The Small-Business Funding Glossary
Funding has its own vocabulary. Here is a plain-English glossary of the terms you will hear, from factor rate and holdback to UCC filings and stacking.
Business funding comes with its own vocabulary, and a lot of it gets used loosely. A factor rate is not an interest rate. A holdback is not the same as a payment. Stacking, reconciliation, and a COJ all mean specific things that affect what you sign and what you pay back. This glossary keeps the definitions plain so you can read an offer and a contract with your eyes open.
How to use this glossary
Each term below is defined in one or two plain sentences, with an example where it helps. The goal is not legal precision, it is so you recognize what a specialist or a contract means when they use the word. For a fuller walkthrough of how the cost works, see the working capital guide and factor rate vs APR. This is general education, not financial, legal, or tax advice.
- Factor rate
- A flat multiplier on the amount funded that sets your total payback up front. It is not an APR and it does not compound; paying it off faster does not lower the total.Example: A 1.2 factor rate on a $50,000 advance means you repay $60,000 in total ($50,000 x 1.2).
- Holdback
- The share of your deposits or card sales that goes toward repayment. On a card-split deal it rises and falls with sales; people sometimes use the word loosely for the fixed payment too.Example: A 12% holdback on a day with $2,000 in card sales sends about $240 toward payback that day.
- Daily or weekly ACH
- An automatic debit pulled from your business account on a set schedule, daily or weekly, to repay an advance. Most modern advances use a fixed ACH amount that does not change with sales.Example: A fixed $300 weekday ACH is pulled whether you had a busy day or a slow one.
- Reconciliation
- A process to adjust a fixed-ACH payment when your actual revenue drops, so the debit better matches sales. It is not automatic; you usually have to request it and provide proof.Example: After a slow month, you send statements and ask the funder to reconcile the fixed payment down to your true sales.
- Working capital
- The cash a business has available to cover day-to-day operating costs like payroll, inventory, and rent, rather than long-term assets.
- Receivables
- Money customers owe you for work or goods already delivered but not yet paid for. Also called accounts receivable, or AR.Example: An unpaid net-30 invoice sits in your receivables until the customer pays.
- Merchant cash advance (MCA)
- An advance of capital repaid as a share of future sales or a fixed daily or weekly ACH, priced with a factor rate rather than an interest rate. It is a purchase of future receivables, not a loan.
- Term loan
- A fixed amount of money repaid over a set period in regular payments, typically with interest. Straightforward to plan around for a one-time use.
- Line of credit
- A revolving limit you can draw from when you need it and pay down when you do not. You only carry, and pay on, what you actually use.
- Invoice factoring
- Selling your unpaid invoices to a factor for cash now, instead of waiting on net-30 or net-60 terms. Recourse means you cover invoices the customer never pays; non-recourse means the factor takes that risk. Notified factoring means your customer is told to pay the factor directly.Example: You factor a $20,000 invoice to get most of the cash today rather than waiting 45 days.
- Equipment financing
- Funding tied to a specific piece of equipment, new or used. A loan means you own the equipment and repay over time; a lease means you pay to use it and may have an option to buy at the end.Example: Financing a $40,000 truck so you can put it to work now while keeping cash free for payroll.
- Stacking
- Taking on a new advance while an existing one is still being repaid, so several fixed debits hit the same account at once. It strains cash flow and is a common reason a file is declined.
- Renewal / refinance
- Replacing or topping up an existing advance, often once a portion is paid down. A renewal usually pays off the old balance and advances new funds, which can roll unpaid cost into the new deal.
- Double-dipping
- When a renewal pays off the remaining balance of an old advance but the unpaid portion of its factor cost gets charged again inside the new advance, so you effectively pay cost on cost.
- Prepayment
- Paying off an advance early. Because the cost is a fixed factor rate rather than accruing interest, paying early usually does not lower the total payback unless the contract offers a specific discount.
- Personal guarantee
- A promise by the business owner to be personally responsible for the balance if the business does not repay. Most working-capital agreements include one.
- Confession of judgment (COJ)
- A clause where you agree in advance that a court can enter judgment against you without a trial if you default. It is restricted or banned in some places and is worth reading carefully before you sign.
- UCC filing
- A public notice a funder files to claim an interest in business assets as security. A UCC-1 on your business is normal in this space, and existing filings can affect new offers.
- NSF (non-sufficient funds)
- When your account does not have enough money to cover a payment that hits it. Frequent NSFs or negative-balance days make a file harder to place.Example: A fixed ACH bounces because the balance dipped below the payment that morning.
- Time in business
- How long your business has been operating. Around six months is a common starting point, and more history generally strengthens a file.
- Bank-statement underwriting
- Reviewing a file mainly on business bank statements, deposits, balances, and activity, rather than tax returns or credit alone. It is the heart of revenue-based funding.
- Advance
- The lump sum of capital provided to the business up front, before repayment begins. In an MCA it is the purchase price for a portion of your future sales.
- Remittance
- Each repayment sent back to the funder, whether a fixed ACH debit or a share of card sales. The schedule of remittances repays the total payback.
- Secured vs unsecured
- Secured funding is backed by specific collateral the funder can claim if you default; unsecured funding is not tied to a particular asset, though it often still includes a personal guarantee and a UCC filing.
Frequently asked
Is a factor rate the same as an interest rate or APR?
No. A factor rate is a flat multiplier on the amount funded that sets your total payback up front. It does not compound like interest, and paying it off faster does not reduce the total. It is not an APR. See factor rate vs APR for the full comparison.
What is the difference between a card-split deal and a fixed-ACH advance?
A card-split deal takes a set percentage of each day's card sales, so the payment automatically shrinks on a slow day. A fixed-ACH advance debits a set amount on a set schedule regardless of sales, though it can sometimes be adjusted through reconciliation. Most modern advances are fixed-ACH.
Why does stacking matter?
Stacking means taking a new advance while an existing one is still being repaid, so multiple fixed debits hit the same account. It strains cash flow and is a common reason a file is declined or an offer is reduced. Being upfront about current balances helps a specialist size something that fits.
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This article is general education, not financial, legal, or tax advice. Examples are illustrative and not offers. A factor rate is not an APR and the two are not interchangeable. FundVella is not a lender or bank; funding options, amounts, costs, and timing depend on underwriting and are not guaranteed.
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