MCA and Business Debt Glossary

A

Accounts receivable purchase

The legal form most merchant cash advances take: the funder buys a fixed dollar amount of the business's future receivables at a discount. Because it is written as a sale rather than a loan, it is priced with a factor rate and is usually outside state usury caps unless a court recharacterizes it.

ACH debit

An automated withdrawal from a business bank account. Merchant cash advance funders collect their daily or weekly payments this way, using the authorization signed at funding.

Advance amount

The cash actually wired to the business, after any origination or underwriting fees are deducted. It is the number to use when working out the true cost of the financing.

Annual percentage rate (APR)

The cost of financing expressed as a yearly rate that accounts for when payments are made. Because an MCA is repaid daily rather than at the end of the term, its APR-equivalent is usually far higher than the factor rate suggests. Our calculator shows both.

Automatic stay

The court order that takes effect the moment a bankruptcy case is filed, stopping most collection activity, including MCA debits, lawsuits, and levies, while the case proceeds.

B

Bankruptcy, Chapter 11 and Subchapter V

Reorganization under court supervision. Subchapter V, added in 2020, is a streamlined version for smaller businesses that lets the owner keep control and confirm a plan over creditor objections in more circumstances. It is licensed legal work and one of the paths we refer to a partner attorney.

Bankruptcy, Chapter 7

Liquidation. A trustee sells the business's non-exempt assets and distributes the proceeds to creditors. For a company it usually means the end of the business; for an individual guarantor it can discharge the guarantee.

Blocked account

See lockbox.

Broker (ISO)

An independent sales organization that sells MCAs and other financing on behalf of funders for a commission, often several points of the advance. Brokers are paid at funding, which is why renewals and stacking get pitched so aggressively.

Buy rate

The factor rate the funder quotes to the broker before the broker's markup is added. The difference between the buy rate and the rate the merchant signs is the broker's commission.

C

Commercial Financing Disclosure Law

State laws that require providers of business financing to give consumer-style disclosures before closing. Florida's version, HB 1353, applies to financings of $500,000 or less made on or after January 1, 2024, including MCAs. See our guide to Florida business debt laws.

Confession of judgment (COJ)

A clause in which the borrower agrees in advance that the creditor can have a court judgment entered without a trial if the account defaults. Florida Statute 55.05 makes powers of attorney to confess judgment null and void in Florida, and New York has barred filing them against out-of-state debtors since 2019.

Consolidation

Replacing several debts with one new loan, ideally at a lower total cost and a longer term. It only helps when the new loan is genuinely cheaper; see reverse consolidation for the version that is not.

Cost of capital

The total dollars paid above the advance amount: payback minus advance, plus any fees. On a $50,000 advance at a 1.35 factor the cost of capital is $17,500.

Cross-collateralization

A clause that pledges the same assets as collateral for more than one obligation, so a default on one lets the creditor reach assets pledged for another.

D

Daily debit

The fixed amount an MCA funder withdraws each business day: the payback amount divided by the number of business days in the term. It leaves the account whether the day was good or bad unless the contract's reconciliation clause is invoked.

Default

A breach of the financing agreement, most often a bounced or stopped payment, but many MCA contracts also count changing banks, taking another advance, or a drop in receipts as a default. Default usually accelerates the full payback amount and adds fees.

Deferral

A negotiated pause in payments, with the deferred amounts added to the end of the term or repaid on a schedule. Common in lease renegotiations.

F

Factor rate

The multiplier that sets the payback amount on an MCA, typically between 1.2 and 1.5. A 1.4 factor on $25,000 means $35,000 is owed. It is not an interest rate and does not fall as the balance is repaid.

Forbearance

A creditor's agreement not to enforce its rights for a period while the debtor catches up or a workout is negotiated, usually in exchange for something, such as a reaffirmation of the debt or a payment schedule.

Funder

The company that provides a merchant cash advance and collects the daily or weekly debits. Not a bank, and in most states not regulated as a lender.

G

Garnishment

A court-ordered collection of a debt from a third party who holds the debtor's money, such as an employer or a bank, after a judgment. Florida Statute 222.11 exempts the disposable earnings of a head of family up to $750 a week.

H

Head of family

Under Florida Statute 222.11, a person who provides more than half the support for a child or other dependent. The head-of-family wage exemption is one of the strongest protections a Florida owner has against a judgment on a personal guarantee.

Holdback

The percentage of daily card receipts an MCA funder takes when the agreement is written as a split of processing revenue rather than a fixed ACH debit. Also used for the reserve a processor withholds from a merchant's settlements.

Homestead exemption

Florida's constitutional protection of a primary residence from most judgment creditors, with no limit on value, on up to half an acre inside a municipality or 160 acres outside one. It does not protect against the mortgage, taxes on the property, or contractors who worked on it.

J

Judgment

A court's final decision that a debt is owed, which lets the creditor use enforcement tools such as garnishment, levy, and liens. In Florida a written-contract claim generally has to be filed within five years of the breach under Statute 95.11.

