How to use this glossary: Tap any letter above to jump. Every term has its own URL anchor — click the term title and copy the URL to cite it. We update this page when industry usage shifts (for example, new state disclosure laws). If you spot a term we missed, email
submissions@thebrokershopinc.com.
ACH (Automated Clearing House)
The U.S. electronic payment network used to move money between bank accounts. In small business funding, most MCA and term loan payments are debited via daily or weekly ACH pulls directly from the business checking account.
Amortization
The schedule by which a loan's principal and interest are paid down over the loan term. A fully amortizing loan has equal payments that pay off the entire balance by maturity. MCAs and short-term loans often have simple rather than amortized structures.
APR (Annual Percentage Rate)
The annualized cost of borrowing, expressed as a percentage. APR includes interest plus most fees. Critical to compare apples-to-apples between products — a 1.30 factor-rate MCA paid over 6 months has a much higher APR than 1.30 paid over 18 months.
Asset-Based Lending (ABL)
A loan secured by specific business assets — typically accounts receivable, inventory, or equipment. The lender advances a percentage of the asset's value. Common for inventory-heavy or B2B businesses with large receivables.
Average Daily Balance
The mean ending balance of a business checking account over a given period (usually a month). Lenders use it to gauge cash-flow stability. Sustained low or negative daily balances are a red flag in underwriting.
Balloon Payment
A large lump-sum payment due at the end of a loan term, after a series of smaller periodic payments. Reduces monthly cost but creates a "balloon" obligation that often requires refinancing.
Bank Statement Underwriting
An approval process where lenders analyze 3–12 months of business bank statements rather than relying solely on tax returns or financial statements. Standard for MCA and short-term lenders.
Bankruptcy
A federal legal proceeding to restructure or discharge debt. Open bankruptcies disqualify most small business funding; recent dismissed/discharged bankruptcies can sometimes still be funded by specialty lenders, often at higher cost.
Bridge Loan
Short-term financing used to "bridge" a gap until longer-term funding closes. Common in real estate and acquisition deals. Typically 6–24 month terms with higher rates than the permanent financing.
Broker
An intermediary who connects business borrowers to multiple lenders. A licensed broker doesn't lend their own capital — they submit your file to lender partners and present competing offers. Paid by the lender on close, not by the borrower.
Business Credit Score
A score rating a business entity's creditworthiness, separate from the owner's personal FICO. Major scores: Paydex (D&B, 0–100), FICO SBSS (0–300, SBA uses this), and Experian Intelliscore (1–100).
Business Line of Credit
A revolving credit facility a business can draw against repeatedly, up to a set limit. Interest accrues only on drawn balances. Ideal for cash-flow gaps and seasonal swings.
Business Term Loan
A lump-sum loan repaid in fixed installments over a defined period (the "term"), typically 3–60 months. The most predictable form of business financing. Best when you know exactly how much capital you need.
Cash Advance
Generic term for a lump-sum capital infusion repaid via daily or weekly remittance against future revenue. See
Merchant Cash Advance.
Cash Flow
The net movement of money in and out of a business over a period. Positive cash flow means the business takes in more than it pays out. Lenders care more about cash flow than profit on paper.
Charge-Off
When a lender writes off a debt as uncollectable on their books — typically after 120–180 days of nonpayment. The debt is still legally owed and often sold to a collection agency. A charge-off is a severe negative mark on credit.
Closing
The moment when a loan or MCA contract is signed and funds are transferred. The closing process includes final stipulations (stips), wire instructions, and signed disclosures.
Collateral
An asset pledged to secure a loan. If the borrower defaults, the lender can seize and sell the collateral. Common types: real estate, equipment, accounts receivable, inventory. MCAs are not collateralized in the traditional sense.
Commercial Finance Disclosure Law (CFDL)
State laws requiring commercial finance providers to disclose key terms — APR, total cost, payment amount — in a standardized format before a contract is signed. California (SB 1235), New York, Virginia, Utah, Georgia, Connecticut, Florida, Missouri, and Kansas all have versions in force.
