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Small Business Financial Glossary

100+ finance, lending, and business terms defined in plain English. For business owners, not bankers.

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A

Accounts Receivable (AR) Accounting
Money owed to your business by customers who have received goods or services but not yet paid. AR is a current asset on your balance sheet. High AR means cash is "tied up" in unpaid invoices. Invoice factoring and AR financing are methods for converting AR to immediate cash.
Accounts Payable (AP) Accounting
Money your business owes to suppliers, vendors, and service providers for goods or services already received. AP is a current liability. Managing AP timing is a key lever in cash flow management — paying early for discounts vs. delaying payment to preserve cash.
Advance Rate MCA / Alt Lending
The percentage of your monthly revenue that a merchant cash advance funder will advance to you. If you deposit $30,000/month and the advance rate is 100%, you might qualify for a $30,000 advance. First-time advances are typically 80–120% of monthly deposits; renewals can exceed 150%.
See also: MCA Calculator, Factor Rate
Amortization Banking
The process of paying off a loan in regular installments over time. Each payment covers both interest and principal. In the early payments, more goes to interest; in later payments, more goes to principal. Term loans (SBA 7(a), equipment loans) are amortized. MCAs are NOT amortized — they are flat-fee products.
Annual Percentage Rate (APR) Banking
The annualized cost of credit expressed as a percentage. APR includes both the interest rate and any fees, making it useful for comparing different loan products. Traditional loans: 7–25% APR. MCAs have implied APRs that can range widely (20%–300%+) depending on factor rate and repayment speed — though MCAs are not technically loans and factor rates are not interest rates. Convert factor rate to APR →
See also: Factor Rate, Interest Rate
Asset-Based Lending (ABL) Banking
Lending where the loan is secured by specific business assets — accounts receivable, inventory, equipment, or real estate. Credit approval focuses on collateral value, not credit score. Equipment financing and invoice factoring are forms of asset-based lending. ABL is typically more accessible than unsecured credit for lower-credit borrowers.

B

Balloon Payment Banking
A large lump-sum payment due at the end of a loan term. Some commercial real estate loans and equipment loans are structured with smaller regular payments and a large balloon at the end. If you can't refinance or pay the balloon, you risk default.
Balance Sheet Accounting
A financial statement showing a business's assets, liabilities, and owner's equity at a specific point in time. The fundamental equation: Assets = Liabilities + Equity. SBA lenders and conventional banks require balance sheets as part of the application. MCA lenders rely more heavily on bank statements than balance sheets.
Bank Statement MCA / Alt Lending
Monthly records of all transactions in your business bank account. For MCA underwriting, 3–6 months of business bank statements are the primary document. Funders look at: average monthly deposits (to determine advance amount), NSF frequency, consistency of deposits, and daily average balance. Clean statements with consistent deposits and no NSFs produce the best offers.
See also: NSF, Holdback, Advance Rate
Bankruptcy General
A legal process allowing businesses or individuals to eliminate or restructure debt under court supervision. Chapter 7 (liquidation) and Chapter 11 (reorganization) are the most common forms for businesses. Most MCA funders will not approve applications with an active bankruptcy. Many will consider applications 1–2 years after discharge. Some specialized funders work with businesses in Chapter 13.
See also: Business Funding After Bankruptcy
Bridge Loan Banking
Short-term financing used to "bridge" a gap until permanent financing or a specific event occurs. Common uses: fund operations while waiting for an SBA loan to close, cover a gap before a large contract payment arrives, or finance a business acquisition before conventional financing closes. MCAs frequently serve as bridge capital for businesses in transition.

