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The Business Funding Glossary: Every Term a Lender Will Use, in Plain English.

Confusing language is how expensive money gets sold. Before you sign anything, know exactly what a factor rate, a holdback, a UCC lien, or a DSCR really means — and what each one costs you. Below are 49 terms defined by the team that negotiates them every day.

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Likely Best Fit

Working Capital / Term Loan

Payroll gaps, hiring, marketing pushes, general cash flow. Commonly 24 to 72 hours once documents are complete.

For $75,000: 6 to 24 months, fixed weekly or monthly payments.

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Educational guidance only, not an offer or approval. One application puts your file in front of 50+ lending partners, and the initial review uses a soft credit pull.

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Cost, speed, and structure are the three things that actually differ between products. Pick any two and see them next to each other.

Option AOption B

Working Capital / Term Loan

Merchant Cash Advance

What it costs

Fixed factor or interest rate; total cost known up front

Factor rate, commonly 1.2 to 1.5 of the advance

How fast

Commonly 24 to 72 hours once documents are complete

Often the fastest option available

Terms

6 to 24 months, fixed weekly or monthly payments

Daily or weekly holdback on card or bank sales

Best for

Payroll gaps, hiring, marketing pushes, general cash flow

Urgent needs with credit or documentation challenges

Watch for

Fixed payments do not flex when sales slow

Highest cost; best used short term with a clear payoff

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Ranges shown are typical market conditions for educational purposes only. Actual pricing, speed, and terms are set by the funding partner in underwriting.

