Business funding glossary.

A

ACH Withdrawal

A fixed dollar amount automatically debited from your business bank account on a daily or weekly schedule to repay an advance, regardless of that day's sales. It is the most common repayment method on modern advances. Unlike a holdback, it does not flex with your revenue, so slow days still get the full debit.

Annual Percentage Rate APR

The annualized cost of a loan, including interest and certain fees, expressed as a percentage. Loans such as a business line of credit and an SBA 7(a) carry an APR. A merchant cash advance does not; for an advance we estimate a true APR-equivalent only for comparison.

C

Commercial Financing Disclosure

State-level requirements that certain business-financing offers include standardized cost information so owners can compare options on equal footing. Examples include California's commercial financing disclosure rules and other states' sales-based-financing laws, such as the Texas law that took effect on September 1, 2025. Requirements vary by state and continue to expand.

Confession of Judgment COJRead for this

A clause in some funding contracts in which the business owner agrees in advance that, if they default, the funder may obtain a court judgment without the owner contesting it. Their use in commercial financing has been restricted in some jurisdictions. If you see one, understand it fully before you sign, because it gives up a meaningful legal protection.

Consolidation

Combining several advances or debts into a single new arrangement with one payment. Traditional consolidation pays off the old balances and replaces them with one obligation, ideally at a lower combined cost or a longer term. See also reverse consolidation.

Cost of Capital

On an advance, the fee you pay, equal to the payback amount minus the advance. A $70,000 payback on a $50,000 advance has a $20,000 cost of capital. Because it is set by the factor rate and not by time, it is fixed and does not shrink if you repay early.

D

Default

Failing to meet the terms of a funding agreement, such as missing payments or breaching a covenant. Depending on the contract, default can trigger fees, collection, a UCC filing, enforcement of a personal guarantee, or legal action.

Double-DippingHidden cost

Renewing or refinancing an advance before it is paid off in a way that charges new fees on the unpaid balance of the old one. You effectively pay a factor rate again on money you have already partly repaid. It is the most common hidden cost in early renewals. Our renewal calculator flags when it is happening.

F

Factor Rate

The flat multiplier that prices a merchant cash advance, usually between 1.10 and 1.50. Multiply the advance by the factor rate to get the total payback. There is no compounding, so the dollar cost is fixed the day you sign. Convert one to a comparable rate with our factor rate to APR converter.

Funder

The company that actually provides the capital and sets the terms, whether a lender for a loan or a purchaser of receivables for an advance. A broker refers deals to funders; the funder decides whether to fund and on what terms through underwriting.

H

Hard Credit Pull

A formal credit inquiry that can lower your score slightly and appears on your credit report. With us, there is no hard pull to start a review. One may occur later at the funder stage of an application, and it should be disclosed to you before it happens. Compare with a soft credit pull.

Holdback

The percentage of your daily card sales a funder withholds to repay an advance under a split-funding arrangement. Unlike a fixed ACH debit, a holdback rises and falls with your sales, so it eases on slow days. Model one with our holdback calculator.

I

ISO / Broker

An Independent Sales Organization or broker that connects business owners with funders. It is not the lender or funder. It takes a request, qualifies it, and submits or refers it to funding partners, and may be paid by the funder on funded deals. AI Cash Advance is a broker, not a lender. Read more on our overview.

M

Merchant Cash Advance MCA

A purchase of a portion of your future business receivables at a discount, in exchange for a lump sum today. It is not a loan and carries no interest rate or APR; its price is a factor rate. Repayment is collected as a fixed daily or weekly ACH debit or as a holdback on sales. Learn more in our guide on what an MCA is.

P

Payback Amount

The total dollars you repay on an advance, equal to the advance multiplied by the factor rate. A $50,000 advance at a 1.40 factor has a $70,000 payback. The cost of capital is the payback minus the advance.

Payoff Amount

The amount required to fully satisfy an advance today, which is the remaining balance of the total payback. Because the cost is fixed by the factor rate, paying off early usually does not reduce the fee. Estimate yours with our payoff and settlement estimator.