C

Cash Flow Accounting
The movement of money in and out of your business over a period. Positive cash flow = more coming in than going out. Negative cash flow means you're spending more than you're receiving. Profitable businesses can have negative cash flow (if customers are slow to pay or inventory is tied up). Cash flow is the #1 metric funders evaluate — more than profit. 82% of small business failures cite cash flow problems.
See also: Cash Flow Survival Guide
Collateral Banking
Assets pledged to a lender that can be seized if the borrower defaults. Common collateral types: real estate (personal or commercial), equipment, inventory, accounts receivable, business vehicles. SBA 7(a) loans require collateral for amounts over $350,000. Merchant cash advances require no collateral — they are secured by future receivables, not hard assets.
Confession of Judgment (COJ) MCA / Alt Lending
A legal document signed before default that waives the borrower's right to be notified or heard before a court judgment is entered against them. COJs are controversial in MCA contracts — they allow funders to obtain immediate judgments without prior notice. New York banned COJs against out-of-state borrowers in 2019. COJs are now rare in reputable MCA contracts. If you see one, ask for removal before signing.
See also: How to Read an MCA Contract, UCC-1
CDFI (Community Development Financial Institution) General
Mission-driven lenders certified by the U.S. Treasury Department that provide affordable financial services to underserved communities. CDFIs include community banks, credit unions, loan funds, and venture capital funds. They typically serve businesses that don't qualify for conventional financing — lower credit requirements, flexible underwriting. Find CDFIs at cdfifund.gov.
Cost of Goods Sold (COGS) Accounting
The direct costs of producing the products or services you sell. For a restaurant: food and beverage cost. For a retailer: wholesale purchase price of inventory. For a manufacturer: materials + direct labor. COGS does not include overhead, rent, or administrative expenses. Revenue − COGS = Gross Profit. Gross Profit ÷ Revenue = Gross Profit Margin.
Credit Utilization Banking
The percentage of your available revolving credit that you're currently using. A business with $50,000 in total credit card limits carrying $20,000 in balances has 40% credit utilization. Lower is better for your credit score — under 30% is recommended, under 10% is ideal. One of the fastest ways to improve your credit score is to pay down revolving balances to reduce utilization.

D

Daily Average Balance MCA / Alt Lending
The average amount of money in your bank account on any given day during a period. MCA funders calculate average daily balance from your bank statements to assess financial health. A low or negative daily balance signals potential cash flow problems. Target: positive daily balance, minimal dips below $1,000.
Debt Service Coverage Ratio (DSCR) Banking
A measure of your ability to pay existing debt obligations. DSCR = Net Operating Income ÷ Total Debt Service (principal + interest due). A DSCR of 1.25 means you earn 25% more than needed to service your debt — most SBA lenders require 1.25 minimum. DSCR below 1.0 means your income doesn't cover your debt payments.
Default Banking
Failure to fulfill the terms of a loan or advance agreement. For traditional loans: usually defined as missing a certain number of payments. For MCAs: defined in the contract but often triggered by blocking the ACH debit, closing the bank account, going into bankruptcy, or submitting fraudulent bank statements. Default triggers collections, UCC lien enforcement, or judgment filing.
See also: What Happens If You Default on an MCA
Drawdown / Draw Banking
The act of accessing funds from a revolving credit facility (line of credit). You "draw" from your available credit limit and pay interest only on the drawn amount. Unlike a term loan, you can draw multiple times up to your limit as you repay.
D-U-N-S Number General
Data Universal Numbering System — a unique 9-digit identifier assigned by Dun & Bradstreet to business entities worldwide. The foundation of business credit. Required for federal government contracting. Free to register at dnb.com. Without a DUNS, you have no D&B business credit file. Registering for a DUNS number is Step 1 in building business credit.
See also: Build Business Credit Guide

E

Equipment Financing General
A loan or lease specifically for purchasing business equipment where the equipment itself serves as collateral. Because the asset secures the loan, credit requirements are lower than for unsecured lending. Available for: commercial kitchen equipment, trucks, machinery, medical equipment, technology. Terms typically 24–72 months. Can be structured as a loan (own the equipment) or lease (use with option to buy).
Equity Injection SBA
The amount of owner's own money invested into the business alongside an SBA loan. SBA lenders typically require a 10–30% equity injection to demonstrate the owner has "skin in the game" and isn't 100% leveraged. Higher equity injection signals commitment and often produces better loan terms.

F

Factor Rate MCA / Alt Lending
A multiplier used in merchant cash advances to determine total repayment. Unlike interest (which accrues over time), a factor rate is applied to the advance amount as a fixed cost regardless of how fast you repay. Example: $50,000 advance × 1.3 factor rate = $65,000 total repayment (cost = $15,000). Typical factor rates: 1.1–1.5. Lower is better. Factor rates are NOT APR.
See also: Factor Rate to APR Calculator, APR, Total Payback Amount
FICO Score / Credit Score Banking
A numerical representation (300–850) of your creditworthiness based on payment history, credit utilization, credit history length, credit mix, and new credit inquiries. Traditional bank loans: 680+ typically required. SBA 7(a): 650–680+. Online term loans: 600+. MCA: 500+. Invoice factoring: no score required. Your FICO score is a gatekeeping factor — the lower it is, the more your revenue and cash flow must compensate.
See also: Business Loans with Bad Credit
Invoice Factoring General
The sale of outstanding invoices to a factoring company at a discount in exchange for immediate cash. The factoring company collects from your customers directly. You receive 70–90% of the invoice value upfront, and the remainder (minus the factor's fee) when collected. No credit check on the business — the factor checks your customers' creditworthiness. Only available to businesses that invoice other businesses (B2B).
See also: MCA vs Invoice Factoring
Fixed Cost Accounting
Business expenses that remain constant regardless of revenue or production volume. Examples: rent, insurance premiums, loan payments, salaried wages, equipment lease payments. Fixed costs don't decrease when sales slow — which is why a slow month hits disproportionately hard.

