Glossary

The business funding glossary

Every industry protects itself with vocabulary. These are the words that show up in real funding offers and agreements, each defined in plain English, so the paperwork in front of you stops being a foreign language.

A

ACH Remittance

An ACH remittance is the automatic debit a funder pulls from your business bank account on a fixed schedule, usually every business day or every week, under the authorization you sign at closing.

Advance Amount

The advance amount is the gross sum a funder agrees to advance against your future revenue, and it is the figure the factor rate multiplies, whether or not all of it ever reaches your account.

B

Buy Rate

The buy rate is the factor rate at which a funder is willing to do your deal, quoted to the broker who submitted your file, before that broker adds any markup of its own.

D

Debt Service Coverage Ratio

The debt service coverage ratio, usually shortened to DSCR, divides the cash your business has available for debt payments by the debt payments it owes over the same period, giving a lender one number for whether the payments fit.

F

Factor Rate

A factor rate is the one-time multiplier a funder applies to your advance amount to set the total you repay, which means the entire cost of the money is decided the moment you sign rather than accruing over time.

Funding Date

The funding date is the day the funder actually releases the money to your business bank account, which is also the day your obligations under the agreement begin to run.

H

Holdback

A holdback is the fixed share of each day's card sales a funder collects, taken directly out of your card settlements until the agreed payback has been delivered in full.

M

Merchant Processor Statement

A merchant processor statement is the monthly summary from the company that processes your card payments, showing what your customers charged, what came back, what the processing cost, and what was finally deposited.

P

Payback Amount

The payback amount is the total sum a merchant cash advance obligates you to deliver back to the funder, set at signing by multiplying the advance amount by the factor rate.

Position (1st, 2nd, 3rd)

Position describes where an obligation stands in the order of claims against your business revenue and assets: the first funder in is in first position, the next is in second, and so on down the line.

R

Reconciliation

Reconciliation is the right, written into some merchant cash advance agreements but not all of them, to have your remittance adjusted so it tracks the agreed share of the revenue you actually collected.

S

Stipulations (Stips)

Stipulations, known universally as stips, are the conditions a funder attaches to an approval: the documents and confirmations it needs satisfied before the money is released.

T

Time in Business

Time in business is how long your company has been operating, measured by funders from the formation or registration date that appears on public record rather than from your first sale.

U

UCC-1 Filing

A UCC-1 filing is a one-page financing statement a creditor files with a secretary of state to publicly record that it claims a security interest in some or all of your business assets.

W

Working Capital Ratio

The working capital ratio divides your current assets by your current liabilities, giving one number for whether what you own that will turn into cash within a year covers what you owe within a year.