Personal Guarantee

A promise by the business owner to be personally responsible for repaying the funding if the business cannot. It puts personal assets at risk and is common in both advances and loans. Know whether one is in your contract before you sign.

R

Remittance

A single scheduled repayment toward an advance, whether collected by ACH debit or as a holdback on card sales.

Renewal

Taking a new advance that pays off and replaces a current one, often offered once a portion of the existing advance is repaid. Renewals can double-dip if the unpaid balance is rolled in and charged a factor rate again. Check the true cost of a renewal with our renewal and double-dip detector.

Reverse Consolidation

A relief structure where a funder advances money used to make your existing daily or weekly payments, then collects from you on a lighter schedule. It can ease daily cash strain but may increase total cost, so the full terms matter. See our page on reverse consolidation.

Revenue-Based Qualification

Approving funding primarily on the strength and consistency of business revenue rather than on credit score alone. It lets businesses qualify based on the cash flow shown in their bank statements, which is why a strong-revenue business with imperfect credit can still be approved.

S

SBA 7(a) Loan

A term loan made by a lender and partially guaranteed by the U.S. Small Business Administration. It is a loan with an APR, typically offers lower rates and longer terms than an advance, and requires more documentation and time to fund. See our guide to SBA 7(a) loans.

Settlement

An agreement to resolve an advance for less than the full balance owed, typically negotiated when a business cannot keep up with payments. Terms vary widely and may carry credit and legal consequences. It is a last resort, not a planned exit.

Simple APR

A basic annualized figure brokers often quote, found by dividing the cost by the advance and stretching it over a year. It understates the real cost because it ignores that you repay the whole time and your balance shrinks daily. The honest comparison number is the true APR-equivalent.

Soft Credit Pull

A review of credit that does not affect your credit score and does not count as a formal inquiry. Starting a funding review can be done with a soft pull, so there is no credit pull to start. Compare with a hard credit pull.

Split Funding

A repayment method where your card processor automatically routes a set percentage of each day's card sales to the funder before the rest reaches you. Also called a lockbox or processor split. The withheld share is the holdback.

StackingWarning sign

Taking out one or more additional advances on top of an existing advance that is not yet paid off. Multiple daily debits stack against the same revenue and often signal distress. Many funders prohibit it and many businesses cannot sustain it. Our stacked advance calculator shows the combined strain.

T

Term Loan

A loan disbursed as a lump sum and repaid in fixed installments over a set period, with interest expressed as an APR. Estimate payments with our business loan calculator.

Time in Business

How long a company has been operating, a core qualification factor for funding. Many advances require a minimum of six months in business.

True APR-equivalent

An estimate of the annualized cost of an advance, calculated from the internal rate of return of its actual repayment stream, shown only so you can compare an advance to loan products. It is an estimate for comparison only, not a contractual APR; an advance legally has no APR. See exactly how we compute it on our methodology page.

U

UCC Lien

A public filing under the Uniform Commercial Code that a funder records to claim an interest in your business assets or receivables as security. A UCC-1 filing can affect your ability to get additional funding while it is in place, and it is one reason stacking is often blocked.

Underwriting

The funder's process of reviewing a business to decide whether to fund and on what terms, looking at revenue, time in business, bank activity, existing obligations, and sometimes credit. Final terms always depend on underwriting, which is why nothing on this site is an offer of credit.

W

Working Capital

The cash a business has available to cover day-to-day operations such as payroll, inventory, and rent. Most short-term funding is used to bridge working-capital gaps rather than to buy long-term assets.

Business Line of Credit

A revolving loan that lets a business draw funds up to a set limit, repay, and draw again. It is a loan, carries an APR, and you pay interest only on what you draw. It often costs less over time than an advance. See our line of credit page.

Put these terms to work

Definitions are most useful against real numbers. Run your own offer through the calculators and watch the factor rate, payback, holdback, and true APR-equivalent line up with what you just read.

New to all of this? Start with our plain-English guide on what a merchant cash advance is, or browse the full guides library.

Last updated: June 2026 · Written by the AI Cash Advance Editorial Team · Reviewed by a Funding Specialist