Confession of Judgment (COJ)
A legal document where the borrower pre-agrees to a judgment being entered against them if they default — bypassing the normal lawsuit process. Largely banned for out-of-state borrowers in New York since 2019 reforms. Modern reputable lenders rarely require COJs.
Caution If a lender requires a COJ, read carefully and ask about alternatives.
Cosigner
A second party (often a spouse or business partner) who agrees to repay the loan if the primary borrower defaults. Different from a personal guarantor — a cosigner is on the loan itself; a guarantor backs it.
Credit Inquiry
A request to view a person's or business's credit report. Soft inquiries (pre-qualifications, self-checks) don't affect credit scores. Hard inquiries (formal applications) cause a small temporary score dip.
Credit Pull
Industry shorthand for a credit inquiry. "We'll do a soft pull to pre-qualify" = no impact on your score. "We'll do a hard pull when you accept the offer" = one inquiry on your report.
Daily Remit
A fixed dollar amount or percentage that is automatically debited from the business bank account every business day to repay an MCA. "Daily remit of $312" = $312/day, typically Monday-Friday.
Debt Service Coverage Ratio (DSCR)
A ratio measuring a business's ability to cover debt payments from operating income. Formula: Net Operating Income ÷ Total Debt Service. SBA and bank lenders typically require a DSCR of 1.15–1.25 minimum.
Default
Failure to meet the legal obligations of a loan contract — most commonly nonpayment, but also breach of covenants. Default triggers acceleration (the full balance becoming due), additional fees, and credit damage.
Direct Lender
A company that uses its own capital to fund loans, as opposed to brokering deals to other funders. Direct lenders make underwriting decisions and set their own pricing.
Disclosure
The legal document a lender provides before a borrower signs, listing the financing's APR, payment amount, fees, and total cost. State CFDL laws standardize the format.
Required in 9+ states.
Draw
A withdrawal of funds from an approved line of credit. Each draw begins accruing interest immediately; principal is repaid based on the LOC's terms.
Due Diligence
The lender's review of business and personal documents — bank statements, tax returns, ownership docs, leases — before issuing a final approval. Sometimes called "underwriting stips."
Early Payoff Discount
A reduction in the total payback amount if the borrower repays the financing before maturity. Common on MCAs and short-term loans. Always ask a broker for the early-payoff schedule before signing.
Borrower friendly
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's operating profitability that strips out financing and accounting choices. Used heavily in SBA and conventional bank underwriting.
Equipment Financing
A loan or lease used to acquire business equipment — trucks, machinery, kitchen equipment, medical devices, computers. The equipment itself serves as collateral, which usually means easier approval and longer terms than unsecured loans.
Equity Injection
A down payment of the borrower's own cash required by SBA and many conventional lenders, typically 10%–20% of the deal. Shows "skin in the game" and reduces lender risk.
Escrow
A neutral third-party account that holds funds during a transaction. Common in SBA and real estate-secured deals — closing costs, insurance, and taxes are held in escrow until disbursed.
Factor Rate
A multiplier (e.g., 1.20, 1.35, 1.49) used on MCAs and some short-term loans to express the total payback. Funded $50,000 at 1.30 factor = $65,000 total payback. Factor rates are NOT APRs — to compare, you must annualize based on the repayment term.
Factoring
Selling your unpaid invoices to a third party (the factor) at a discount in exchange for immediate cash. The factor then collects from your customer. See
Invoice Factoring.
FICO
The most widely used personal credit score, ranging 300–850. In small business funding, lenders look at the owner's personal FICO alongside business performance. Many MCA lenders fund as low as 500 FICO.
Fixed Rate
An interest rate that doesn't change for the life of the loan. Opposite of variable rate, which adjusts with an index like Prime. Term loans are usually fixed; lines of credit are often variable.
Forbearance
A temporary pause or reduction in loan payments granted by the lender, usually due to short-term hardship. Distinct from default — the debt is still owed, payments are just rescheduled.
Funder
Industry shorthand for a lender, especially in the MCA space. "Which funder approved it?" = which lending company issued the offer.
