Glossary

Commercial finance, in plain English.

Every term we use on a deal call — defined the way an underwriter would explain it to a new broker. 32 entries.

ACH: Automated Clearing House — the electronic network most short-term lenders and MCA funders use to debit a borrower's bank account on a daily, weekly, or monthly cadence.
Amortization: The schedule by which a loan's principal and interest are paid down over time. Fully amortizing loans end with a zero balance; interest-only loans defer principal.
APR: Annual Percentage Rate — the all-in yearly cost of borrowing including interest and most fees. Useful for comparing term loans; less meaningful for MCAs (use factor rate instead).

Bridge Loan: Short-term financing (typically 6–24 months) used to cover a gap until permanent financing or an asset sale closes. Common in commercial real estate.
Buy Rate: The interest rate or factor a lender quotes the broker. The broker marks it up to a sell rate and earns the spread as commission.

CMBS: Commercial Mortgage-Backed Securities — pools of commercial real estate loans packaged and sold to institutional investors.
Confession of Judgment (COJ): A pre-signed legal admission of debt that lets a lender obtain a judgment without trial if the borrower defaults. Banned in many MCA contexts after 2019.

Debt Service Coverage Ratio (DSCR): Net operating income divided by annual debt service. Lenders want 1.20x or higher on commercial real estate; SBA typically requires 1.15x.

Equipment Finance: A loan or lease secured by the equipment being purchased — trucks, machinery, medical devices. Often funds in 24–72 hours with the equipment itself as collateral.

Factor Rate: The total payback multiplier on an MCA or short-term loan (e.g., 1.35 means $100k advanced becomes $135k owed). Not directly comparable to APR.
FICO: The dominant US consumer credit score (300–850). Most MCA funders want 550+, term lenders 650+, SBA 680+.
Funding Date: The day cleared funds hit the borrower's bank account — distinct from the closing or signing date.

Hard Money: Asset-based real estate financing from non-bank lenders, priced higher than bank rates but funded in days based mainly on the property's value.

ISO: Independent Sales Organization — a broker or shop that sources deals for funders in exchange for commission. Most MCA brokers operate as ISOs.
Invoice Factoring: Selling accounts receivable to a factor at a discount in exchange for immediate cash. The factor collects from the customer.

Line of Credit (LOC): A revolving credit facility a borrower can draw, repay, and redraw. Priced on the drawn balance plus often an unused-line fee.

MCA: Merchant Cash Advance — a purchase of future receivables, repaid via daily or weekly ACH. Technically not a loan, so usury caps may not apply.

NMLS: Nationwide Multistate Licensing System — the registry US mortgage and many state-licensed commercial finance professionals must register with.
Non-Recourse: Financing where the lender's only remedy on default is the collateral, not the borrower's personal assets. Common in CRE; rare in small-business lending.

Personal Guarantee (PG): Owner agreement to repay business debt personally if the company defaults. Standard on most small-business loans, MCAs, and SBA.

Refi / Consolidation: Replacing one or more existing positions with a single new loan, typically to lower the daily payment or extend the term.
Reverse Consolidation: An MCA structure where a new advance pays the borrower a daily reimbursement equal to existing MCA debits, easing cash flow without legally retiring the old positions.

SBA 7(a): The Small Business Administration's flagship loan program — up to $5M, 10–25 year terms, partially guaranteed by the federal government.
SBA 504: SBA program for owner-occupied real estate and major equipment, structured as 50% bank / 40% CDC / 10% borrower equity.
Soft Pull: A credit inquiry that does not affect the borrower's score. Used for pre-qualification before a hard pull at submission.
Stip: Stipulation — a document required to close a file. Common stips: 4 months bank statements, voided check, driver's license, signed application.
Syndication: Multiple funders sharing one MCA position to spread risk on a large advance.

TIB: Time in Business — months or years since the entity was formed. Most MCA funders require 6+ months; SBA wants 24+.
Term Loan: Fixed-amount, fixed-term loan repaid on a set amortization schedule. Standard product for established borrowers with good credit.

UCC Filing: A public lien filed under the Uniform Commercial Code that gives a lender a security interest in business assets. Visible on credit reports and used to detect stacking.
Underwriting: The lender's process of evaluating a file: bank statements, credit, industry, collateral, and stips. Outcome is decline, counter, or approval.

Working Capital: Short-term cash used to cover payroll, inventory, marketing, and operating expenses — the most common use case for MCAs and short-term loans.

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