against you. If you default — or even if the lender claims you defaulted — they can freeze your bank account and seize assets without ever going to trial. This is one of the most dangerous clauses in business financing. New York banned COJs against out-of-state businesses in 2019, but they remain legal in many states. If this clause is in your contract, have an attorney review before signing.

The true total cost to borrow money, including interest, fees, factor rates, and opportunity cost. A business owner who borrows 00,000 at a 1.40 factor rate and repays 40,000 over 8 months has paid 0,000 in cost of capital — the equivalent of roughly 90–120% APR. Comparing cost of capital, not just payment amounts, is the only honest way to evaluate funding offers.

Most business lenders pull the owner's personal credit score (FICO) as part of underwriting. General thresholds: 720+ (best rates/products), 680–719 (good options), 640–679 (limited options), 580–639 (MCA territory or secured only), below 580 (very limited). Your personal credit score determines which products you can access. Even business credit lines often require a personal guarantee tied to personal credit.

The fixed amount an MCA funder withdraws from your business bank account each business day. Unlike a percentage holdback (which fluctuates with revenue), a fixed daily debit is the same amount regardless of how much you deposited that day. On a slow day, a ,200 daily debit against 00 in deposits creates an overdraft. Fixed daily debits are the primary cause of NSFs in MCA-heavy businesses.

Failure to meet the terms of a funding agreement. In MCA contracts, default can be triggered by: missing a debit, closing a bank account, opening a new bank account without notice, falling below a minimum balance threshold, filing for bankruptcy, or even receiving a material adverse change in your business. Read your default clause carefully — some funders define default so broadly that normal business decisions can trigger it.

A financial ratio that measures a business's ability to cover its debt obligations from operating income. Formula: DSCR = Net Operating Income ÷ Total Annual Debt Payments. Most traditional lenders require a DSCR of 1.25 or higher. A DSCR below 1.0 means the business cannot cover its debt from income alone — a major red flag for lenders and a warning sign for the business owner.

A unique nine-digit identifier assigned by Dun & Bradstreet (D&B) to your business, similar to a Social Security number for business credit. Required for SBA loans and many trade credit accounts. If your business doesn't have one, register free at dnb.com. Building a D&B Paydex score is a critical step toward bank financing.

A loan or lease where the equipment being purchased serves as collateral. Because the lender has a tangible asset securing the loan, the underwriting process is different from working capital loans — existing MCAs are often less of a disqualifier. Rates: 6–24% APR. Terms typically match the useful life of the equipment. Frequently overlooked by MCA-heavy businesses. Ask about it specifically.

The multiplier used to calculate MCA repayment. A 1.35 factor rate on a 00,000 advance means you repay 35,000 — regardless of when you pay. Unlike interest, factor rates do not decrease when you pay early. To compare fairly with a loan: convert to APR using the formula: APR = (Cost ÷ Principal) ÷ (Term in Days ÷ 365) × 100. A 1.35 factor over 9 months ≈ 70–85% APR.

The FICO Small Business Scoring Service score — a proprietary score used by SBA lenders to pre-screen loan applications. Ranges from 0–300. Most SBA lenders require a minimum of 140–160+. Influenced by personal credit, business credit, and financial history. Improving your FICO SBSS is one of the most impactful things you can do to access SBA financing.

Selling outstanding invoices to a factoring company at a discount (typically 80–90% of face value) for immediate cash. Not a loan — you're selling an asset. Approval is based primarily on your clients' creditworthiness, not yours. Cost: 2–4% per 30-day period (effectively 24–48% APR if invoices are slow). Best for B2B businesses with reliable clients but slow payment cycles.

A revolving line of credit secured by the equity in your home. Typically the lowest rate available to any business owner (Prime + 0–2%). Can be used for any purpose including business needs. Your home is the collateral. A HELOC is a powerful tool for the right investment but the wrong tool for covering losses or funding uncertain ventures.

In a percentage-based MCA (as opposed to fixed daily debit), the holdback is the percentage of daily credit card or bank deposits withheld by the funder until the advance is repaid. A 15% holdback on 0,000 in daily sales = ,500/day to the funder. Holdback rates make repayment variable — slower on slow days, faster on strong days. Not the same as a fixed daily debit.

Lenders classify industries by risk level using SIC (Standard Industrial Classification) or NAICS codes. High-risk industries include restaurants, construction, trucking, and cannabis. Low-risk: medical, professional services, government contractors. Your SIC code can raise your rate or disqualify you entirely — regardless of your financials. Knowing your classification helps you understand which lenders to approach.

A court-ordered finding that you owe a creditor a specific amount. Open judgments severely damage your ability to obtain financing — most lenders will not fund a business with an open judgment. Judgments appear on both personal and business credit profiles and must be satisfied (paid) before most lenders will consider an application.

The ratio of a loan amount to the appraised value of the collateral. A lender offering 80% LTV on equipment worth 00,000 will lend up to 0,000. The lower the LTV, the more conservative the lender. Equipment lenders typically lend 75–90% LTV. Real estate lenders typically 65–80%.

