The words in your contract, translated
Funding agreements are written to be signed, not understood. These are the terms that decide what happens to you, defined the way somebody would explain them across a table rather than the way they appear in the document.
Merchant cash advance (MCA)
A purchase of a business’s future receivables at a discount, repaid through daily or weekly debits. Structured as a purchase rather than a loan, which is how it avoids state usury caps and lending-license requirements.
Factor rate
The multiple applied to the advance to arrive at the payback. A 1.40 factor on $100,000 means $140,000 owed. It isn’t an interest rate and it deliberately obscures the annualized cost, which is usually well past 100%.
Holdback
The agreed percentage of daily receipts the funder collects. In theory it flexes with your revenue. In practice most funders debit a fixed dollar amount and ignore the percentage entirely, which is where reconciliation disputes begin.
Reconciliation clause
A contract provision requiring payments to be recalculated against actual receipts. It’s what makes the deal look like a purchase instead of a loan, and it’s routinely ignored. Enforcing it’s often the single strongest piece of leverage a merchant has.
Confession of judgment (COJ)
A signed document in which you agree in advance that a judgment may be entered against you on the funder’s claim of default, with no lawsuit, notice, or defense. Still enforced in some states, including Pennsylvania. Move before entry, not after.
UCC-1 financing statement
A public filing that puts the world on notice of a secured claim against your business assets, typically including all accounts receivable. Filed against the wrong entity name more often than the industry admits, and a defective filing is leverage.
UCC 9-406 notification
A letter from a secured party instructing your customers to pay it instead of you. No judgment required. It’s the fastest way a funder can cut off an operating company’s revenue, and it must be answered within days.
Stacking
Taking a second, third, or fourth advance while earlier ones remain outstanding. Each position adds a filing, a guarantee, and daily burden. Brokers earn on every one, which explains the phone call that arrives the week you fall behind.
Personal guarantee
Your individual promise to answer for the business obligation. Enforceable, and narrower in practice than collectors imply. Business assets are exposed; your home may be protected outright depending on your state’s homestead exemption.
Acceleration
On default, the entire remaining payback becomes immediately due rather than continuing on schedule, often with default fees on top. It’s why a single missed debit can turn a manageable balance into an emergency.
Cross-collateralization
A provision letting a creditor apply collateral pledged for one obligation against another. Common in bank relationships, where an equipment loan and a credit line can secure each other without you realizing it.
Setoff
A bank’s contractual right to apply your deposit balances against what you owe it. No court involvement. The reason we tell owners to check whether their operating account sits at the same institution as a stressed credit line.
Effective APR
The annualized cost of an advance once term and payment frequency are accounted for. Absent from MCA contracts by design. A 1.40 factor collected over six months of daily debits commonly annualizes past 140%.
Split funding
An arrangement where your card processor diverts the funder’s share before the money reaches your account. Revoking ACH authorization doesn’t stop it, which is why it requires a different approach entirely.
Deposit account control agreement
A tri-party agreement giving a creditor control over a bank account. Where one exists, stopping debits at your bank won’t work and the strategy has to change.
ISO / broker
The independent sales organization that sold you the advance. Compensated per funded deal, which aligns their incentives with volume rather than with your survival. The broker isn’t your advisor, however helpful the calls felt.
Article 9 sale
A sale process under the Uniform Commercial Code through which a viable business can be separated from the debt that would otherwise consume it. Lawful, severe, and only workable when there are real assets involved.
Judgment domestication
Registering a judgment obtained in one state so it can be enforced in another. It’s why the venue named in your contract matters even though the enforcement lands where your bank accounts are.
Charge-off
A lender’s accounting recognition that a debt is unlikely to be collected. It doesn’t erase what you owe, but it frequently changes who holds the file and how much discount that holder will accept.
Forbearance
A written agreement to pause or reduce collection while a resolution is worked out. Harder to obtain than owners expect, always worth requesting, and much easier to get when the request arrives from someone the creditor recognizes as capable.
Offer in compromise
A formal settlement proposal on SBA debt, evaluated against what the government believes it could otherwise recover. Document-driven rather than persuasion-driven. Incomplete submissions get returned and cost months.
Treasury Offset Program
The federal collection mechanism that intercepts government payments, including tax refunds, once a debt is referred. Substantial fees attach and settlement authority moves out of reach. The stage to resolve before, not after.
Usury
The legal ceiling on interest a lender may charge. Advances avoid it by not being loans. When a court recharacterizes an advance as a loan, usury law comes back into play, which is why the purchase characterization is worth attacking.
Restrictive covenant
A contract term limiting what you may do while the obligation is outstanding, such as taking additional financing or changing processors. Owners violate these routinely without knowing, handing the funder an additional default event.
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Try a shorter word, or ask us directly at 212-210-1851.
Definitions don’t tell you what it means for you
Whether a reconciliation clause helps you depends on your bank statements. Whether a confession of judgment is enforceable depends on your state and how the document was executed. That takes someone reading your paperwork, and the first call is free.