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Showing 49 of 49 terms

Advance Rate: The percentage of an invoice's face value a factoring company wires to you up front — typically 80% to 90%. The rest is held in reserve until your customer pays.
Amortization: The schedule that spreads a loan's principal and interest across equal payments so the balance reaches zero at the end of the term. Early payments are interest-heavy; later payments are principal-heavy.
Annual Percentage Rate (APR): The yearly cost of borrowing expressed as a percentage, including interest plus most fees. APR is the fairest way to compare two offers with different fee structures.
Balloon Payment: A large lump sum due at the end of a loan term after a run of smaller payments. Common on bridge loans and some equipment leases; plan the refinance or exit before it lands.
Blanket Lien: A security interest covering all business assets rather than one specific item. Many lenders file a blanket UCC lien on working capital deals.
Bridge Loan: Short-term financing (typically 6 to 24 months) that covers a gap — an acquisition, a renovation, or a lease-up — until permanent financing or a sale closes.
Business Credit Score: A score on your business entity (such as a Dun & Bradstreet PAYDEX or Experian Intelliscore) built from trade payment history, public filings, and firm size — separate from your personal FICO.
Capital Lease: A lease that acts like a purchase: you build equity and typically own the asset at the end, often for a $1 buyout. Usually shows up on the balance sheet as an asset and a liability.
Cash Flow Underwriting: An approval method that reads your real bank deposits, average daily balances, and negative days instead of leaning only on a historical credit report.
Collateral: An asset pledged to secure financing — real estate, equipment, inventory, or receivables — that the lender can claim if the loan defaults.
Cost of Capital: The total dollars you pay above the amount you received. On a $30,000 advance repaid at $37,500, the cost of capital is $7,500.
Debt Service Coverage Ratio (DSCR): Net operating income divided by total debt payments. A DSCR of 1.25 means the property earns $1.25 for every $1.00 of debt service. Most investor lenders want 1.20 or higher.
Debt-to-Income Ratio (DTI): Total monthly debt payments divided by monthly income. Lenders use it to judge whether another payment is sustainable.
Draw: A withdrawal from an approved line of credit. Interest accrues only on drawn balances, which is why a line is cheaper than a lump-sum loan for irregular needs.
Equipment Sale-Leaseback: You sell owned equipment to a funder for cash, then lease it back and keep using it. A way to unlock trapped equity without stopping operations.
Factor Rate: A multiplier — not an interest rate — that sets total payback on an advance. $50,000 at a 1.35 factor rate means $67,500 repaid, regardless of how quickly you pay it off.
Factoring Fee (Discount Rate): The percentage a factor keeps for advancing funds against your invoices, usually 1% to 4% per 30-day period the invoice stays open.
Fair Market Value (FMV) Lease: An operating lease where, at the end of the term, you can return the equipment, renew, or buy it at its then-current market value. Lower monthly payments, no built-in ownership.
Franchise Disclosure Document (FDD): The document a franchisor must give prospective franchisees. Item 19 (financial performance representations) is what lenders read when sizing your loan.
Guaranty (Personal Guarantee): Your written promise to repay business debt personally if the company cannot. Standard on most small business financing, including SBA loans.
Hard Credit Pull: A full credit inquiry that is recorded on your report and can shave a few points off your score. Most Trifecta matching starts with a soft pull instead.
Holdback: The fixed percentage of daily or weekly card sales a merchant cash advance funder collects — commonly 10% to 20%. Repayment flexes with your sales volume.
Interest-Only Period: A stretch at the start of a loan where payments cover interest only. It preserves cash while a project ramps up, but no principal is retired.
Inventory Turnover: How many times you sell and replace inventory in a year. Fast turnover supports larger inventory lines because collateral converts to cash quickly.
Invoice Verification: The factor's confirmation with your customer that goods or services were delivered and the invoice is valid before funding it.
Loan-to-Cost (LTC): Loan amount divided by total project cost, including purchase and construction. Construction lenders often cap LTC around 80% to 85%.
Loan-to-Value (LTV): Loan amount divided by the property's appraised value. Lower LTV means more equity in the deal, better pricing, and a faster approval.
Merchant Cash Advance (MCA): A purchase of your future receivables, not a loan. You receive a lump sum and repay through a set percentage of daily card sales until the payback amount is satisfied.
Net Operating Income (NOI): Rental income minus operating expenses, before debt payments. NOI drives both property valuation and DSCR.
Origination Fee: A one-time fee for setting up the financing, often 1% to 5% of the funded amount, sometimes netted out of your disbursement.
Prepayment Penalty: A charge for paying a loan off early, protecting the lender's expected yield. Ask whether early payoff earns a discount instead — many term loans offer one.
Prime Rate: The benchmark rate banks quote to their strongest customers. Variable-rate business loans and SBA loans are commonly priced as prime plus a spread.
Purchase Order (PO) Funding: Financing that pays your supplier directly so you can fulfill a confirmed customer order you could not otherwise afford to produce.
Recourse vs. Non-Recourse Factoring: With recourse, you buy back invoices your customer never pays. With non-recourse, the factor absorbs certain credit losses — for a higher fee.
Reserve: The portion of an invoice the factor holds back (typically 10% to 20%) and rebates to you, minus fees, once your customer pays in full.
Return on Ad Spend (ROAS): Revenue generated for every dollar of advertising. A 3.0 ROAS means $3 back for each $1 spent — the metric that decides whether borrowing for ad spend makes sense.
Revenue-Based Financing (RBF): Capital repaid as a fixed share of monthly revenue rather than a fixed installment, so payments shrink in slow months and rise in strong ones.
Revolving Credit: A credit facility that replenishes as you repay, so the same limit can be used repeatedly without reapplying.
SBA 504 Loan: Long-term, fixed-rate financing for owner-occupied commercial real estate and heavy equipment, structured between a bank, a Certified Development Company, and your down payment.
SBA 7(a) Loan: The SBA's flagship program for working capital, acquisitions, and refinancing, with government guarantees that let lenders offer longer terms and lower payments.
Seasonality: Predictable revenue swings across the year. Lenders average seasonal months so a slow quarter does not sink an otherwise healthy file.
Soft Credit Pull: A credit check that does not affect your score and is not visible to other lenders. It is how we pre-screen offers before you commit to anything.
Stacking: Taking multiple advances or loans at once from different funders. It usually breaches your agreements, strains cash flow, and blocks future approvals.
Term Loan: A fixed amount borrowed once and repaid over a set schedule — the classic structure for expansion, buildouts, and one-time investments.
Time in Business (TIB): How long your entity has been operating. Six months is a common floor; two years or more unlocks bank-quality pricing.
UCC-1 Financing Statement: The public filing that records a lender's security interest in your business assets. Existing filings must often be released or subordinated before new funding.
Underwriting: The lender's review of your revenue, credit, collateral, and industry to set approval, amount, rate, and term.
Unsecured Financing: Funding approved without pledging specific collateral. Pricing is higher because the lender leans on cash flow, credit, and a personal guarantee instead.
Working Capital: Current assets minus current liabilities — the cash cushion that covers payroll, rent, and inventory between the money going out and the revenue coming in.

Frequently Asked Questions

Questions, Answered

An interest rate accrues over time, so paying early costs you less. A factor rate is a flat multiplier that fixes your total payback the moment you sign, so paying early does not reduce the cost unless your agreement includes an early-payoff discount.

Compare total cost of capital in dollars and the APR side by side. Two offers can show the same monthly payment while one costs thousands more once fees and term length are included.

No. We start with a soft credit pull to match you against our 50+ lending partners. A hard pull only happens later, with your consent, when you move forward with a specific lender.

Match the product to the cash flow gap. Uneven, recurring needs suit a revolving line of credit; a one-time investment suits a term loan; slow-paying B2B customers suit factoring; card-heavy retail suits revenue-based financing. Call 1.877.977.3015 and we will map it with you.

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The Business Funding Glossary: Every Term a Lender Will Use, in Plain English.

Which Funding Type Fits Your Situation?

Compare Two Funding Options Side by Side

Questions, Answered

Know the Terms. Now Get the Right Offer.

Bring us the goal. We’ll help clarify the route.