Funding
The moment money is wired or ACH'd into the business bank account. "Funded yesterday" means the deal closed and money moved. Time to funding for MCAs is usually 24 hours; SBA loans take 30–90 days.
Grace Period
A window after a payment due date during which a late fee won't apply. Common lengths: 5, 10, or 15 days. Check your contract — not all small business loans have grace periods.
Gross Revenue
Total business income before any deductions for cost of goods, operating expenses, or taxes. The primary input MCA and bank-statement lenders use to size offers (typically 50%–150% of average monthly gross).
Guarantor (Personal Guarantee)
A person who legally promises to repay the loan if the business defaults. Nearly all small business loans require a personal guarantee from the owner(s) of 20%+ equity. The guarantee survives bankruptcy of the business.
Hard Credit Pull
A formal credit inquiry that appears on your credit report and causes a temporary score dip (usually 5–10 points). Triggered when you formally accept a loan offer. Multiple hard pulls in 30 days often count as one for scoring purposes.
Hard Money Loan
A short-term, asset-backed loan typically secured by real estate. Borrowers pay higher rates in exchange for speed and looser credit requirements. Common for real estate investors, less common for operating businesses.
Holdback
The percentage of daily card sales a merchant cash advance funder deducts. "10% holdback on $50K MCA" = the funder takes 10 cents of every dollar in card sales until the advance is paid back.
Indemnification
A contract provision where one party agrees to cover the other's losses, damages, or legal fees in specified scenarios. Standard in commercial finance contracts.
Interest Rate
The annualized cost of borrowing as a percentage of the principal. Distinct from APR (which includes fees) and factor rate (which is a multiplier). When a banker says "8% interest," they usually mean the simple annual rate.
Invoice Factoring
Selling outstanding B2B invoices to a factoring company at a discount — typically 1%–5% per 30 days — in exchange for an immediate advance of 80%–95% of face value. Common in trucking, staffing, manufacturing, and B2B services.
ISO (Independent Sales Organization)
A business that sells lender products to merchants under a contractual relationship with one or more direct lenders/funders. Most small business funding brokers operate as ISOs.
Lender
An entity that provides capital to borrowers. Can be a bank, credit union, alternative lender, MCA funder, or specialty finance company. Different from a broker, who connects borrowers to lenders.
Letter of Intent (LOI)
A non-binding document outlining the proposed terms of a financing before formal underwriting. More common in larger transactions ($1M+) than in MCA or short-term lending.
Lien
A legal claim against an asset securing a debt. If unpaid, the lienholder can force sale of the asset. UCC liens are filed at the state level on business assets.
Line of Credit
A revolving facility you can draw from repeatedly, up to a credit limit. Interest only on what's drawn. See
Business Line of Credit.
Loan-to-Value (LTV)
The ratio of loan amount to the value of the collateral. $80K loan on a $100K truck = 80% LTV. Higher LTV = more borrower leverage, more lender risk, usually higher rates.
Lockbox
A bank-controlled receipt account where a business's customer payments are routed first. Lender takes the agreed amount, then forwards the rest to the business. Common in factoring and asset-based lending.
Maturity Date
The date a loan is scheduled to be fully repaid. "Loan matures in 24 months" = the last payment is due 24 months from funding. After maturity, any unpaid balance becomes immediately due.
Merchant Cash Advance (MCA)
A lump-sum capital advance repaid as a percentage of daily card sales or via daily/weekly ACH. Not technically a loan — legally structured as the purchase of future receivables. Fastest small business funding product (24-hour funding common); also typically the most expensive.
Merchant Account
A business bank account configured to accept credit and debit card payments. MCA lenders that take a holdback of card sales need access to the merchant account or processor data.
Mid-Stip
Industry slang for the in-between phase of underwriting when the lender requests additional documents ("stips") after issuing a preliminary offer but before final approval. "We're mid-stip on the deal" = lender wants more paperwork.
Monthly Revenue
The total deposits or gross sales in a calendar month. MCA and short-term lenders typically average the last 3–6 months to size an offer. Stable or growing monthly revenue gets the best terms.
