Merchant cash advance terms describe three things: how much money you receive, how much you pay back, and how and when the payments leave your account. This glossary explains 29 of them in plain language, grouped the way they show up on an offer letter and a contract, from the purchase price and factor rate to the holdback, the UCC-1 and the state disclosure form. Every definition uses the same example, a $50,000 advance at a factor rate of 1.45, and where we have a longer post on a term, the definition links to it.
In the example, the funder pays $50,000 for $72,500 of the business's future receipts, takes a $1,500 origination fee out before funding, and collects a set payment of about $604 each business day. The figure below labels each of those numbers on a sample offer letter, and the definitions that follow explain them one at a time.
Merchant cash advance terms for the money you receive
Purchase price
The purchase price is the amount the funder pays for a share of your future receipts, $50,000 in the example. A merchant cash advance is written as a purchase rather than a loan, which is why the contract says purchase price where a loan would say principal. Our merchant cash advance guide walks through the full process step by step.
Purchased amount
The purchased amount is the total of future receipts the funder buys and that you deliver through your payments, $72,500 in the example. It is the purchase price multiplied by the factor rate, and it is the single number to compare when two offers fund the same amount.
Future receipts
Future receipts are the sales the funder is buying a share of. In a sample agreement filed with the SEC, they include payments by cash, check, ACH, card and any other form of payment the business receives in the ordinary course of business.
Net funding
Net funding is the cash that actually lands in your bank account after fees and any payoffs come out of the purchase price. In the example, $50,000 minus a $1,500 origination fee leaves $48,500. On a renewal or a consolidation, the payoff of the old balance comes out too, so the net figure can be far below the headline amount, as our factor rates guide shows with worked numbers.
Terms for what an advance costs
Factor rate
The factor rate is the multiplier that turns the purchase price into the purchased amount. A factor rate of 1.45 on $50,000 means you deliver $72,500, and the rate stays the same whether the advance takes four months or eight to repay. Our post on factor rates explained covers how to compare them across offers.
Total payback
Total payback is another name for the purchased amount, the full sum you repay over the life of the advance. On disclosure forms it may appear as the total repayment amount, and in the example it is $72,500.
Cost of the advance
The cost in dollars is the total payback minus the purchase price, which is $22,500 in the example. Adding the $1,500 origination fee brings the total cost to $24,000 against the $48,500 that reaches your account, and that dollar figure is the cleanest way to compare offers with different terms.
Origination fee
An origination fee is a charge for setting up the advance, usually taken out of the purchase price before the money is sent. The SEC sample agreement lists its fee as "to be deducted from the Purchase Price", which is why the example sends $48,500 rather than $50,000. The fees section of our factor rate guide lists other charges to look for.
Early payoff discount
An early payoff discount is a contract term that lowers what you owe if you settle the advance before the purchased amount is fully delivered. Without one, paying early clears the advance sooner but the total stays at $72,500. Our post on MCA early payoff shows how the common discount structures work in dollars.
Terms for how you repay
Specified percentage (holdback)
The specified percentage, often called the holdback, is the agreed share of your receipts that the funder buys, and the contract uses it to size your set payment and to run any reconciliation. In the SEC sample agreement, the payment equals average projected monthly sales times the specified percentage, divided by the average number of business days in a month. With a 12% holdback and about $5,033 in receipts on a usual business day, the set payment comes to about $604.
Set payment
The set payment is the fixed amount debited from your business account each business day or each week until the purchased amount is delivered. It is sized on your usual revenue when you sign, and it stays the same from one debit to the next unless a contract term, such as reconciliation, adjusts it.
Daily ACH and weekly ACH
ACH is the bank-to-bank transfer system funders use to collect the set payment. A daily ACH debits every business day (about $604 in the example), while a weekly ACH debits once a week (about $3,021). The total is the same either way, and a weekly schedule leaves more days between debits to build up cash in the account.
Estimated term
The estimated term is how long the set payment should take to deliver the purchased amount. In the example, $72,500 divided by $604 is about 120 business days, or roughly six months, and on a weekly schedule it is 24 weeks. New York's disclosure form shows this figure in a row labeled Estimated Term.
Reconciliation
Reconciliation is a contract process that compares what you paid over a period with the specified percentage of the receipts you actually collected, then settles the difference. In the SEC sample agreement, the funder reconciles monthly by crediting or further debiting the account. Some contracts run it on the funder's schedule and others only on your written request with bank statements, so ask who starts it and what documents it needs. Our post on MCA reconciliation covers the clause in detail.
True-up
A true-up is the adjustment that comes out of a reconciliation, which can be a credit to you, a charge to you or a change to the set payment. California's regulation defines a true-up mechanism as a pre-set payment plus a contract right to adjust it so that the total paid more closely reflects the split rate in the contract. The reconciliation post works through one in dollars.
Terms in the contract
Sales-based financing
Sales-based financing is the legal term several states use for merchant cash advances and similar products. Virginia's law defines it as financing repaid over time as a percentage of sales or revenue, and it expressly includes advances with a fixed payment and a reconciliation process. New York's statute uses the same definition, and California's regulation uses nearly the same wording.
Disclosure form
A disclosure form is a standard summary of the offer's cost that some states require the provider to give you before you sign. New York's regulation sets out a table with rows such as Funding Provided, Estimated Payment and Estimated Term, and California, Virginia and Florida require similar disclosures, including the amount funded, the amount sent after fees, the total repayment amount and the payment schedule. When you send us an offer, as our post on how we beat your MCA offer explains, these are the lines we compare first.