G

Gross Profit / Gross Margin Accounting
Revenue minus Cost of Goods Sold (COGS). Gross Profit Margin = (Revenue − COGS) ÷ Revenue × 100. A restaurant with $100,000 in sales and $32,000 in food costs has a gross profit of $68,000 and a gross margin of 68%. Gross margin must cover all overhead expenses (rent, labor, utilities, marketing) and still leave a net profit. High gross margins give more room for operational costs.
Guarantee / Personal Guarantee Banking
A promise by a business owner to repay a loan if the business cannot. A personal guarantee means your personal assets (home, savings, car) can be pursued if the business defaults. Required by SBA for all owners with 20%+ stake. Some MCA funders require personal guarantees; others do not. "No personal guarantee" products exist but typically come with higher rates or stricter revenue requirements.

H

Holdback / Remittance Rate MCA / Alt Lending
The percentage of daily or weekly business revenue (bank deposits) that is automatically debited to repay a merchant cash advance. Typical holdback rates: 10–20%. If your daily deposits are $5,000 and your holdback is 15%, the funder debits $750/day. The holdback continues until the total payback amount is collected. Important: if revenue drops, the daily payment also drops — this is what makes MCA "revenue-based."
See also: How MCA Repayment Works, Factor Rate
Hard Pull / Hard Inquiry Banking
A credit inquiry that appears on your credit report and may temporarily lower your FICO score (typically 5–10 points). Triggered when you formally apply for credit. Multiple hard pulls within 14–45 days for the same type of credit (mortgage, auto loan) are typically counted as one inquiry. T.A.G. uses a soft pull for initial review — no FICO impact until you accept an offer and a funder initiates a hard pull.
See also: Soft Pull, FICO Score

I

Interest Rate Banking
The percentage cost of borrowing money, expressed annually. Traditional bank loans: 6–15% APR. SBA 7(a): prime + 2.25–4.75% (approximately 10–13% in 2026). Business lines of credit: 8–30% APR. MCAs do not charge interest — they use factor rates (see Factor Rate). Interest-based products become cheaper if paid off early; factor rate products do not.
ISO (Independent Sales Organization) MCA / Alt Lending
A company or individual that brokers merchant cash advances between business owners and MCA funders. ISOs earn a commission from funders — usually a percentage of the advance amount — paid when a deal is funded. ISOs do not provide capital themselves. T.A.G. operates as an ISO, working with a network of 40+ funders. A good ISO submits your application to multiple funders to get competing offers.

L

Line of Credit (LOC) Banking
A revolving credit facility that allows you to borrow up to a set limit, repay, and borrow again. Interest is charged only on the drawn amount. Business lines of credit are ideal for recurring working capital needs. Traditional bank LOCs require 680+ FICO and extensive documentation. Online lenders (Bluevine, Kabbage/AmEx Business) offer LOCs with 580+ FICO in 1–3 days.
See also: Business Line of Credit Guide
Loan-to-Value (LTV) Banking
The ratio of a loan amount to the value of the collateral securing it. A $400,000 loan on a property valued at $500,000 = 80% LTV. Lower LTV = less lender risk. Most commercial real estate lenders target 65–75% LTV. Higher LTV may require mortgage insurance or personal guarantee.

M

Merchant Cash Advance (MCA) MCA / Alt Lending
A type of alternative business financing where a funder purchases a set amount of your future business revenue in exchange for an advance of capital today. MCAs are not loans — they are commercial transactions. Repayment is automatic via ACH debit as a fixed percentage (holdback) of daily or weekly deposits. No collateral required, no fixed monthly payment. Speed: 24–72 hours from application to funding. Minimum FICO: typically 500.
See also: Complete MCA Guide, Factor Rate, Holdback
Microloan SBA
Small loans (typically under $50,000) provided by nonprofit community lenders, CDFIs, and the SBA Microloan program. Designed for small businesses and startups that don't qualify for conventional bank financing. SBA Microloans: up to $50,000 at 8–13% APR, 2–6 week process. Kiva: 0% interest microloans up to $15,000 funded by the global community.
Monthly Revenue / Average Monthly Deposits (AMD) MCA / Alt Lending
The average amount deposited into your business bank account each month, calculated from 3–6 months of bank statements. This is the primary metric MCA funders use to determine advance amount. AMD × advance rate (typically 80–120%) = approximate MCA offer. A business with $40,000/month AMD might qualify for $32,000–$48,000 on a first advance.

