Three terms do most of the work in any merchant cash advance. The funded amount is what you receive. The purchased amount is the total of future receivables you sell, found by multiplying the funded amount by the factor rate. Payments, usually a daily or weekly ACH debit, continue until the purchased amount is delivered. The rest of this glossary builds on those three.
A–C
ACH
The Automated Clearing House, the US network banks use for electronic transfers between accounts. Most merchant cash advance payments are collected as a fixed ACH debit from the business bank account, each business day or once a week. See how MCA payments work.
A/R aging report
A report from your accounting system listing what customers owe your business, grouped by how long each invoice has been outstanding (for example current, 30, 60 and 90+ days). Funders use it to see receivables that are coming in. InstaFunders asks for a current one and/or a processing statement before funding.
APR (annual percentage rate)
A way of expressing a cost as a yearly rate. An MCA is priced with a factor rate rather than an interest rate, but some states require funders to show an estimated APR in a disclosure so offers can be compared. Because advances are short, the annualized figure can look high. See state disclosures.
Associated accounts
Other business bank accounts and related businesses connected to the applicant, such as a second operating account or a sister company. Underwriters need statements for all of them to see the whole picture of deposits and existing payments.
Average daily balance
The average of your account's end-of-day balances over a period, usually a month. It shows how much cushion the business keeps after expenses and payments, and it's one of the figures underwriters read on a bank statement.
Broker
A person or company that arranges funding for businesses by sending their applications to one or more funders. In the MCA industry the term is used interchangeably with ISO. Brokers who work with InstaFunders submit through the partner program.
Business day
A weekday that isn't a bank holiday. Daily MCA payments are usually collected on business days only, so a month typically has around 20 to 22 payment days.
Buy rate
The factor rate at which a funder approves a deal for a broker, before any upsell the broker adds. The rate the merchant is offered can be higher than the buy rate. InstaFunders shares buy rates with registered partners only; see the ISO funding guidelines.
Commercial financing disclosure
A standardized disclosure some states require providers to give a business before it signs, typically showing the amount funded, the total cost, the payment and an estimated APR. Requirements differ by state and change over time. See state disclosures.
Confession of judgment
A legal document in which a party agrees in advance that, if it defaults, a court may enter a judgment against it without the usual lawsuit process. Some states have restricted or limited their use in commercial agreements, and the law changes. If an agreement contains one, read it carefully and consult an attorney.
Credit card processing statement
The monthly statement from your card processor showing sales volume, transaction counts and fees. Funders use it alongside bank statements to see card revenue. InstaFunders asks for the most recent one and/or an A/R aging report before funding.
D–F
Daily payment
A fixed amount debited from your business account each business day until the purchased amount is delivered. It's the most common MCA schedule and suits businesses with steady daily sales. See MCA payments.
Default
A breach of the terms of an agreement, such as blocking the funder's debits, moving receivables to an undisclosed account or giving false information. In a true purchase of receivables, slower sales on their own generally aren't meant to be a default; that's what reconciliation is for. Your agreement defines what counts.
Deposit count
The number of separate deposits into a business account in a month. A higher count usually signals steady, diversified revenue. InstaFunders looks for at least 5 deposits a month; see the requirements.
Direct funder
A company that underwrites and funds advances with its own decision-making, rather than passing applications on to someone else. InstaFunders is a direct funder: files are reviewed by our own underwriters.
Early payoff discount
A reduction in the purchased amount offered when a business delivers the balance ahead of schedule. Because the purchased amount is fixed, paying early only saves money when a discount is offered. InstaFunders offers them case by case. See paying off an MCA early.
Factor rate
A decimal multiplier, such as 1.30, applied once to the funded amount to give the purchased amount. As a hypothetical, $50,000 at a 1.30 factor means delivering $65,000. It doesn't compound or grow over time. See factor rates explained.
First position
The first merchant cash advance on a business's account when no other advance is outstanding. InstaFunders considers first-position deals case by case. See positions and stacking.
Funded amount
The amount a funder pays for the receivables it buys, before any fees or payoffs are deducted. The money that actually reaches your account is the net funding.
Funder
The company that buys a business's future receivables and provides the advance. It's the counterparty to the agreement and the party that collects the payments.
G–L
Gross deposits
Every dollar deposited into an account in a period, before anything is excluded. Underwriters work from it towards true revenue by removing transfers between your own accounts, loan proceeds and advance fundings.
Hard stop number
InstaFunders' name for the purchased amount: the total your business will deliver. It's fixed before you sign, shown on your offer and never grows.
Holdback
The share of a business's card sales or receivables delivered toward an advance, often used interchangeably with specified percentage. On split-funded advances, the processor holds back that share of each settlement and sends it to the funder.
ISO
Independent sales organization: originally a company that resells card processing, now the common industry term for an MCA broker that sources deals and submits them to funders. ISOs work with InstaFunders through the partner program.
Lien
A legal claim or interest in property. In merchant cash advances, a funder typically records its interest in the purchased receivables by filing a UCC-1 financing statement. See UCC filings.
M–O
Merchant
The business that sells its future receivables and receives the advance. The term comes from card processing, but it covers any business, whether it takes cards or not.
Merchant cash advance (MCA)
The purchase of a portion of a business's future receivables for a lump sum paid up front. The business delivers the purchased amount through daily or weekly payments. It's not a loan: there's no interest rate and no fixed repayment date. See the merchant cash advance guide.
MTD (month-to-date)
Activity in the current month so far. Funders ask for an MTD statement or transaction history alongside the last few full months so they can see what's happened since the most recent statement closed, including any new advance.
