Merchant Cash Advance Glossary: Terms in Plain English
Merchant cash advance paperwork comes with its own vocabulary. Some of the words are borrowed from banking, some come from the card-processing world and some are simply industry shorthand. This glossary explains the terms you are most likely to hear from a funder, see in an offer or find in an agreement, in plain words and grouped by where you meet them.
Forward Funders arranges merchant cash advance options from $25K to $5M for businesses in all 50 states. The definitions here are general. Every funder writes its own agreement, and if a word in your agreement is defined differently from what you read here, the agreement controls. Ask the funder to explain anything that is unclear before you sign.
Terms at a glance
| Term | In one sentence |
|---|---|
| Advance | The lump sum of working capital you receive up front |
| Receivables | Money your business expects to collect from customers |
| Remittance | Each payment you make toward the purchased amount |
| Holdback | The share of sales or deposits the agreement uses to work out what is collected |
| Stips | Documents or conditions a funder asks for as part of its review |
Each of these is explained in more detail below, along with the other terms that come up along the way.
The basics
Merchant cash advance (MCA)
A lump sum of working capital provided in exchange for a share of your future receivables. It is usually structured as a purchase of receivables rather than a loan. For the full explanation, read our guide to what a merchant cash advance is.
Merchant
The business that receives the advance. In an MCA agreement, that is you.
Funder
The company that buys the receivables, makes the advance and provides the written agreement. The funder decides whether to make an offer and sets the terms. You may also hear it called a provider.
Receivables
Money your business expects to receive from customers in the future, such as card sales and customer payments. An MCA is tied to these receivables.
Advance amount and purchased amount
The advance amount is the sum you receive. The purchased amount is the total of future receivables the funder buys, which is the total you will remit over time. The two numbers are different, so look for both in every offer and compare the total to be remitted, not just the advance.
Estimated term
How long collection is expected to take. When what you remit depends on your sales, the real timeline can be shorter or longer than the estimate. Ask how the term is described in your agreement.
How you pay it back
Remittance
A payment you make toward the purchased amount. Remittances continue until the purchased amount has been reached.
Holdback (specified percentage)
The share of your sales or deposits that an agreement uses to work out what the funder collects. Some agreements use this share directly, and others convert it into a fixed schedule. Ask what the figure is in your agreement and exactly how it is applied.
Split
An arrangement where the funder collects an agreed share of your card sales, so remittances rise and fall with sales. It is mainly used by businesses that take many card payments, such as restaurants and retail stores.
ACH debit
An automatic electronic withdrawal from your business bank account. Many agreements collect remittances this way, on a fixed schedule.
Daily or weekly remittance
A fixed remittance collected on a regular schedule, such as every business day or once a week. The amount does not move with sales unless the agreement says it can. Make sure you know which schedule applies to you and how it fits your cash flow.
Reconciliation
A review some agreements allow so that fixed remittances can be adjusted to match the agreed share of your actual sales. Whether your agreement includes one, and how to request it, is spelled out in the agreement. It is a good question to ask the funder.
Early payoff
Paying off the balance sooner than scheduled. Some agreements allow it and others do not, and the amount due can differ from agreement to agreement. Read that section closely.
Payoff letter
A funder's written statement of the exact amount needed to close out an advance. You may need one if you ever want to pay off an agreement early or be paid out by another funder.
Reading your bank statements the way a funder does
These terms describe what funders look for when they review your statements. Our guide to what funders look for in business bank statements walks through each one in detail.
True revenue
Your real sales deposits, after setting aside things that only look like revenue, such as transfers between your own accounts, loan or advance proceeds, refunds and money the owner puts in.
Average daily balance
The average of your account's end-of-day balances over a period. Funders use it to judge whether the account usually holds a cushion.
Negative day
A day your account ended below zero. Funders look at how often it happens and whether it is a pattern.
NSF (non-sufficient funds)
A payment that was returned because the account did not have enough money to cover it. Funders usually pay close attention to recent returned items.
Renewals and payoffs
Renewal
A new advance from the same funder, usually after part of the first has been remitted. A renewal may pay off the remaining balance of the earlier advance, so the net amount you receive can be smaller than the advance amount. Eligibility depends on the funder.
Buyout or consolidation
A new advance that pays off one or more existing advances. Because part of the money goes to the payoff, the cash that reaches your account can be much less than the advance amount. Ask for the net figure before you decide.
Review and paperwork
Underwriting
The funder's review of your file, including your bank statements, time in business and application. Underwriting leads to an offer or a decision not to make one.
Stips (stipulations)
Documents or conditions a funder asks for as part of its review or before funding. The Forward Funders starting list is a completed Funding Application and your last four months of business bank statements, plus month-to-date activity if you apply after the 10th. A funder may ask a follow-up question or request something else. See what to send.
UCC filing (UCC-1)
UCC stands for Uniform Commercial Code, the set of laws that governs many business transactions. A UCC-1 is a public notice a funder may file with a state to record its legal claim on a business's receivables or assets. Whether a filing is made, and what it covers, depends on the funder and the agreement, so ask before you sign.
Merchant agreement
The written contract that sets out the sale of receivables, the purchased amount, how remittances are collected and what happens if something goes wrong. It is the document that controls, so read all of it.
Default
A failure to meet the agreement's terms, as the agreement defines it. Read how your agreement defines default and what the funder is allowed to do afterward.
Commercial financing disclosure
A standardized form that some states require to be provided along with an offer. Whether one applies depends on the state and the type of offer.
Questions to ask using these terms
Once you have an offer, the vocabulary above turns into practical questions:
- What is the advance amount, and what is the purchased amount I will remit in total?
- Is collection a split of sales or a fixed schedule?
- How is the holdback applied, and can reconciliation be requested?
- How does early payoff work, and will I receive a payoff letter?
- Will a UCC filing be made, and what does it cover?
- If part of the funds goes to pay off an existing balance, what is the net amount I receive?
Where to go next
If you are still deciding which kind of financing suits you, read merchant cash advance vs. business loan. If you run a business with busy and slow months, our guide to working capital for seasonal businesses covers timing. For what to expect after you apply, see how long business funding takes. We work with businesses in every state, listed on our States We Serve page.
Frequently asked questions
What does holdback mean in a merchant cash advance?
Holdback, also called the specified percentage, is the share of your sales or deposits that an agreement uses to work out what the funder collects. The exact figure and how it applies are set in your written agreement.
What are stips?
Stips, short for stipulations, are documents or conditions a funder asks for as part of its review. Our starting list is a completed Funding Application and your last four months of business bank statements, plus month-to-date activity if you apply after the 10th.
What is a UCC filing, and will one be filed against my business?
A UCC filing is a public notice a funder may file with a state to record its legal claim on a business's receivables or assets. Whether one is filed, and what it covers, depends on the funder and is described in the agreement, so ask before you sign.
What is a renewal?
A renewal is a new advance from the same funder, usually after part of the first has been remitted. It may pay off the remaining balance, so the net amount you receive can be smaller than the advance amount. Eligibility depends on the funder.
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Funders make the decisions and provide the written agreements. Availability, amounts and timing depend on the funder and your business information, and submitting an application does not ensure an offer.