MCA Terms you should know
A
ACH
Automated Clearing House. A withdrawal of funds directly from a merchants’ business bank towards a repayment of an advance or loan. ACH transactions are processed between the lenders and borrowers’ banks accounts.
ADB
Average Daily Balance, the amount of money available in a business account on a daily bases. This important metric is calculated by every funder to determine the feasibility of a given merchant repayment options.
B
Broker/Closer
An inside sales representative that acts as a liaison between the business owner and the funder. His task is to successfully communicate the terms of an offer provided by the funder and take the business owner through the funding process.
Buyer
The funding company who is buying future receivables from the seller who in this case would be the Merchant.
Buy Rate
is the funders, bottom line offer.
C
Clawback
When a funder takes back a paid commission form an ISO or sales rep. Usually, when a funded deal defaults within 30 days after funding.
Closing Fee/Contract Fee
A fee charged by the funder which comes out of the funding amount.
COJ
Confession of Judgement, is a notarized document, signed by the merchant, between the merchant and the funder which grants an automatic judgment against the merchant in the event of a default.
Credit Card Split/CC Spit
Is a merchant cash advance where the structure of paying back the money is in agreeing to split the gross sales from credit card processing to a fixed % that goes to the buyer and seller of the future receivables. This is typically used when there is a high volume of credit card sales when compared to regular bank deposit revenue. This is not a loan.
D
Debt Service
The debt carried by the merchant, after receiving an advance.
Default
When a merchant violates the agreed upon terms, outlined in the merchant agreement.
Double Funding or Stacking
When a merchant lines up two Funders to fund on the same day without Funders knowledge.
E
Early Payoff Discount
A discount applied to a merchants payback if the balance is paid prior to the expected MCA maturation date.
F
Factor Rate
The difference between the funding amount and the payback outlined in the merchant agreement, also referred to as the discount rate.
Funder
A Merchant Cash Advance Provider.
Funding call
A call from an underwriter to the merchant where the terms of the merchant agreement are highlighted and explained.
H
Holdback
A Percentage specified in the “Split Agreement” which determines the amount of each credit card transaction of a business that will go towards repayment of an advance.
I
ISO
Independent Sales Organization, a company that markets MCA services to merchants and submits them for funding to various funders.
ISO Agreement
An agreement between the funder and an ISO outlining their relationship including but not limited to commissions and expectations.
L
Lockbox
3rd party bank account where funds from payment processor are held until properly distributed to the merchant and to the lien holder.
M
Merchant Cash Advance (MCA)
The sale of future receivables at a discount where the payback is either a set daily/weekly ACH payment or a Credit Card split applied to the businesses credit card sales at a fixed percentage.
Merchant Interviews
An interview conducted by an underwriter of a merchant prior to funding. This helps the underwriter to ask questions that may further aid in determining risk.
P
Payoff Letter
A Letter on a funder’s letterhead in which the current balance of the merchant is shown and wire instructions for the funder are provided.
Payback Months
Merchants bank statements for an outlined period of time that give a funder an idea of the flow of merchants revenue in the future.
Percentage of Gross
Percentage of the gross sales of a merchant to calculate a payment or a holdback which may best applied to repayment of an advance.
Points
Rate for a commission paid to a broker or a sales rep.
Position
Implies the number of individual advances a business carries at one time.
Processor
A person that initially looks at merchants’ information like bank statements and application, then marks risk factors for the underwriter to review.
PSF
Professional Service Fee, a fee brokers may charge a merchant for providing them with a successful MCA.
Purchase Price
The advance amount.
Purchase Amount/Payback
Is the total payback amount.
R
Remittance, pull/Payment
The percentage of sales that are being withdrawn from the business bank account daily or weekly.
Renewal
Any additional advance after the initial Advance has been repaid or consolidated into a new advance by the same funder.
S
Seller
In the MCA Contract, the merchant (seller) who is selling his future receivables to the Funder (Buyer).
Sell Rate
The difference between the funding amount and the payback reflected in the Merchant agreement.
Stacking
Refers to the funding of an additional advance behind an existing advance.
Stips/Stipulations
Are items that are required to close on the advance. They include documents and other key information such as landlord contact details or explanation of a particular transaction form Merchants Bank statements.
Syndication
When a funder receives a portion of the advance amount to invest into a particular deal. Any person or entity that carries the risk along with the funder.
T
Term
An estimated time by the funder in which a given merchant should pay back an MCA.
True-up
An adjustment of payment amounts being made to the funding company to more accurately reflect the ability to pay back based on sales.
U
UCC
The Uniform Commercial Code. It’s a comprehensive set of laws governing all commercial transactions in the United States. A UCC filing is used to stake a place in line to collect a debt.
Underwriter
The person within a funding company that evaluates each merchant for funding by looking a business at risk levels and the ability to pay back an advance.
Underwriting
The process of evaluating risk prior to funding.
Up-sell
The points range (min to max) a funder allows to charge on top of their base rate. An up-sell is the difference between the sales rate seen on the contract and a butyrate offered to an ISO or a sales agent.
Usury Law
Is a law governing the maximum allowable interest rate a lender may charge a borrower. The Usury law differs from state to state.
Z
Zero Balance Letter
A Letter provided by the funder on funders letterhead, that confirms that balance of an advance has been paid and the terms of the Merchant Agreement have been satisfied by the Merchant.