N

NSF (Non-Sufficient Funds) MCA / Alt Lending
A bank transaction that cannot be completed because the account balance is too low. NSFs appear on your bank statements and are a major red flag for MCA funders. Excessive NSFs (more than 5–10 per month) can result in lower offers or outright declines. NSFs signal cash flow instability. Banks typically charge $25–$35 per NSF event.
Net Operating Income (NOI) Accounting
Revenue minus operating expenses, before interest and taxes. Used in DSCR calculations and commercial real estate valuations. NOI does not include debt service — it measures how much the business generates from operations. Formula: Revenue − Operating Expenses = NOI.
Net Profit / Net Income Accounting
Revenue minus ALL expenses, including COGS, operating expenses, interest, depreciation, and taxes. The "bottom line." Net Profit Margin = Net Profit ÷ Revenue × 100. A business with $200,000 in revenue and $10,000 in net profit has a 5% net margin. Most small businesses operate on 3–10% net margins.

O

Origination Fee Banking
A one-time fee charged by a lender for processing a loan application. Typically 1–3% of the loan amount. SBA 7(a) loans have SBA guarantee fees (not origination fees) of 0.5–3.5% depending on loan amount. Many MCA funders charge no origination fee — the ISO commission is paid by the funder, not deducted from your advance.

P

PAYDEX Score General
Dun & Bradstreet's business credit score (0–100) based on payment history with trade creditors. PAYDEX 80 = paid on time. PAYDEX 100 = paid early. Below 70 = late payments. Similar to a FICO score but for your business with business creditors. To build your PAYDEX, establish trade lines with Net-30 suppliers that report to D&B (Uline, Grainger, Quill).
See also: Build Business Credit Guide, D-U-N-S Number
Prepayment Penalty / Prepayment Discount MCA / Alt Lending
With traditional loans, a prepayment penalty is a fee for paying off early. With MCAs, the equivalent is that the full factor amount is typically owed regardless of when you pay — there is no savings from paying early (unlike with interest). Some funders offer a prepayment discount: if you pay off at 60% of term, you pay only 90% of remaining balance. Always ask about early payoff terms before signing.
Prime Rate Banking
The interest rate that commercial banks charge their most creditworthy customers. Set by major banks in response to the Federal Reserve's federal funds rate. SBA 7(a) rates are expressed as Prime + spread (e.g., Prime + 2.75%). When the Fed raises rates, the prime rate rises, and SBA loan costs increase. As of 2026, the prime rate is approximately 7.5–8%.
Prime Cost Accounting
In the restaurant industry, the sum of Cost of Goods Sold (food and beverage cost) plus total labor cost. The two largest and most controllable expenses. Industry target: 55–65% of revenue. Above 70% is a serious warning sign. Prime cost is the first metric a restaurant financial consultant examines when diagnosing cash flow problems.
See also: Restaurant Cash Flow Calculator
Profit & Loss Statement (P&L / Income Statement) Accounting
A financial statement showing revenue, expenses, and profit/loss over a specific period. SBA and conventional lenders require 2–3 years of P&L statements. MCA lenders rely primarily on bank statements instead of P&Ls. Your P&L shows whether your business is profitable; your bank statements show whether you have cash.

R

Reconciliation Clause MCA / Alt Lending
A provision in MCA contracts that allows the holdback amount to be adjusted if revenue significantly decreases. If your actual revenue is substantially lower than when the advance was made, you can request a reconciliation (formal review) to reduce daily debits. Not all contracts include this; look for it before signing and ask if it's absent.
See also: How to Read an MCA Contract
Revenue-Based Financing (RBF) General
Capital provided in exchange for a percentage of monthly revenue until a capped amount is repaid. Similar to MCA but typically structured on monthly revenue sharing rather than daily ACH debits. Common in e-commerce and SaaS businesses. No fixed payment, no equity dilution. Repayment scales with revenue automatically.
See also: Revenue-Based Financing Guide
Revolving Credit Banking
Credit that can be borrowed, repaid, and borrowed again up to a limit without reapplying. Business lines of credit and credit cards are revolving credit. Once you repay what you've drawn, it's available again. Contrast with term loans, which are one-time disbursements requiring a new application for additional funds.