L

Lien

A legal claim against property as security for a debt. A UCC lien covers business personal property; a judgment lien attaches to real estate once recorded.

Line of credit

Revolving financing the business can draw on and repay repeatedly up to a limit. Bank lines are the cheapest working capital most small businesses can get, and one of the first things a stack of MCAs makes impossible to qualify for.

Lockbox

An account controlled by a funder or lender into which the business's receipts are deposited, with the creditor taking its share before releasing the rest. Also called a blocked account or a controlled account.

M

Merchant cash advance (MCA)

Financing in which a funder buys a fixed amount of future receivables for a discounted lump sum and collects through daily or weekly debits. Fast to get, expensive to carry, and engineered to be hard to refinance while current. Our MCA relief page explains how we intervene.

O

Offer in compromise

An IRS program that settles a tax debt for less than the full amount when the taxpayer cannot pay it in full. Licensed tax work, handled by a partner.

Origination fee

A fee deducted from the advance at funding. It raises the true cost of the money without changing the factor rate on paper.

P

Payback amount

The total the merchant owes on an MCA: the advance multiplied by the factor rate. Sometimes called the purchased amount or receivables purchased amount.

Personal guarantee

A signed promise that the owner will personally pay a business debt if the business does not. Almost every MCA and commercial lease includes one, which is why business debt reaches personal assets. Most MCA guarantees are written as guarantees of performance, not of payment, a distinction that matters in a workout.

Prepayment discount

A reduced payback amount offered if the MCA is repaid early, usually inside the first 30 to 90 days. Worth reading closely; many contracts offer it only at the funder's discretion.

R

Reconciliation (true-up)

A clause that lets the merchant ask the funder to adjust the daily debit to match the agreed percentage of actual receipts when revenue falls. Courts treat the presence and quality of this clause as a key test of whether an MCA is a real purchase of receivables or a disguised loan.

Renewal (re-up)

Taking a new advance from the same funder before the first is repaid, with the remaining balance of the old advance deducted from the new one. The merchant pays a factor rate on money used to repay money that already carried a factor rate.

Restructure

A negotiated change to the terms of an existing obligation, such as a longer term, a lower payment, a reduced balance, or a switch from daily to weekly or monthly payments, without new financing.

Reverse consolidation

A product marketed as MCA relief in which a new funder advances weekly amounts to cover the existing daily debits while collecting its own payment on top. It extends the term and usually increases the total cost. See our post on the reverse consolidation trap.

S

SBA loan

Financing partly guaranteed by the U.S. Small Business Administration, most commonly the 7(a) program. Long terms and low rates, but slow underwriting and hard to qualify for with MCAs on the bank statements.

Secured debt

Debt backed by specific collateral the creditor can take on default, such as equipment financing or a UCC-secured advance. Unsecured debt has no collateral, which changes the leverage in a negotiation.

Settlement

An agreement to accept less than the full balance as payment in full, usually as a lump sum or a short schedule of payments. The core of what we negotiate on defaulted MCAs and vendor balances.

Split funding

An MCA collection method in which the card processor sends the funder its percentage of each day's batch before settling the rest to the merchant.

Stacking

Holding more than one MCA at a time, each with its own daily debit. Most contracts prohibit it, and it is the pattern behind the majority of MCA defaults we see. See how three advances quietly become ten.

Statute of limitations

The deadline for filing a lawsuit. In Florida, actions on a written contract must be brought within five years of the breach and on an oral contract within four (Florida Statute 95.11). Each missed installment generally starts its own clock.

T

Term

The length of time over which an MCA is expected to be repaid, expressed in months or business days. Shorter terms mean higher daily debits and a higher annualized cost for the same factor rate.

Term loan

A loan repaid in fixed installments over a set period with a stated interest rate. The conventional financing an MCA is usually compared against.

Trust fund recovery penalty

The IRS's authority to assess unpaid payroll taxes personally against the people responsible for collecting and paying them. Florida Statute 213.29 gives the state a similar tool for sales tax, with a penalty of twice the tax against responsible officers who willfully fail to remit.

Turnaround

A structured effort to restore a business that is operationally broken, not just short of cash, often led by a chief restructuring officer with forensic accounting support. See corporate turnaround.

U

UCC-1 financing statement

A public filing under Article 9 of the Uniform Commercial Code, which Florida has adopted as Chapter 679 of the Florida Statutes, that puts the world on notice of a creditor's security interest in a business's assets. MCA funders file them at funding and use them after default to notify banks and processors.

Underwriting

The funder's review of bank statements, card processing history, and credit before making an advance. MCA underwriting takes hours; bank underwriting takes weeks. That speed is the whole sales pitch.

Usury

Charging interest above the legal limit. Florida Statute 687.02 sets the general ceiling at 18 percent simple interest per year for loans of $500,000 or less, and 687.071 makes rates above 25 percent criminal. MCAs written as purchases of receivables are generally outside these caps unless a court finds the agreement is really a loan.

W

Workout

A negotiated resolution of a defaulted debt outside of bankruptcy, such as a restructure, a settlement, or a forbearance with a repayment plan. What we do.