Negative day
A day when the account's balance closes below zero. Underwriters count them because frequent negative days suggest payments may bounce. InstaFunders looks for an average of no more than 5 a month.
Net funding
The amount that actually reaches your account: the funded amount less any fees stated in the offer and, on a renewal, less the remaining balance being paid off. See renewals.
NSF (non-sufficient funds)
When an account doesn't have enough money to cover a debit or check, so the item is returned unpaid. Banks usually charge an NSF fee, and underwriters note how often they appear on statements.
Offer
The proposed terms of an advance: funded amount, purchased amount, payment, payment frequency and any fees. Read it before you sign; see how to read an MCA offer.
Origination fee
An upfront fee some funders charge to set up an advance, usually deducted from the funded amount. Any fee should be listed on the offer, and it affects your net funding and true cost.
P–R
Payoff letter
A written statement from a funder showing the balance remaining on an advance and what it would take to settle it as of a given date. It's used for renewals and early payoffs.
Performance guarantee
A promise, usually signed by the owners, that the business will perform its obligations under the agreement, such as not diverting receivables or blocking payments. It's generally distinct from a promise to cover a shortfall caused by an ordinary drop in sales, but wording varies. Read yours carefully and ask an attorney if unsure.
Points
How broker compensation is commonly expressed in the MCA industry: one point is one percent of the funded amount. Points are typically paid by the funder when the deal funds.
Position
Where an advance sits in the order of advances on a business: first, second, third and so on. InstaFunders funds second position and onward, with first position case by case. See positions and stacking.
Purchased amount
The total of future receivables the business sells, equal to the funded amount multiplied by the factor rate. It's also called the payback amount or, at InstaFunders, the hard stop number.
Reconciliation
A review of a business's actual receipts over a period, used to bring fixed payments back in line with the agreed percentage of sales. It's how payments follow revenue down when sales fall. See reconciliation explained.
Remittance
A single payment delivered toward the purchased amount. Agreements often refer to the daily or weekly payment as the remittance.
Renewal
A new advance that pays off the remaining balance of the current one, with the difference paid to the business as net funding. InstaFunders considers renewals once 60% of the current advance has been paid in. See renewals.
S–T
Second position
An advance taken while another is still outstanding, so the business makes two payments at once. It's InstaFunders' strong suit. See second-position funding.
Specified percentage
The agreed share of future receivables a business sells under an MCA agreement. A fixed daily or weekly payment is set as an estimate of that share, and reconciliation compares the two.
Split funding
A collection method in which the card processor sends an agreed share of each card settlement directly to the funder, with the rest going to the business. Many advances today use fixed ACH debits instead.
Stacking
Taking more than one merchant cash advance at the same time. Careful stacking can fund a real opportunity; over-stacking leaves too little cash after payments. See positions and stacking.
Stips (stipulations)
The documents a funder needs before it releases funds. For InstaFunders, that's a driver's license and voided check for all owners, and a current A/R aging report and/or most recent processing statement.
Syndication
When more than one party participates in funding a single advance, sharing in its returns and risk. Brokers and investors sometimes syndicate on deals; InstaFunders offers syndication options to partners.
Term
How long an advance is expected to take to deliver, based on the purchased amount and the payment. It's an estimate, since there's no fixed repayment date. InstaFunders' maximum term is 10 months.
True revenue
Deposits that come from actual sales, after removing transfers between your own accounts, loan proceeds, advance fundings, refunds and other non-sales money. It's what underwriters size an advance on. See the bank statements guide.
U–Z
UCC-1
A financing statement filed with a state under the Uniform Commercial Code, giving public notice that a party has an interest in certain business assets, here the purchased receivables. It's typically terminated once the advance is delivered. See UCC filings.
Underwriting
The review a funder carries out before making an offer: deposits, balances, existing advances, credit, industry and time in business. At InstaFunders, underwriters work to get to a responsible yes.
Upsell
The difference between the buy rate a funder approves and the higher factor rate a broker offers the merchant, which forms part of the broker's compensation. Merchants can compare offers by their purchased amount.
Weekly payment
A single fixed debit once a week instead of one each business day, roughly equal to five daily payments. InstaFunders offers weekly payments in many cases. See weekly payments.
White label
An arrangement in which a broker offers funding under its own brand while another company provides the capital and back office. InstaFunders offers white-label opportunities to partners; see partners.
Working capital
The money a business has available for day-to-day operations: payroll, inventory, rent and suppliers. Businesses often use an advance to add working capital ahead of a busy season; see seasonal cash flow.
Frequently asked questions
What is the difference between a factor rate and an interest rate?
A factor rate is applied once to the funded amount to set a fixed total, the purchased amount, which doesn't change with time. An interest rate accrues on an outstanding balance over time, so the total cost depends on how long the balance is outstanding. Merchant cash advances use factor rates.
What does holdback mean in a merchant cash advance?
Holdback is the share of a business's sales or receivables delivered toward the advance, often called the specified percentage. With split funding, the card processor holds back that share of each settlement; with ACH, a fixed payment is set as an estimate of it.
What are stips in MCA funding?
Stips, short for stipulations, are the documents a funder needs before it releases funds. InstaFunders asks for a driver's license and voided check for all owners, plus a current A/R aging report and/or the most recent credit card processing statement.
What does second position mean?
Position is the order of advances on a business. Second position means an advance taken while another is still being paid, so the business makes two payments at once. InstaFunders funds second position and onward, with first position considered case by case.