S

SBA (Small Business Administration) SBA
A U.S. federal agency that supports small businesses through loan guarantees, counseling, contracting, and disaster assistance. The SBA does not lend money directly to most businesses — it guarantees bank loans to reduce lender risk. Main programs: 7(a) loans, 504 loans, Microloans. Free counseling through SBDCs, SCORE, WBCs, and VBOCs. Website: sba.gov.
See also: SBA Loan Guide 2026
SBA 7(a) Loan SBA
The SBA's flagship loan program. Can be used for working capital, equipment, business acquisition, commercial real estate, and leasehold improvements. Maximum: $5 million. Interest rate: Prime + 2.25–4.75% (approximately 10–13% in 2026). Requires 650–680+ FICO, positive cash flow, 2+ years in business, and collateral for larger amounts. Timeline: 60–90 days (30–45 with preferred lenders).
SBDC (Small Business Development Center) General
A national network of ~1,000 centers providing free business consulting and low-cost training to small businesses. Funded by SBA and state/university partnerships. SBDC advisors help with business plans, financial statements, access to capital, and grant applications. Find your local SBDC at americassbdc.org.
Soft Pull / Soft Inquiry Banking
A credit check that does NOT affect your FICO score. Used for pre-qualification, background checks, and initial underwriting review. T.A.G. uses a soft pull for initial MCA applications — you can apply and see what you qualify for without any credit score impact. A hard pull (full credit inquiry) only occurs if you accept an offer and a funder initiates formal credit review.
Stacking (MCA Stacking) MCA / Alt Lending
Having multiple active merchant cash advances simultaneously with different funders. Stacking is considered high risk and is explicitly prohibited by most MCA contracts (anti-stacking clause). If a funder discovers unauthorized stacking, it is typically a default event. A few funders permit "approved stacking" — one advance on top of an existing one — but they are the exception.
See also: MCA Stacking Explained, Anti-Stacking Clause

T

Term Loan Banking
A lump-sum loan repaid in fixed installments (principal + interest) over a defined term. Common terms: 1–10 years for working capital; up to 25 years for real estate. SBA 7(a) loans, equipment loans, and most traditional bank loans are term loans. Cheaper than MCAs but require better credit, more documentation, and take longer to close.
Total Payback Amount / Purchased Amount MCA / Alt Lending
The total amount you repay on a merchant cash advance. Calculated as: Advance Amount × Factor Rate = Total Payback Amount. Example: $50,000 × 1.3 = $65,000 total payback. The "cost" of the advance = Total Payback − Advance Amount = $15,000. Always review the total payback amount before signing an MCA contract.
Trade Line / Trade Credit General
A credit account with a vendor or supplier that appears on your business credit report. When a supplier allows you to buy on Net-30 or Net-60 terms and reports your payment history to business credit bureaus (D&B, Experian Business, Equifax Business), it's a trade line. 3–5 reporting trade lines are the minimum to establish a business credit file.
See also: Build Business Credit Guide, PAYDEX Score

U

UCC-1 Filing / UCC Lien MCA / Alt Lending
Uniform Commercial Code Form 1 — a public notice filed by a lender or funder claiming a security interest in specific business assets. MCA funders file a UCC-1 on all business receivables when an advance is made. The filing appears on your business credit report and can be visible to future lenders. It is removed when the advance is repaid. A blanket UCC-1 covers all assets; a specific UCC-1 covers named assets only.
See also: How to Read an MCA Contract
Underwriting Banking
The process a lender or funder uses to evaluate risk and determine loan/advance eligibility, amount, and terms. Traditional bank underwriting: credit score, tax returns, financial statements, DSCR, collateral, character. MCA underwriting: bank statements (3–6 months), FICO score (500+), time in business, industry type, NSF frequency, average monthly deposits. MCA underwriting is faster (hours vs. weeks) because it's more data-focused.

V

Variable Cost Accounting
Business expenses that increase or decrease with revenue and production volume. Examples: raw materials, cost of goods sold, commissions, credit card processing fees, utility costs (partially). Variable costs can naturally adjust during a slow period — unlike fixed costs, which remain constant. Understanding which costs are fixed vs. variable is essential for cash flow forecasting.

W

Working Capital Accounting
The difference between current assets (cash, accounts receivable, inventory) and current liabilities (accounts payable, short-term debt) due within 12 months. Positive working capital = the business can meet short-term obligations. Negative working capital = potential cash flow crisis. Formula: Current Assets − Current Liabilities = Working Capital. Most MCA advances are used as "working capital" — bridging gaps in short-term cash availability.
See also: Working Capital Loan Guide, Working Capital Calculator
License: Creative Commons Attribution 4.0 (CC BY 4.0) This glossary may be reproduced, linked to, or quoted freely with attribution to T.A.G. Business Funding (funding.towersassetgroup.com). No permission required for educational use.

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