The MCA glossary: every term, in plain English
MCA agreements are written to be signed fast and understood late. These are the 24 terms that decide what you owe, what the funder can do, and what your options are, defined the way a business owner actually needs them.
Merchant Cash Advance (MCA)
A merchant cash advance is financing structured as a purchase of a business's future revenue rather than a loan. The funder advances a lump sum and collects a fixed daily or weekly amount, or a percentage of sales, until a larger total (the advance times a factor rate) is repaid. Because it is framed as a purchase, it avoids most lending regulation and usury caps.
Full definition →Factor Rate
The multiplier that sets the total repayment on an MCA. An advance of $100,000 at a 1.4 factor rate means the business repays $140,000 regardless of how fast it pays. Factor rates typically run 1.2 to 1.5, and unlike interest, the cost does not shrink if you repay early.
Full definition →Holdback
The share of daily card sales or revenue an MCA funder collects, either as a true percentage of each day's receipts or, more commonly, as a fixed daily ACH debit estimated from past revenue. Typical holdbacks run 5 to 20 percent of daily volume.
Full definition →Specified Percentage
The percentage of future receivables an MCA agreement says the funder has purchased, for example, 15 percent of all revenue until the purchased amount is delivered. It is the contractual basis for the daily payment and the number a reconciliation trues the payment back to.
Full definition →Receivables Purchase Agreement
The contract behind most MCAs: the funder agrees to buy a defined amount of the business's future receivables at a discount, paid as the upfront advance. Legally it is a sale of an asset, not a loan, which is what exempts it from lending laws in most states.
Full definition →Reconciliation Clause
A contract provision entitling the merchant to have the fixed daily MCA payment adjusted, reconciled, to match the agreed percentage of actual revenue. If revenue drops 40 percent, a proper reconciliation drops the payment roughly 40 percent and credits past over-collection.
Full definition →True-Up
The periodic adjustment that reconciles what an MCA funder actually collected against what the specified percentage of real revenue would have been, refunding or crediting the difference. Some contracts require the merchant to request it; better ones run it monthly by default.
Full definition →ACH Debit (MCA)
The automated daily or weekly withdrawal an MCA funder takes from the business bank account under authorization signed at funding. It is how remittance actually happens for most advances, fixed amounts pulled every business day.
Full definition →Confession of Judgment (COJ)
A document signed at funding in which the merchant admits liability in advance, allowing the funder to enter a court judgment on default without filing a lawsuit, without a hearing, and often without notice. It converts a payment dispute into an enforceable judgment almost overnight.
Full definition →COJ Vacatur
A court order undoing a judgment that was entered through a Confession of Judgment. Vacatur is granted for procedural defects: defective affidavits, improper venue, service failures, or noncompliance with statutes like New York's COJ reforms.
Full definition →UCC-1 Financing Statement
A public notice filed with a state's Secretary of State recording a creditor's security interest in a business's assets. MCA funders file blanket UCC-1s covering receivables, inventory, equipment, and accounts, establishing priority against other creditors.
Full definition →UCC 9-406 Notice
A letter an MCA funder sends to a business's customers, citing UCC Section 9-406, instructing them to pay the funder directly instead of the business, on the theory that the funder owns the receivables. Customers who ignore a valid notice risk paying twice, so most comply.
Full definition →Account Debtor
In UCC language, the party who owes money on a receivable, from a business owner's perspective, your customer. When an MCA funder claims your receivables, your customers are the account debtors it can notify under UCC 9-406.
Full definition →Personal Guarantee (MCA)
A commitment making the business owner personally liable if the business cannot pay. In MCA agreements it typically guarantees performance, that the merchant will not breach the contract, but in practice funders pursue guarantors personally after default: personal credit, personal assets, personal bank accounts.
Full definition →Stacking
Taking multiple MCA advances that draw from the same revenue simultaneously. Each advance is priced as if it were alone; three or four together commonly remit 30 to 45 percent of gross revenue daily, more than most businesses' entire margin.
Full definition →Reverse Consolidation
A product marketed as MCA consolidation that does not pay off existing advances. Instead, the provider deposits weekly amounts that cover the merchant's existing daily pulls while collecting its own longer, larger payment, leaving every original position alive and adding a new one on top.
Full definition →Default (MCA)
Any event an MCA agreement defines as breach, which reaches far beyond missed payments: changing bank accounts, taking additional financing, dipping below minimum balances, or blocked ACH access can all be contractual defaults even while payments continue.
Full definition →Merchant Account Freeze
A hold placed on a business's card-processing funds, typically after an MCA funder contacts the processor claiming rights over the receivables. Card sales continue but settlements stop reaching the business's bank account.
Full definition →Bank Restraint / Levy
A legal freeze on a bank account obtained by a judgment creditor, in MCA cases, usually after a judgment entered by lawsuit or Confession of Judgment. The bank blocks the account on service of the restraining notice; a levy then takes the funds.
Full definition →Recharacterization
The legal argument that an MCA labeled as a receivables purchase is in substance a loan, and should be treated as one. If a court recharacterizes an advance, lending law applies, including usury caps that many MCA factor rates dramatically exceed.
Full definition →Usury (and MCAs)
Laws capping the interest a lender may charge, civil caps around 16 to 25 percent in states like New York, with criminal usury above that. MCAs priced at effective rates far beyond these caps are legal only because they are structured as purchases, not loans.
Full definition →Debt Settlement (MCA)
Negotiating with MCA funders to resolve balances for less than owed, commonly 30 to 60 percent reductions on distressed files, documented in written agreements that also release liens and close accounts. It reduces the number itself, unlike restructuring or consolidation which reshape payments.
Full definition →Debt Restructuring (MCA)
Renegotiating the terms of existing advances, cadence, sizing, duration, so daily pulls become a sustainable weekly or monthly payment, without necessarily reducing the balance. The tool for businesses that can repay in full at a survivable pace.
Full definition →Estoppel Letter
A statement a funder requests, from the merchant or another creditor, confirming facts like the outstanding balance and absence of disputes, which the signer is later estopped from denying. In MCA collections, funders gather estoppels while building enforcement files.
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