MCA Glossary — Key Terms Explained

Understanding merchant cash advance terminology is essential for making informed financing decisions. This glossary defines key terms used in MCA agreements, provider marketing, and industry discussions.

Advance Amount

The lump sum of cash provided to a business upfront by an MCA provider. Also called the “purchase amount” or “funding amount.” This is not a loan principal but rather the amount the provider purchases your future receivables for.

ACH Withdrawal

Automated Clearing House withdrawal—the electronic transfer system used by most MCA providers to collect daily or weekly repayments directly from your business bank account. Unlike credit card holdbacks, ACH withdrawals are fixed amounts rather than percentages of sales.

Broker

An intermediary who connects businesses with MCA providers. Brokers typically earn commissions (2–10% of the advance amount) and may work with multiple funders. While brokers can help you compare options, their recommendations may be influenced by commission structures.

Confession of Judgment (COJ)

A legal document included in some MCA agreements where the borrower pre-agrees to a court judgment without notice or hearing if they default. Many states now ban or restrict COJs due to due process concerns. Never sign an agreement containing a COJ without consulting an attorney.

Daily Remittance

The daily repayment amount collected by the MCA provider, typically calculated as a percentage (holdback) of your credit card sales. If you have a 15% holdback and process $2,000 in credit card sales in a day, your daily remittance would be $300.

Effective APR

Although merchant cash advances don’t have official annual percentage rates (APRs), you can calculate an effective APR to compare costs with traditional loans. The formula: ((Total Repayment ÷ Advance Amount) - 1) ÷ (Term in Days ÷ 365) × 100. Use our MCA calculator to estimate your effective APR.

Factor Rate

A multiplier that determines your total repayment amount. For example, a 1.30 factor rate on a $50,000 advance means you repay $65,000 total. Factor rates typically range from 1.09 to 1.50+ and are not directly comparable to interest rates because they don’t account for time.

Funder

The company that provides the merchant cash advance. Also called a “provider” or “funding company.” Funders purchase your future receivables and collect repayments. They may work directly with businesses or through brokers.

Holdback Percentage

The percentage of your daily credit card sales deducted for MCA repayment. Typical holdback percentages range from 10% to 25%. A higher holdback means faster repayment but greater daily cash flow impact.

Lockbox

A bank account controlled by the MCA provider where your credit card processor deposits a portion of your sales. Lockbox arrangements are less common today but were historically used to ensure repayment before funds reached your business account.

Merchant Cash Advance (MCA)

A financial transaction where a provider purchases a business’s future credit card receivables at a discount. The business receives an upfront lump sum and repays it through a percentage of daily credit card sales until the purchased amount (plus fee) is collected. MCAs are not loans.

Personal Guarantee

A clause in the MCA agreement that makes the business owner(s) personally liable for the debt if the business cannot repay. Most MCA providers require personal guarantees, which means your personal assets (home, savings) could be at risk.

Purchase of Future Receivables

The legal structure underlying merchant cash advances. Instead of lending money, the provider purchases your future credit card sales at a discount. This distinction allows MCAs to operate under commercial law rather than lending regulations in many states.

Renewal

Taking another merchant cash advance before fully repaying the first one. Some providers offer “renewals” or “top-ups” as you pay down your balance. While convenient, renewals can lead to stacking and severe cash flow strain.

Stacking

Taking multiple merchant cash advances from different providers simultaneously. Stacking creates multiple daily deductions that can quickly consume most of your daily sales, often leading to business failure. Responsible providers check for stacking during underwriting.

Term

The expected duration of an MCA repayment, based on your sales projections. Since repayments fluctuate with sales, there’s no fixed term—the advance completes when the total purchased amount (plus fee) is collected. Typical terms range from 3 to 18 months.

Total Repayment Amount

The full amount you’ll repay on a merchant cash advance, calculated as Advance Amount × Factor Rate. For a $50,000 advance with a 1.30 factor rate, your total repayment would be $65,000.

Underwriting

The process MCA providers use to evaluate your business and determine advance amount, factor rate, and holdback percentage. Underwriting focuses on revenue consistency, time in business, industry risk, and sometimes personal credit.

UCC Filing

A Uniform Commercial Code filing that the MCA provider may place against your business assets as a public notice of their security interest in your receivables. UCC filings appear on your business credit report and can affect future financing.

Working Capital

The funds a business uses for day-to-day operations—inventory, payroll, rent, etc. Merchant cash advances are often marketed as “working capital” solutions because they provide quick cash for operational needs.

Need more detail? Check our complete MCA guide for in-depth explanations or use our interactive calculator to estimate costs.

Last updated: March 2026. Definitions may evolve as the MCA industry changes.