NAICS Code
A 6-digit federal industry classification code (North American Industry Classification System) that lenders use to assess risk. Some industries are "restricted" — adult entertainment, cannabis (federally), firearms, gambling — and face limited funding options.
Negative Days
The number of days in the last 3–6 months where a business checking account ended in the negative. Underwriters look closely at this — 3+ negative days per month often kills an MCA approval.
Red flag
Net 30 / 60 / 90
Payment terms on B2B invoices — the customer has 30, 60, or 90 days to pay. Long net terms strain working capital, which is why invoice factoring exists.
NSF (Non-Sufficient Funds)
A bounced transaction caused by insufficient money in the account. Frequent NSFs in the business checking account are an immediate disqualifier for most lenders.
Red flag
Offer
A specific funding proposal from a lender stating the amount, term, rate/factor, payment, and any fees. An offer is non-binding until the contract is countersigned. Always negotiate.
Origination Fee
A one-time fee charged by the lender to process and issue the loan. Usually 1%–5% of the funded amount, deducted from the wire at closing. Disclosed under CFDL laws in regulated states.
Payment Frequency
How often payments are debited. MCAs are typically daily or weekly; term loans are monthly; lines of credit vary. Daily payments lower the per-payment amount but compress cash flow.
Personal Guarantee
The signed promise by a business owner to personally repay the loan if the business cannot. Standard on virtually every small business loan under $5M. The guarantee makes the owner's personal assets reachable in the event of default.
Profit & Loss (P&L)
A financial statement summarizing revenue, costs, and expenses over a period. Required for SBA, conventional bank, and most term-loan underwriting (less common for MCA bank-statement underwriting).
Pre-Qualification
A preliminary check — usually based on a short form + soft credit pull + recent bank statements — indicating likely approval amounts and rates. Non-binding.
Pre-qualify in 2 minutes.
Prepayment Penalty
A fee charged if a loan is paid off before maturity. Common on SBA and conventional term loans (especially in the first 1–3 years). Most MCAs have no prepayment penalty — instead they have an
early payoff discount.
Prime Rate
The interest rate U.S. banks charge their most creditworthy customers. Many variable-rate small business products price as "Prime + X%". Set by individual banks but typically tracks the federal funds rate + 3%.
Principal
The original amount of money borrowed, before interest. A $50,000 loan has $50,000 in principal at funding. Principal decreases as it is repaid.
Promissory Note
The legal document where the borrower promises to repay the loan according to specified terms. The note is the legally enforceable IOU; the security agreement is a separate document defining the collateral.
Purchase Money Loan
A loan specifically used to acquire a defined asset (equipment, real estate, an existing business). The asset is the collateral, and proceeds must be used for that purpose.
Purchase of Receivables
The legal framing used by most MCAs: the funder isn't lending money, they're purchasing a specified amount of the business's future receivables at a discount. This structure is why MCAs aren't governed by usury laws in most states.
Receivables
Money owed to a business by customers for goods or services already delivered. Receivables can be factored, used as collateral for ABL, or "purchased" by MCA funders.
Refinance
Replacing existing debt with new debt — usually at better terms (lower rate, longer term, or lower payment). Common reason: rolling expensive short-term debt into cheaper longer-term financing.
Renewal
When a borrower in good standing receives additional capital from their existing lender, typically after paying down 50%+ of the original. Renewals often have lower rates than the original deal.
Common after good repayment
Restructure
Modifying the terms of an existing loan due to borrower hardship — extending the term, reducing the payment, or temporarily pausing payments. Better than default; available only if the lender agrees.
Retention
In MCA contracts, the percentage of card sales the funder keeps until the advance is repaid. Sometimes used interchangeably with
holdback.
Revenue-Based Financing (RBF)
A funding model where repayment is a percentage of monthly revenue. Similar to MCA in mechanics but typically structured as a loan rather than a purchase of receivables, with different regulatory and tax implications.
Revolving Credit
A credit facility where the borrower can draw, repay, and re-draw repeatedly without re-applying. Credit cards and business lines of credit are revolving; term loans are not.
