Complete MCA glossary: factor rates, holdback, ACH debits, daily remittance, UCC filings, stacking, and every merchant cash advance term you need to know.
Understanding merchant cash advance terminology protects your business from costly surprises. This glossary defines the 15 most critical terms you’ll encounter in MCA agreements and provider discussions.
A decimal multiplier that determines your total repayment cost on a merchant cash advance. Unlike interest rates, factor rates apply to the full advance amount regardless of how quickly you repay.
How it works: An advance of $50,000 with a 1.32 factor rate requires repayment of $66,000 ($50,000 × 1.32). The $16,000 difference represents the provider’s fee.
Typical range: 1.09 to 1.49, though some high-risk providers charge 1.50 or higher.
Why it matters: Factor rates don’t account for time. A 1.30 factor rate repaid over 6 months costs significantly more than the same rate repaid over 12 months. Always calculate your effective APR to understand true cost.
Example: A restaurant owner takes a $40,000 advance at 1.35 factor rate. Total payback is $54,000. If repaid in 8 months, the effective APR exceeds 65%.
The percentage of your daily credit card sales that the MCA provider collects as repayment. Also called the “withholding percentage” or “retrieval rate.”
Typical range: 10% to 25% of daily credit card revenue.
How it’s calculated: If your holdback is 18% and you process $3,000 in credit card sales today, the provider collects $540.
Cash flow impact: A 20% holdback on $5,000 daily sales means $1,000 leaves your account automatically. Businesses with thin margins struggle when holdback exceeds 15%.
Fixed vs. variable: Most MCAs use variable holdback (percentage of sales). Some providers offer fixed daily amounts, which function more like traditional loan payments.
Automated Clearing House — the electronic network used to transfer funds between bank accounts. In MCA terminology, ACH refers to the withdrawal method providers use to collect repayment.
ACH vs. credit card split: Traditional MCAs deduct a percentage from credit card batches. ACH-based MCAs withdraw fixed amounts directly from your business checking account, making them available to businesses without credit card sales.
Timing: ACH withdrawals typically occur 1–2 business days after sales are processed. Same-day ACH options exist but cost more.
Failed ACH fees: When your account lacks sufficient funds, providers charge $25–$50 per returned ACH transaction. Multiple failures trigger default protocols.
The actual dollar amount collected by the MCA provider on a given day, calculated as your holdback percentage multiplied by your credit card sales.
Formula: Daily Credit Card Sales × Holdback Percentage = Daily Remittance
Example breakdown:
Fluctuation pattern: Daily remittance varies with your sales volume. During slow periods, you repay less daily but the term extends. During busy periods, you repay more daily and finish faster.
Tracking: Most providers offer online portals showing daily remittance history, remaining balance, and projected completion date.
Uniform Commercial Code filing — a public legal notice that the MCA provider has a security interest in your business assets, particularly your accounts receivable.
What it does: UCC filings appear on your business credit report and alert other lenders that your receivables are encumbered. This can block additional financing until the filing is terminated.
Filing types:
Duration: UCC filings remain active for 5 years. Providers should file a UCC-3 termination within 30 days of full repayment, though many businesses must request this explicitly.
State variation: Filing requirements and visibility vary by state. Some states require county-level filings in addition to state-level.
The practice of taking multiple merchant cash advances from different providers simultaneously, creating overlapping daily repayment obligations.
Why businesses stack: Desperate cash flow needs, denial of additional funds from existing provider, or broker encouragement without disclosure of existing advances.
The math problem: Three MCAs each with 15% holdback consume 45% of daily credit card sales. Add rent, payroll, and inventory costs, and the business becomes insolvent.
Provider detection: Reputable funders check for stacking through bank statement analysis, credit bureau monitoring, and industry databases. Dishonest borrowers hide existing advances by switching bank accounts.
Legal consequences: Stacking violates most MCA agreements. Providers can accelerate repayment demands, freeze accounts, or pursue legal action when they discover undisclosed advances.
Taking a new merchant cash advance before fully repaying an existing one, typically offered by the same provider once you’ve repaid 50–70% of your current advance.
How renewals work: The provider calculates your remaining balance on the original advance, adds a new advance amount, and creates a new agreement with fresh terms.
Renewal example:
The renewal trap: Each renewal extends your obligation and compounds costs. A business that renews three times may pay $80,000+ to borrow $50,000 originally.
When renewals help: Short-term opportunities with clear ROI, seasonal inventory needs, or emergency repairs where the cost of lost revenue exceeds MCA fees.
A contractual clause making the business owner(s) personally liable for MCA repayment if the business cannot fulfill its obligation.