A lump-sum advance repaid via a fixed percentage of daily receivables or a fixed daily debit, multiplied by a factor rate. Not legally a loan — structured as a purchase of future receivables. This legal distinction means MCA funders are not subject to usury laws or APR disclosure requirements in most states. Factor rates of 1.15–1.49 are common, equating to 75–150%+ APR.

A debt management strategy where a new funder advances capital to a management company, which replaces multiple existing MCA daily debits with a single lower payment. Does NOT pay off the existing MCAs — they continue accruing. Buys cash flow relief while you pursue a real exit. Not a long-term solution — a bridge to one.

Taking a second (or third, or fourth) MCA while a previous one is still outstanding, resulting in multiple simultaneous daily debits. Example: 92/day + 14/day = ,606/day leaving your account. Stacking is one of the most reliable paths to business failure. Every new position is a commission check for the broker. No legitimate advisor recommends stacking as a solution.

A trade credit account where you purchase goods or services and pay the invoice within 30 days. Net-30 accounts with vendors who report to business credit bureaus (D&B, Experian Business) are one of the fastest and cheapest ways to build a business credit profile. Examples: Uline, Grainger, Quill. Critical first step toward SBA and bank financing.

A returned debit because the account balance was insufficient to cover the withdrawal. Each NSF is a significant red flag to lenders — it signals cash flow stress. More than 2–3 NSFs in 90 days will disqualify you from most non-MCA products. MCA funders see NSFs differently — they may use them to trigger default. Protecting your NSF record is critical to maintaining financing options.

Dun & Bradstreet's business credit score, ranging from 0–100. A score of 80 means all bills were paid on time. A score of 100 means all bills were paid early. Most business lenders want to see 70+. Built by paying trade creditors and net-30 accounts on time, consistently, and having those payments reported to D&B.

A legal commitment where a business owner personally guarantees repayment of a business debt. If the business cannot pay, the lender can pursue the owner's personal assets. Almost all small business financing requires a personal guarantee. The critical variable is whether it's limited (capped at a specific amount) or unlimited (no cap). Read this clause carefully.

A fee charged for paying off a loan early. Common in some term loans and bridge loans. MCA products do not have prepayment penalties because there is no benefit to early payoff — the factor rate total is fixed regardless of timing. When evaluating any interest-bearing loan, ask specifically about prepayment penalties and calculate the savings from early payoff.

When an MCA funder offers to advance additional funds before the existing advance is fully repaid, rolling the remaining balance into a new advance at a new factor rate. This is not a refinance — it's a new advance on top of an existing one. You pay a factor rate on money you've already repaid once. Serial renewals are how businesses end up trapped in MCA debt cycles.

A legal strategy allowing business owners to use 401(k) or IRA funds to capitalize a business without triggering early withdrawal penalties or income taxes. Requires forming a C-Corporation and involves ongoing IRS compliance. It works, but every dollar invested is a dollar no longer compounding for retirement. Only pursue ROBS with a qualified ROBS attorney.

Government-backed loans with the lowest rates and longest terms available in small business finance. SBA 7(a): up to M, rates Prime + 2.5–4.5%, terms up to 10 years (25 for real estate). SBA 504: for real estate and equipment, rates tied to Treasury bonds. Approval takes 30–90 days. Requires 2+ years in business, 620+ personal credit, and strong financials. The gold standard of small business lending. If you can qualify — or will qualify in 12–18 months — build toward it deliberately.

See: MCA Stacking

A legal agreement in which one creditor agrees that its claim on collateral or assets ranks below another creditor's claim. MCA funders sometimes require subordination agreements when another lender is involved. A junior creditor (subordinated) gets paid only after the senior creditor is fully repaid. Signing a subordination agreement affects your priority in bankruptcy or liquidation proceedings.

A fixed loan amount repaid in regular installments (typically monthly) over a set period at a defined interest rate. Unlike an MCA, early payoff saves money. Unlike a line of credit, you receive the full amount upfront. Rates: 8–36% APR depending on lender and creditworthiness. Terms: 12–60 months. Requires approximately 2 years in business and 620+ credit. Usually the best option for most established businesses that qualify.

The number of months/years your business has been operating. One of the most important underwriting factors. General thresholds: 0–6 months (very limited options), 6–12 months (some MCA and personal loan options), 1–2 years (working capital loans, equipment financing), 2+ years (term loans, BLOC, SBA eligible). Every month you operate clean improves your funding options.

A public notice filed by a lender with the state government asserting a security interest in your business assets. Most MCA funders file UCC-1s immediately upon funding — often as blanket liens on all business assets. Multiple UCC filings make future financing difficult because other lenders see that your assets are encumbered. UCCs must be terminated after repayment — this does not happen automatically. Request a termination from every funder after payoff.

The difference between current assets (cash, receivables, inventory) and current liabilities (accounts payable, short-term debt). Positive working capital means the business can cover its short-term obligations. Negative working capital is a warning sign. Most lenders evaluate working capital as part of underwriting — it is one of the 12 key metrics that determine what you qualify for.

A short-to-medium term loan (6–24 months) designed to fund day-to-day operations rather than long-term assets. Monthly payments. True interest rate (APR 18–45% for non-bank lenders). Requires approximately 2 years in business and consistent revenue. A solid middle-ground option between MCA and SBA financing for businesses that qualify.