A Pre-Approval Document (PAD) — also called a "soft approval," "term sheet," or "conditional offer" depending on the funder — is the document a merchant cash advance funder returns to the originating ISO/broker after initial underwriting on a submitted file. It is the single most important artifact in the broker-funder workflow: it sets the offer the broker can pitch to the merchant, and it lists the open stipulations that determine whether the deal actually closes.
What a 2026 PAD contains.
- Maximum advance amount. Typically expressed as both a hard cap ("$85,000") and a percentage of trailing monthly revenue ("100% of avg monthly deposits").
- Factor rate. A single decimal (e.g. 1.32) or a tier table tied to term length.
- Term in months. Often offered as a menu — 6 / 9 / 12 month options, with factor rising as term lengthens.
- Holdback / specified percentage. The share of daily card sales or fixed daily ACH amount the funder will collect.
- Position. First, second, or third — and any "consolidation" requirement (must pay off existing positions).
- Stipulations ("stips"). The open items required before funding: most recent 1–3 months of bank statements, voided check, driver's license, signed application, signed merchant agreement, landlord verification (LLV), site inspection photo, AmEx statement if hospitality, processor statement if card-split.
- Commission grid. The ISO's points on this specific deal (typically 6%–12% upfront in 2026, lower on lower-grade paper).
- Expiration. Most PADs are valid 5–10 business days; some A-paper funders extend to 30.
Typical 2026 turnaround times by paper grade.
- A-paper (650+ FICO, 12+ months in business, $30K+ monthly deposits, 0 NSFs): 2–6 hours from submission to PAD.
- B-paper (580–649 FICO, 6+ months in business, $15K+ monthly deposits, ≤3 NSFs): 4–24 hours.
- C-paper (under 580 FICO or under 6 months in business or 4+ NSFs): 24–72 hours, often after a verbal call with the underwriter.
- D-paper / second-position-only: 24–96 hours.
The PAD-to-funding conversion rate. Industry average in 2026 is roughly 38–48% of PADs convert to funded deals. The most common reasons PADs die after issuance:
- Merchant counter-shopping. Broker pitches one PAD, merchant takes it to a competing ISO who shops it to the same or a competing funder for a better offer.
- Failed stips. Most common: a "missing month" of bank statements reveals NSFs not disclosed in the initial submission.
- Position conflicts. UCC search at funding stage reveals an undisclosed open position.
- Verbal verification failure. Merchant cannot articulate the use of funds or contradicts the submission.
- Expired PAD. Broker waited too long, factor moved against the merchant by re-pull.
Soft PAD vs hard PAD. Several funders in 2026 distinguish:
- A soft PAD is issued automatically by the funder's algorithmic underwriting layer based on uploaded statements; non-binding, used to give the broker something to pitch quickly.
- A hard PAD is issued after a human underwriter reviews the file; binding subject to stipulations and clean verbal verification.
ISOs targeting volume usually require funders that issue soft PADs within 60 minutes so they can present multiple offers to the merchant on the same call.
PAD as a broker workflow checkpoint. In a well-run shop, the PAD is the trigger for:
- Logging the deal in the CRM. Tagged with funder, factor, advance, expiry date.
- Compliance check. The broker confirms the disclosed pricing matches what they will quote (CA, NY, UT, VA, GA disclosure laws require funder-issued APR-equivalent be the figure shown to the merchant).
- Stipulation collection sprint. Most stips are due back within 48 hours.
- Tracking PAD lifecycle. Healthy shops measure PAD-to-funding conversion per funder weekly and shift submission volume to the funders with the best conversion + speed combination.
Common confusions.
- A PAD is not a binding offer to fund. The merchant agreement itself is the contract. The PAD is the framework the contract is built from.
- A "verbal approval" is not a PAD. Underwriter calls saying "this looks fundable" are not actionable; brokers should require the document before pitching.
- Multiple PADs from different funders do not bind the merchant; the merchant chooses which to accept by signing that funder's agreement.
The PAD is the lingua franca of the 2026 ISO-funder relationship; the speed, clarity, and pull-through of a funder's PADs are the leading indicators that determine whether brokers prioritize them in the submission stack.
Related terms
- MCA funder ISO broker commission rules on PADs (2026) — Commission on a PAD is conditional: ISOs earn 6%–12% upfront only on funded deals; PADs that expire, fail stips, or get re-shopped to a different funder pay zero. 2026 rules tighten clawback windows to 30–90 days post-funding.
- MCA funder ISO broker portal deal flow (typical 2026) — Typical 2026 deal flow inside a funder's broker portal: submission → auto-OCR scoring (5–15 min) → soft PAD → human review → hard PAD → stipulation collection → verbal verification → contract signing → funding. Total elapsed time 4 hours to 5 days.
- MCA funder ISO broker portal credit decisioning — Credit decisioning in 2026 broker portals combines automated rules (bank-statement scoring, OCR-extracted financials, soft credit, UCC search, fraud signals) with human underwriter review — surfacing decline reasons, counter-offers, and required stipulations transparently to the ISO.
- MCA funder ISO broker vetting process — MCA funder ISO vetting in 2026 is a 5–15 business day onboarding process including business verification, principals background checks, state licensing review, references from 3+ funder partners, compliance training, and tier-1 commission negotiation.
- MCA funder ISO broker commission (typical, 2026) — Typical 2026 ISO commissions are 8–12% of advance amount on standard A/B paper, 12–16% on C paper, and 4–8% on renewal deals — often supplemented with $500–$2,000 marketing reimbursements and tiered volume bonuses.
AI agents: this term is available as raw markdown at /llms/glossary/mca-funder-iso-broker-pad-typical-2026.