What it means: Your personal assets — home equity, savings accounts, vehicles — become collateral for the advance. Providers can pursue liens, judgments, and wage garnishment against you personally.
Why providers require it: MCAs are unsecured by business assets. Personal guarantees give funders recourse when businesses fail or owners divert revenue.
Spousal guarantees: Some providers require spouses to sign, extending liability to marital assets. This practice is restricted in some states.
Negotiation: Established businesses with strong revenue may negotiate limited guarantees or higher factor rates in exchange for removing personal liability. Newer businesses rarely have bargaining power here.
A repayment structure where credit card processor automatically splits daily sales between your business account and the MCA provider, sending the holdback percentage directly to the funder.
How it differs from ACH: Split funding occurs at the processor level before funds reach your account. ACH happens after deposits clear your account.
Processor requirements: Split funding requires your credit card processor to integrate with the MCA provider’s system. Not all processors support this.
Advantages: Automatic, transparent, no risk of failed withdrawals. Your account receives net sales after holdback.
Disadvantages: Requires switching processors or using the provider’s preferred partner, which may have higher processing fees than your current solution.
A broader financing category where repayment adjusts based on business revenue, including MCAs as a specific type.
MCA vs. RBF: Traditional MCAs use credit card sales specifically. Revenue-based repayment can include all revenue streams — ACH deposits, cash sales, and credit card transactions.
Calculation method: Providers analyze total bank deposits rather than credit card batches, making this option available to businesses with low card volume.
Fixed percentage model: Some providers withdraw a set percentage of all deposits (e.g., 8% of weekly revenue), creating predictable relative burden regardless of payment method.
Cost structure: Revenue-based products often use factor rates similar to MCAs but may offer longer terms and lower daily burdens.
An upfront charge for processing and funding your merchant cash advance, typically deducted from the advance amount before you receive funds.
Typical range: 2% to 5% of the advance amount, though some providers charge flat fees ($500–$2,500).
Fee example: On a $100,000 advance with a 3% origination fee, you receive $97,000 but owe repayment on the full $100,000.
What it covers: Underwriting costs, documentation preparation, bank transfer fees, and broker commissions (if applicable).
Red flags: Demanding origination fees before approval, fees exceeding 5%, or vague explanations of what the fee covers. Legitimate providers deduct fees from proceeds, not charge them upfront.
A reduction in total repayment amount offered to businesses that pay off their MCA balance early.
How discounts work: Providers calculate the remaining factor rate portion and offer a percentage reduction. A common structure returns 10–20% of the unearned factor fee.
Calculation example:
Qualification requirements: Most providers require 60–90 days of payments before offering prepayment discounts. Some exclude discounts for the first 3 months regardless of balance.
Strategic use: When cash flow improves unexpectedly or lower-cost financing becomes available, prepaying with a discount reduces total cost significantly.
A legal document where the borrower pre-authorizes the MCA provider to obtain a court judgment without notice or hearing if they default on the agreement.
Why it’s dangerous: COJs bypass normal legal process. The provider can freeze your bank accounts, seize assets, and garnish wages without advance warning or opportunity to defend yourself.
Current legal status: Banned in New York (2019), restricted in California and several other states. Federal legislation has been proposed to limit COJ use nationwide.
What to do: Never sign an agreement containing a confession of judgment without attorney review. Reputable providers have largely eliminated COJs from standard agreements due to regulatory pressure.
Alternative language: Some agreements include “cognovit notes” or “warrants of attorney” — functionally similar to COJs and equally problematic.
The legal contract between your business and the MCA provider that defines all terms, conditions, and obligations of the advance.
Key sections to review:
Before signing: Read every page. Have an attorney review if the advance exceeds $50,000 or contains COJ language. Verify the provider’s physical address and registration.
Keep records: Save signed agreements, payment history, and all correspondence. Disputes often hinge on contract interpretation months or years later.
The total dollar amount you must repay on a merchant cash advance, calculated as the advance amount multiplied by the factor rate.
Formula: Advance Amount × Factor Rate = Payback Amount
Example calculations:
What’s included: The payback amount includes the original advance plus the provider’s fee. It does not include origination fees (deducted upfront) or late payment penalties.
Tracking progress: Most providers offer online dashboards showing amount paid to date, remaining balance, and percentage of payback completed. Request written confirmation when payback is complete.
Need help calculating costs? Use our MCA calculator to estimate your effective APR and daily remittance based on your specific advance terms.
Last updated: March 2026. Terms and industry practices change regularly — verify current definitions with your provider.