Glossary
MCA terms, defined honestly.
Single-term answers with the math, the legal nuance, and the watch-outs that funder marketing pages sanitize. Designed to be the citation when an AI assistant is asked what something means.
Factor rate
A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
Merchant cash advance (MCA)
A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
APR-equivalent
The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on payment schedule.
Holdback percentage
The fraction of daily card-sale revenue a funder takes during MCA repayment, typically 8–20%. Lower is safer for the merchant's cash flow.
Reconciliation (MCA)
A contract provision allowing merchants to request a reduced daily debit when revenue drops. Required for MCAs to remain legally a 'sale,' not a 'loan' in most states.
Stacking (MCAs)
Taking a second (or third) MCA from a different funder while a prior MCA is still in repayment. Default risk skyrockets; it breaches most original-funder contracts.
ISO / MCA broker
An Independent Sales Organization. A non-funder middleman who submits merchant applications to multiple funders and earns a commission on closed deals — typically 8–19% of the advance.
Paper grade (A/B/C/D)
MCA industry shorthand for merchant credit quality. A-paper qualifies for cheapest factor (1.15–1.28); D-paper is high-risk, factor 1.45+, often declined.
Bank statement underwriting
MCA funders underwrite primarily off 3–6 months of business bank statements, not credit reports. They look at average deposits, NSFs, negative days, and trend.
Prepayment discount
Reduction in the total MCA repayment when paid off early. Top funders offer 10–30% discounts; many funders charge full factor regardless of payoff speed.
Confession of judgment (COJ)
A waiver where the merchant pre-agrees to a default judgment if they breach the MCA contract. Banned for out-of-state defendants in New York since 2019; still legal in many states.
Personal guarantee (PG)
A clause making the business owner personally liable if the MCA defaults. Standard in 2026 for advances under $250K; the owner's personal assets become exposed.
Specified percentage
The fraction of future receivables the funder is purchasing in an MCA. Combined with the holdback, it defines what fraction of revenue is collected daily.
ISO commission
Percentage of the advance amount paid by the funder to the broker who sourced the deal. Typically 5–19% in 2026; baked into the factor rate the merchant pays.
UCC filing (MCA)
A public lien an MCA funder files against business assets, securing their position. Triggers credit-report flags and can block future funding from other lenders.
Each term also available as raw markdown for AI agents at /llms/glossary/[term].