Right of Rescission
A federal protection allowing consumers to cancel certain loans within 3 business days. Does not apply to most commercial/business loans. Business borrowers should review carefully before signing — there is usually no cooling-off period.
SBA Loan
A loan partially guaranteed by the U.S. Small Business Administration. Lower rates, longer terms, but more paperwork. Main programs: 7(a) (general purpose, up to $5M), 504 (real estate/equipment), Microloan (under $50K).
Secured Loan
A loan backed by collateral the lender can seize if the borrower defaults. Lower rates than unsecured loans because lender risk is lower. Equipment financing, real estate loans, and ABL are all secured.
Senior Debt
Loans that get paid first in the event of liquidation or bankruptcy. Banks and primary lenders are usually senior. MCAs and secondary financings are typically subordinated to senior debt.
Servicing
The ongoing administration of a loan — payment collection, customer service, escrow, modifications. The loan originator and the loan servicer are not always the same company.
Settlement
An agreement to resolve a defaulted balance for less than what's owed. Common when a business genuinely cannot pay. Settlements are reported to credit bureaus and have significant credit impact.
Short-Term Loan
A small business loan with a repayment term of 3–18 months. Often a step up in cost from a line of credit but cheaper than an MCA. Used for fast cash needs that justify quick repayment.
Soft Credit Pull
A credit inquiry that does not affect the borrower's credit score and does not appear on the credit report visible to other lenders. Used for pre-qualifications. The Broker Shop uses a soft pull to pre-qualify every applicant.
Stacking
Taking on multiple MCA advances simultaneously — often to cover the daily remits of the first. Stacking dramatically increases default risk and is prohibited by most reputable funders. A stacked file usually means no major lender will fund.
High risk
Stip (Stipulation)
A document or condition the lender requires before funding. "We need 2 stips: voided check and driver's license." A "clean file" is one with no outstanding stips.
Syndication
When multiple lenders share the funding of a single deal — each takes a portion of the risk and return. Common for large facilities ($1M+) where no single funder wants the full exposure.
Term Sheet
A document that outlines the proposed terms of a financing — amount, rate, payment, fees, conditions — before formal documentation. Roughly equivalent to a written offer.
Time in Business (TIB)
How long the business has been operating, usually measured from the EIN issue date or formation date. Most MCA lenders require 6+ months; SBA usually requires 2+ years for the best rates.
TILA (Truth in Lending Act)
A federal law requiring consumer lenders to disclose loan terms, including APR, in a standardized format. Does not apply to most business loans — but state CFDL laws provide similar disclosure for commercial finance.
Total Cost of Capital
The complete dollar cost of a financing — principal + interest + all fees — expressed as a number, not a rate. For comparing offers across different structures (MCA vs. term loan), total cost is often more useful than APR.
Turn Time
How quickly a lender returns an underwriting decision after submission. MCA funders often turn deals in 1–4 hours; banks may take 1–4 weeks. Faster turn time = faster funding.
UCC Lien
A filing under Article 9 of the Uniform Commercial Code that secures a lender's interest in business assets — equipment, inventory, receivables. Visible to other lenders via public search. Multiple UCC filings can complicate future funding.
Underwriting
The lender's process of evaluating risk and deciding whether to fund a deal, at what amount, and at what price. Inputs include credit, bank statements, time in business, industry, and stips.
Unsecured Loan
A loan with no specific collateral pledged. Usually requires a personal guarantee instead. Higher rates than secured loans because lender risk is higher. Most short-term business loans and MCAs are unsecured.
Wire Transfer
An electronic bank-to-bank transfer of funds, typically same-day. Lenders often wire funded amounts; borrowers may wire payoffs. More expensive than ACH but faster and irreversible.
Working Capital
The cash a business needs to fund day-to-day operations — payroll, rent, inventory, supplies. Calculated as current assets minus current liabilities. Most small business loans are technically "working capital loans."
Write-Off
When a lender removes an uncollectable debt from their balance sheet for accounting purposes. The debt may still be legally owed and pursued by a collection agency. See
Charge-Off.