MCA Glossary

Automated Clearing House debit — the mechanism most MCAs use to collect daily or weekly repayments. The funder debits a fixed dollar amount directly from the merchant's business bank account each business day. Unlike a percentage-based holdback from card processing, ACH debits are fixed regardless of daily revenue.

The signed provision in an MCA contract giving the funder legal permission to initiate ACH debits from the merchant's bank account. Why it matters: this is a separate, specific authorization from the ACH debit itself — it's the legal basis the funder relies on if a debit is disputed, and it typically stays in effect for the life of the agreement unless revoked in writing. Common misunderstanding: revoking ACH authorization with your bank does not cancel the underlying debt — it can trigger a default under the contract even though no payment moves. Related terms: ACH Debit, Default.

The principal sum disbursed to the merchant — the cash you receive in your bank account. This is the number on which the factor rate is applied to calculate the total repayment. Note: if a broker fee is deducted at funding, the amount you receive may be less than the stated advance amount.

The percentage of MCA applications that result in a funded advance. Overall industry approval rates are typically estimated in the 60-70% range, with first-position applications approved most often and rates dropping notably for second- and third-position applicants. See MCA industry benchmarks for typical ranges.

The primary underwriting method for MCA — analysis of 6 consecutive months of business bank statements to evaluate average monthly deposits, consistency, NSF history, and existing payment obligations. MCA underwriting weighs bank statements more heavily than credit score.

An intermediary who connects a merchant to one or more MCA funders in exchange for a commission paid by the funder — synonymous with ISO in most MCA usage. Why it matters: a broker isn't the party providing your capital, and doesn't underwrite your file — the funder does. A broker who works with multiple funders can shop your file for competing offers; a broker tied to one funder cannot. Related terms: ISO, Funder.

A contractual provision allowing the merchant to settle the remaining balance at a reduced amount if paid early. Not present in all agreements — must be explicitly stated in the contract. A typical buyout discount might offer 10-15% off the remaining balance if paid within 60-90 days of origination.

A legal clause in an MCA contract that authorizes the funder to obtain a court judgment against the merchant without notice or a trial, simply by filing the agreement with a court. Once filed, the funder can immediately freeze bank accounts or seize assets. New York banned COJ clauses for out-of-state businesses in 2019, but they remain legal in most states. Always ask whether your contract includes a COJ clause before signing.

The total dollar cost of an MCA — the difference between total repayment and the advance amount. Advance × (factor rate − 1). On a $50,000 advance at 1.30 factor rate: cost of capital = $50,000 × 0.30 = $15,000. Use the MCA calculator to model any scenario.

The fixed dollar amount debited from the merchant's bank account each business day in a fixed-payment MCA structure. Calculated as: total repayment ÷ number of business days in term. The daily debit continues regardless of how much revenue the business generated that day.

A contractual event that allows the funder to accelerate the entire remaining balance and pursue collection. Common default triggers: missed ACH payment due to insufficient funds, closing the debited bank account, taking an additional advance without permission (violating stacking restrictions), bankruptcy filing, or material misrepresentation on the application.

A provision requiring the merchant to direct all credit card processing proceeds through an account controlled or monitored by the funder. This gives the funder direct visibility into — and sometimes control over — card processing revenue. Not present in all agreements.

A disputed practice where a funder collects a full payoff on an existing advance while simultaneously charging fees or a reduced-but-nonzero factor on a new, larger advance disbursed to pay off the first — meaning the merchant effectively pays financing cost on money they never actually held. Why it matters: this differs from a legitimate renewal, where the new advance amount is net of what's still owed. Always ask a renewing funder to show the payoff calculation in writing before signing. Related terms: Renewal, Stacking.

The annual percentage rate equivalent of an MCA, calculated using the IRR (internal rate of return) declining balance method. This is the mathematically correct APR for comparing MCA to any other loan product. A 1.30 factor rate at 6-month term produces approximately 97% true APR. Use the factor rate to APR converter for any scenario.

The multiplier applied to the advance amount to determine total repayment. A factor rate of 1.30 means the merchant repays $1.30 for every $1.00 received. Typical range: 1.15 (strongest profiles) to 1.45 (highest risk), varying by industry, credit profile, and time in business. Unlike an interest rate, the factor rate is applied once to the original advance — not to the declining balance. This is why true APR is higher than simple APR for MCAs.

A merchant with no existing outstanding MCA advances. First-position advances carry the best factor rates (lowest cost) and the highest approval rates. Being in first position means the funder's daily debit is the only MCA payment leaving the merchant's account each day.