Anti-stacking clause
An anti-stacking clause bars the business from taking another advance or loan against the same future receipts while the current one is open. The SEC sample agreement calls it "Stacking Prohibited" and lets the funder share information with others to check that you comply. Read it before planning a second advance, which our post on a second merchant cash advance covers.
Personal guarantee and performance guaranty
A personal guarantee makes the owner personally responsible for the debt if the business does not pay. A performance guaranty, which is common in merchant cash advances, has the owner guarantee the business's promises under the contract, such as keeping deposits in the named account and not blocking the funder's debits. Our post on business loans with no personal guarantee explains the difference in more depth.
Event of default
An event of default is a breach listed in the contract that lets the funder use its remedies, such as moving deposits to an account the funder cannot debit. In the SEC sample agreement, a default makes the entire unpaid balance of the purchased amount due at once.
Liens and legal terms
UCC-1 financing statement
A UCC-1 is a public notice, filed with the state, that a funder or lender has an interest in a business's receivables or other assets. Merchant cash advance contracts usually authorize the funder to file one, and the SEC sample agreement does. Our UCC lien guide shows how to search for filings in your state.
Blanket lien
A blanket lien is a UCC-1 that describes the collateral as "all assets" or "all personal property", which UCC section 9-504 allows. A later funder or lender that searches your business's name will see it, so it shapes what other financing you can get while it stays open, as the UCC lien post explains.
UCC-3 termination
A UCC-3 termination is the filing that ends a UCC-1 once the advance is paid. Under UCC section 9-513, a secured party generally has 20 days after a written demand from the debtor to file or send the termination when nothing is owed. Ask for it in writing with your payoff, and the steps are in our UCC lien guide.
Confession of judgment
A confession of judgment is a signed statement in which the business, and sometimes the owner, agrees in advance that the funder can have a court enter a judgment for a stated sum after a default, without first filing a lawsuit. Some states restrict them. Virginia makes them unenforceable in sales-based financing contracts, and New York allows one to be filed only in the county where the signer lived when signing or lives at filing. Ask whether your contract includes one before you sign.
Terms you hear after funding
Position (first, second)
Position is your advance's place in line. The first funder is in first position, and an advance taken while that one is still open is in second position, which a second funder sizes on the deposits left after the first payment. Our second merchant cash advance post works through both payments in one example week.
Renewal
A renewal is a new advance from your current funder that pays off the remaining balance on the old one, so the cash you receive is the new purchase price minus that balance and any fees. Ask whether the payoff includes unpaid fees from the first advance, which the second advance post shows in dollars.
Payoff letter
A payoff letter is the funder's written statement of the exact amount needed to settle the advance on a given date, including any early payoff discount. You need one to pay off early, to renew or to consolidate, and our early payoff post explains how to request it.
Consolidation
Consolidation is new funding that pays your existing funders directly from their payoff letters and replaces their separate debits with one weekly or monthly payment over a longer term. What leaves the account each week goes down, while the total repaid may stay the same or go up. Our MCA consolidation post and the consolidation page explain how it works.
Reverse consolidation
A reverse consolidation is an advance that leaves your existing advances in place and deposits money into your account on a schedule, usually weekly, to cover some or all of their debits for a set number of weeks. You repay it on a slower schedule that runs past the date the old advances clear, as our reverse consolidation post shows with an example.
Reading an offer with us
When you apply, we send one application to the funders in our network and lay the offers side by side in these terms: net funding, total payback, factor rate, set payment, estimated term, and whether there is an early payoff discount or a reconciliation clause. Revenue-based financing through us runs from $5,000 to $2,000,000, and most applicants are funded within one to two business days of choosing an offer. The funders we work with generally look for about a year in business and about $20,000 a month in deposits, but if you're not there yet, apply anyway, because some funders work with newer or smaller businesses and we'll tell you what's realistic.
There is nothing to pay to apply or to see offers. If you already hold an offer, send it to us and we'll read each term with you. To start fresh, apply online with four months of business bank statements, or call (818) 351-0225.
Questions about merchant cash advance terms
What is a holdback payment?
In a merchant cash advance, the holdback is the specified percentage of your receipts that the funder buys, and the holdback payment is the set daily or weekly amount sized from it, such as about $604 each business day on a 12% holdback when a usual business day brings in about $5,033.
What is merchant cash advance in simple terms?
A merchant cash advance is a lump sum a funder pays now in exchange for a larger amount of your business's future sales, sized on your usual revenue and repaid through a set daily or weekly payment, so a $50,000 advance at a factor rate of 1.45 is repaid as $72,500.
What are cash advance terms?
For a merchant cash advance, the terms are the purchase price, the purchased amount, the factor rate, any fees taken out before funding, the specified percentage, the set payment and how often it is debited, the estimated term, and contract clauses such as reconciliation, early payoff, anti-stacking, the guaranty and the UCC filing.
How to get out of a merchant cash advance?
You can deliver the purchased amount on schedule, ask the funder for a payoff letter and any early payoff discount the contract allows, consolidate several advances into one payment, or refinance with a longer-term loan such as an SBA-equivalent loan through our partners, and once the balance is cleared, ask for a UCC-3 termination of the funder's filing.
