MCA and Commercial Debt Glossary

17 of 17 terms

ACH Debit

An automated withdrawal taken directly from a business bank account.

Most merchant cash advances are repaid by Automated Clearing House withdrawals scheduled daily on business days or weekly. The provider initiates each withdrawal, so the timing is not controlled by the business. When several advances debit the same account, the withdrawals frequently land before customer deposits clear.

Acceleration

A demand for the entire remaining balance at once after a default.

Many advance agreements state that if the business breaches a term, the full unpaid amount becomes immediately due rather than continuing on schedule. Acceleration often accompanies collection activity, UCC enforcement, or legal filings.

Blocked or Frozen Account

A bank account that cannot be drawn on because of a lien or levy.

When a creditor enforces a UCC filing or a judgment against a business, banks may restrict the account while the claim is resolved. Owners commonly describe this as their account being frozen, and it typically halts payroll and supplier payments until it is lifted.

Confession of Judgment (COJ)

A signed document letting a creditor obtain a judgment without a trial.

A confession of judgment is a clause or separate instrument in which a business, and often its owner personally, agrees in advance that a judgment may be entered if the agreement is breached. New York limited their use against out-of-state businesses in 2019, and several other jurisdictions have restricted them, but older agreements may still contain one. Any agreement containing a confession of judgment warrants review by a qualified attorney before signing.

Also called: Cognovit note

Daily Debit

A fixed amount withdrawn every business day until the advance is repaid.

Daily repayment is the structure that distinguishes most advances from term loans. Because the withdrawals begin almost immediately and continue regardless of a slow week, the effective cost of capital is far higher than the factor rate alone suggests.

Default

A breach of the advance agreement, not only a missed payment.

Agreements usually define default broadly. Returned payments, closing or changing the deposit account, taking an additional advance without consent, or a material change in the business can all qualify. What follows is set out in the contract and commonly includes fees, acceleration, UCC enforcement, and collection or legal action.

Factor Rate

A multiplier that sets the total payback, quoted instead of an interest rate.

A factor rate is typically between 1.10 and 1.55. Multiplying the amount advanced by the factor rate gives the total repayable. A $50,000 advance at 1.35 repays $67,500. Because the balance is drawn down daily, the equivalent annualized cost is usually much higher than the factor rate reads.

Holdback Percentage

The share of daily card sales a provider withholds toward repayment.

In sales-based structures the provider takes a set percentage of receipts rather than a fixed dollar amount, so the payment rises and falls with volume. The holdback percentage determines how quickly the advance is repaid and how heavily a slow period is felt.

Merchant Cash Advance (MCA)

The purchase of a portion of a business's future receivables.

An MCA is legally structured as a purchase of future revenue, not as a loan, which is why it is quoted with a factor rate and repaid through daily or weekly remittances. That distinction affects which lending regulations apply and how disputes are handled.

Personal Guarantee

An owner's personal promise to answer for the business obligation.

Most advance agreements include a guarantee signed by an owner. Depending on its wording it may be limited to breaches of specific terms or may extend to the full balance, which can expose personal assets if the business cannot pay. The scope of a guarantee is one of the most important items to confirm before signing.

Payoff Amount

The figure required to satisfy an advance in full today.

The payoff is not simply the remaining scheduled payments. Some agreements require the entire undiscounted balance regardless of how early it is retired, which is why paying an advance off early often produces little or no savings. Always request the payoff in writing.

Reconciliation Clause

A contract provision allowing payments to be adjusted to actual revenue.

A genuine reconciliation clause lets a business request that remittances be recalculated when revenue declines, usually by submitting bank or processing statements. Whether the provider must grant the adjustment, and how quickly, varies widely. Owners frequently do not realize their agreement contains one.

Restructuring

Revising the payment terms of an existing obligation.

Restructuring changes the size or frequency of payments so the schedule fits current cash flow. The balance owed generally remains the same. It is distinct from settlement, which addresses the amount owed, and from consolidation, which addresses the number of obligations.

Reverse Consolidation

A funder deposits money to cover existing debits while the business repays it separately.

Unlike a payoff consolidation, reverse consolidation leaves the original advances outstanding. The provider sends funds into the account on a schedule intended to cover the existing withdrawals, and the business repays that provider on new terms. This can add total exposure rather than reduce it, so the structure being proposed should be confirmed in writing.

Settlement

Resolving a balance for an agreed amount, often less than the full figure.

A settlement is a negotiated resolution. Any settlement document should clearly release the remaining balance, address UCC filings, personal guarantees, and any pending legal action, and state exactly what each party must do. Forgiven balances may carry tax consequences, which is a question for a qualified tax professional.

Stacking

Carrying more than one merchant cash advance at the same time.

Stacking usually develops when a new advance is taken to cover the payments on existing ones. Each provider debits independently, so the combined outflow can exceed what the business collects in a week. Many agreements prohibit taking an additional advance, which means stacking can itself trigger default.

UCC-1 Financing Statement

A public filing that gives a creditor a claim against business assets.

Filed under Article 9 of the Uniform Commercial Code, a UCC-1 puts other creditors on notice of a security interest in receivables or other assets. It commonly appears in business credit reports and can complicate future financing. A UCC filing should be released once an obligation is satisfied, and confirming that release is a standard closing step.

Also called: UCC lien, blanket lien