The entity that provides the capital for a merchant cash advance. Distinct from the ISO (broker) who arranges the transaction. Many ISOs work with multiple funders and submit merchant applications to compete for the best offer. Examples of funders: Yellowstone Capital, Merchant Funding Services, Everest Business Funding. T.A.G. is an ISO, not a funder.

In a true revenue-based MCA (split withholding), the percentage of daily card processing revenue withheld by the funder as repayment. Typical holdback: 10–20% of daily card processing volume. Differs from fixed ACH debit: if revenue drops, the daily payment drops proportionally — but the total repayment remains fixed. If revenue rises, you pay off faster (but the total owed stays the same).

A broker or agent that connects merchants with MCA funders. ISOs submit applications to multiple funders, return competing offers, and are compensated by the funder (not the merchant) via commission. A captive ISO works exclusively with one funder. T.A.G. Business Funding is a broker-model ISO — we submit to multiple funders and present competing offers.

A party that originates a conventional loan — money advanced with an interest rate, a fixed repayment schedule, and a legal debtor-creditor relationship. Why it matters: an MCA funder is legally structured as a purchaser of future receivables, not a lender, and T.A.G. Business Funding is an Independent Sales Organization (ISO) that connects merchants to funders — T.A.G. is not a lender and does not originate the funding itself. Common misunderstanding: because an MCA feels like a loan (money now, repay later, a personal guarantee), people call the funder or the broker "the lender." That label is legally inaccurate for a product structured as a receivables purchase, and it matters for which disclosures and regulations actually apply. Related terms: Funder, ISO (Independent Sales Organization), Purchase Price.

A form of business financing in which a company receives a lump sum of capital in exchange for an agreed-upon portion of future revenue, at a cost determined by a factor rate. Legally structured as a purchase of future receivables — not a loan — in most jurisdictions. This distinction exempts MCAs from many state and federal lending regulations, including usury limits.

A common provision requiring the merchant to maintain a minimum balance in the debited bank account sufficient to cover the daily ACH debit. Falling below this balance and triggering an NSF on the MCA debit can constitute a default event under the contract.

A failed bank transaction due to insufficient account balance. NSF history in a merchant's bank statements is the #1 denial reason for MCA applications across most industries. NSFs indicate cash flow instability. NSFs during an active MCA can trigger default provisions. NSF fees are charged by the bank AND may compound the cash flow problem.

A one-time fee, typically 1–5% of the advance amount, deducted from the disbursed funds or added to the total repayment — separate from the factor rate. Why it matters: two offers with the same factor rate can have very different real costs if one carries a 3% origination fee and the other carries none. Common misunderstanding: origination/admin fees are sometimes described verbally as "processing costs" without a clear dollar figure — always ask for the exact fee amount in writing before comparing offers. Related terms: Factor Rate, Total Repayment (Payback Amount), Purchase Price.

A contractual provision making the business owner personally liable for repayment of the MCA if the business cannot repay. Standard in most MCA agreements. Means the funder can pursue the owner's personal assets (savings, home, vehicle) in the event of business default. "No personal guarantee" MCA products exist but are rare.

The actual dollar amount disbursed to the merchant in exchange for the sale of future receivables — distinct from "Purchased Amount," which is the larger total the funder is entitled to collect back. Why it matters: term sheets sometimes lead with the purchased amount (the bigger, funder-side number) rather than the purchase price (the smaller, merchant-side number you actually receive) — always confirm which figure a quoted number refers to. Common misunderstanding: "purchase price" and "purchased amount" sound interchangeable but describe opposite sides of the same transaction — price is what you get, purchased amount is what you owe back. Related terms: Purchased Amount, Advance Amount, Total Repayment (Payback Amount).

The ordinal rank of an MCA advance relative to other outstanding advances on the same merchant account. First position: no other advances outstanding. Second position: one existing advance already being repaid. Third position: two existing advances. Position directly impacts factor rate (higher position = higher rate) and approval probability (third-position applications are approved far less often than first-position).

Paying off an MCA balance before the estimated term ends. Why it matters: because total repayment is fixed by the factor rate (not an amortizing interest rate), prepayment does not automatically reduce the amount owed the way it would on a traditional loan — unless the contract includes a separate buyout discount clause. Always check for a buyout discount provision before assuming early payoff saves money. Related terms: Buyout Discount, Total Repayment.

