The MCA World
- Merchant Cash Advance (MCA)
- An advance against your future card sales or receivables, repaid by an automatic daily or weekly debit — legally a purchase of future revenue, not a loan. It is priced with a factor rate, not an interest rate, which is why the true cost is easy to underestimate.
- Factor Rate
- A decimal multiplier (e.g., 1.35) applied to the amount you receive to set the total you repay. A $50,000 advance at a 1.35 factor rate means $67,500 owed back — regardless of how quickly you repay it, unlike an interest rate, which accrues over time.
- Holdback
- The percentage of your daily card or ACH receipts automatically withheld to repay an MCA. A busy week pays it down faster; a slow week still takes the same percentage, which is what makes cash flow unpredictable.
- ACH Position
- MCA funders rank each advance against your account by "position" — 1st position gets repaid before 2nd, 2nd before 3rd, and so on. Later positions carry more risk for the funder and are priced accordingly.
- Stacking
- Taking on more than one MCA or short-term advance against the same receivables at the same time. Each additional position compounds your daily debit burden and is one of the clearest signals to future lenders that a business is under cash-flow stress.
- Daily / Weekly Debit
- The repayment cadence most MCAs use — a fixed or holdback-based amount pulled automatically from your bank or card processor on every business day or every week, rather than one monthly payment.
Rates & True Cost
- APR (Annual Percentage Rate)
- The standardized, annualized cost of borrowing, including fees — the one number that lets you compare a term loan, a line of credit, and an MCA on the same basis. MCA funders rarely quote it upfront, because factor-rate pricing makes the true annualized cost easy to obscure.
- Effective APR of an MCA
- A factor rate converted into an annualized rate so it can be compared to an APR-quoted loan. Because factor rates don't account for time, a 1.35 factor rate repaid over 4 months carries a much higher effective APR than the same factor rate repaid over 12 months.
- Buy Rate
- The wholesale rate a lender offers a broker, before any markup. What you are ultimately quoted is the buy rate plus that markup — asking a broker directly what the buy rate was is a fair question.
- Yield Spread / Broker Markup
- The gap between the lender's buy rate and the rate you're actually charged — this spread is how many brokers are compensated. It should be disclosed as part of your term sheet, not left for you to infer.
- Origination Fee
- An upfront fee, often a percentage of the funded amount, charged to process and fund a loan or advance. It reduces the net amount you actually receive relative to the amount you're on the hook to repay.
- Prepayment Penalty
- A fee charged for paying a loan off before its scheduled term ends, meant to protect the lender's expected interest income. Worth confirming before you sign anything you might want to refinance out of early.
Real Estate & Ratios
- CRE (Commercial Real Estate) Financing
- Loans secured by owner-occupied or investment commercial property — office, retail, industrial, or multifamily. Typically underwritten on both the property's value and the income it produces.
- DSCR (Debt Service Coverage Ratio)
- The cash flow available to cover a debt payment, divided by that payment. A DSCR of 1.25 means the property or business generates 25% more cash than it needs to make the loan payment — most CRE and term lenders set a minimum DSCR before they'll fund.
- LTV (Loan-to-Value)
- The loan amount divided by the appraised value of the collateral, usually real estate. An $800,000 loan against a $1,000,000 property is 80% LTV — lower LTV generally means less risk for the lender and often a better rate for you.
- Bridge Loan
- Short-term financing that "bridges" a timing gap — closing on a property before permanent financing is in place, or covering a gap before a sale closes. Faster to close and shorter in term than permanent financing, usually at a higher rate to match the speed and risk.
- Balloon Payment
- A large lump sum due at the end of a loan term, after a schedule of smaller regular payments. Common in CRE and equipment financing — worth knowing your refinance or payoff plan well before that date arrives.
Loan Structures
- Term Loan
- A lump sum borrowed once and repaid on a fixed schedule, at a fixed or floating rate, over a set term — the most straightforward loan structure to budget against.
- Revolving Line of Credit (Revolver)
- A reusable credit line you draw against and repay repeatedly, paying interest only on what's outstanding — unlike a term loan, where you receive and repay one lump sum.
- Equipment Financing
- A loan secured by the equipment being purchased, which serves as its own collateral. Because the asset backs the loan, terms can be more favorable than an unsecured facility for the same amount.
- Working Capital
- Funds available for a business's day-to-day operations — payroll, inventory, rent — as distinct from capital used to buy a fixed asset like property or equipment. Most short-term MCAs and cash-flow loans are sized to cover this.
- Amortization
- The schedule by which a loan's principal is paid down over time through regular payments, each made up of a principal and interest portion.
- SBA Loan
- A loan partially guaranteed by the U.S. Small Business Administration, which allows a lender to offer terms — lower rates, longer terms — it might not otherwise extend to a small business on its own.
Collateral & Legal
- UCC Lien / UCC-1 Filing
- A public filing a lender or funder makes to claim a security interest in specific business assets or receivables as collateral. Multiple UCC filings against the same assets — from stacked MCAs, for example — complicate any future refinance until they're cleared.
- Blanket Lien
- A UCC lien that covers essentially all of a business's assets, rather than a single named asset like one piece of equipment.
- Personal Guarantee (PG)
- A signer's promise to personally repay a business debt if the business itself cannot — meaning the signer's own assets can be at risk even when the borrowing entity is an LLC or corporation.
- Confession of Judgment (COJ)
- A pre-signed document that historically let a lender obtain a court judgment against a borrower on default without a hearing. Several states have restricted or banned their use in commercial lending — worth knowing whether one is buried in what you're signing.
- Default
- Failing to meet a loan or advance's repayment terms. Depending on the agreement, this can trigger UCC lien enforcement, a confession-of-judgment filing, or immediate acceleration of the full remaining balance.
Process
- Term Sheet
- A non-binding summary of a proposed loan or advance — amount, rate, fees, repayment structure — issued before final underwriting and closing. It is the document to read line by line, and to ask questions about, before anything becomes binding.
- Underwriting
- A lender's process of evaluating your creditworthiness, cash flow, and collateral before approving and funding a deal. Different lenders weigh these factors differently, which is why the same business can be declined by one and approved by another.