The total dollar amount of future receivables the funder is buying — functionally the same figure as "total repayment" (advance amount × factor rate), described from the funder's side of the transaction rather than the merchant's. Why it matters: MCA contracts are legally structured as a sale of receivables, and "purchased amount" is the term you'll usually see used in the contract itself, not "loan amount" or "total owed." Related terms: Total Repayment, Advance Amount.

An additional MCA advance offered to a merchant who has successfully repaid a prior advance, typically when 50–75% of the original advance has been repaid. Renewals usually come with improved factor rates for merchants with good payment history. A renewal is not the same as stacking — stacking adds a new advance on top of an existing outstanding balance without repayment.

A single payment toward the total repayment obligation — one daily ACH debit, or one day's split withholding from card processing. Each remittance reduces the remaining balance until the total repayment is satisfied.

A contractual right (required by law in some split-withholding structures, and offered voluntarily by some funders in fixed-ACH structures) allowing the merchant to request a periodic true-up between the fixed daily debit actually collected and what a percentage-of-revenue holdback would have collected, refunding any overage. Why it matters: without a reconciliation provision, a fixed daily ACH debit does not adjust automatically if your revenue drops — ask whether your agreement includes one before signing.

Another name for the holdback percentage — the share of daily or weekly revenue collected toward repayment. See Holdback Percentage for the full definition and example. Related terms: Holdback Percentage, Split Withholding.

The broader category of financing (including MCA) where repayment is calculated as a percentage of ongoing revenue rather than a fixed loan payment. Why it matters: "revenue-based financing" is sometimes used as a rebrand for MCA-like products with slightly different structures (e.g., royalty-based repayment capped at a total multiple). Ask directly whether a "revenue-based financing" offer is legally an MCA (purchase of receivables) or structured differently — the disclosures and remedies available can differ. Related terms: MCA, Split Withholding.

The exact contract term used in most split-funding MCA agreements for what's commonly called the "holdback percentage" or "retrieval rate" in everyday conversation. Why it matters: when reading your actual agreement rather than a sales conversation, this is the phrase to search for — it's usually defined in a definitions section near the top of the contract, with the real percentage stated in a schedule or exhibit. Related terms: Holdback Percentage, Split Withholding (Revenue-Based Repayment).

A simplified annualized cost calculation: (factor rate − 1) ÷ term in years × 100. Less accurate than True APR because it does not account for the declining balance effect. A 1.30 factor rate at 6-month term = 60% simple APR. See also: True APR.

A repayment structure where the funder withholds a fixed percentage (holdback) of the merchant's daily card processing deposits, rather than debiting a fixed dollar amount via ACH. This structure means payments adjust with revenue — lower on slow days, higher on busy days. The total repayment is still fixed by the factor rate.

Taking out a second or third MCA advance while still repaying a previous one. Most MCA contracts prohibit stacking without the funder's explicit permission. Multiple daily ACH debits can collectively consume 30–50%+ of daily revenue. Violating stacking restrictions can trigger immediate default. Renewal (when 50–75% is repaid) is the legitimate path to additional capital.

The estimated number of business days to repay the advance, based on the daily payment amount and total repayment. Because MCAs are legally purchases of future receivables (not loans), the "term" is an estimate — not a fixed obligation. In a fixed-ACH structure, term = total repayment ÷ daily debit. In a split-withholding structure, actual term varies with revenue.

The total amount the merchant must pay over the life of the advance. Calculated as: advance amount × factor rate. This number should be explicitly stated in the contract. It does not decrease if paid early (unless a buyout discount clause exists).

The annualized cost of an MCA calculated using the internal rate of return (IRR) on the daily payment stream — the interest rate that makes the present value of all payments equal the advance amount, annualized by multiplying by 260 business days. More accurate than simple APR because it accounts for the declining balance effect. See the factor rate to APR converter.

A Uniform Commercial Code lien filed by the funder against the merchant's business assets as security for the advance. Standard in virtually all MCAs. Most funders file a blanket "all assets" UCC lien. This can interfere with future financing that requires a first-lien position (SBA loans, equipment financing). The UCC-1 should be released upon full repayment — confirm the release process before signing.

The process by which a funder evaluates the risk of a merchant application. MCA underwriting primary factors: bank statement analysis (consistency of deposits, NSF history), time in business, position (existing advances), monthly revenue, and personal credit score. Unlike traditional lending, collateral and tax returns are secondary factors.

The difference between a business's current assets and current liabilities — a measure of short-term financial health and operational liquidity. MCAs are primarily used to address working capital gaps: payroll, inventory, operating expenses during slow periods. An MCA is a working capital tool, not a growth capital tool.