Plain-English definitions of the terms MCA brokers, ISOs, funders, and lenders use every day. Written to be clear, accurate, and citable.
A merchant cash advance is a financing arrangement where a funder provides a lump-sum payment to a business in exchange for a percentage of its future daily credit card or bank-card sales, repaid through daily or weekly ACH debits. It is a purchase of future receivables, not a traditional loan.
MCAs are not regulated as loans in most U.S. states, which affects factor rates and disclosure requirements.
A factor rate is the multiplier applied to the funded amount to determine the total payback amount on a merchant cash advance. A factor rate of 1.35 on a $50,000 advance means the merchant repays $67,500 total. Factor rates typically range from 1.1 to 1.6 and are not interest rates.
Unlike an APR, a factor rate is a flat cost that does not decrease as the balance is paid down.
RTR, or "retrieve the rate," refers to the total repayment amount a merchant owes on a merchant cash advance, calculated as the funded amount multiplied by the factor rate. On a $40,000 advance with a 1.3 factor rate, the RTR is $52,000. It represents the full cost of the advance.
RTR is the single most important number for comparing the true cost of competing MCA offers.
Stacking is the practice of a merchant taking on multiple merchant cash advances or short-term loans simultaneously, where each funder collects daily or weekly payments from the same business bank account. Stacking increases the daily debit burden and is a major risk factor for default and cash-flow strain.
Most funders restrict or prohibit stacking, and some will only fund first or second position.
Position refers to a funder's priority rank in the order of repayment among multiple financings a merchant holds. A first-position funder is paid first from daily remittances, a second-position funder is paid next, and so on. Lower positions carry higher risk because they are repaid only after higher-priority obligations.
Most funders will not go beyond third position, and many cap at second.
NSF tolerance describes a funder's willingness to approve a merchant whose bank statements show non-sufficient funds events, or bounced payments. A funder with high NSF tolerance may accept several NSFs per month, while a funder with low or no tolerance will decline a file with any recent NSF activity.
NSF frequency and amount are among the strongest indicators of cash-flow stress in MCA underwriting.
An ISO, or independent sales organization, is a third-party broker or intermediary that originates merchant cash advance and business loan deals on behalf of funders. ISOs source merchants, collect documents, and submit files to funders in exchange for a commission or commission split on funded deals.
ISOs are also called brokers, and they are the primary distribution channel for most MCA funders.
Underwriting in the MCA context is the process of evaluating a merchant's financial health, bank statements, revenue consistency, existing debt load, and risk factors to determine whether to fund a deal and at what amount, factor rate, and term. It is the funder's decision-making step before extending an offer.
AI underwriting tools like FundingBrother assist brokers by pre-analyzing files before submission.
ACH, or automated clearing house, is the electronic payment network used to collect the daily or weekly repayments on a merchant cash advance directly from the merchant's business bank account. Most MCA funders require fixed daily or weekly ACH debits rather than a percentage of card sales.
Daily ACH is the most common repayment method in modern MCA, replacing the older split-processing model.
A holdback is the fixed daily or weekly amount a funder debits from a merchant's bank account to repay a merchant cash advance. On a $50,000 advance with a 1.3 factor rate over 12 months, the daily holdback might be roughly $229 per business day until the $65,000 RTR is fully collected.
The holdback amount directly determines how long the advance takes to pay off.
Default in a merchant cash advance occurs when a merchant fails to meet the agreed repayment terms, typically by missing daily or weekly ACH debits for a sustained period. Default can trigger a confession of judgment in some states, allowing the funder to seize business or personal assets without a lawsuit.
Confessions of judgment are legal in some states and are a significant risk for merchants.
Consolidation, or refinancing, in the MCA context is the practice of using a new, larger advance to pay off one or more existing advances, ideally at a lower combined daily payment. Brokers use consolidation to reduce a merchant's stacking burden, though it can extend the repayment timeline if not structured carefully.
A successful consolidation lowers the total daily debit burden, not just the number of active positions.
A deal score is a 0-to-100 rating produced by AI underwriting tools that summarizes the overall fundability of a merchant file based on revenue, cash-flow consistency, NSF activity, existing positions, and time in business. It is an analytical estimate, not a guarantee of approval, and does not replace a funder's own underwriting.
FundingBrother's Deal Doctor produces a deal score to help brokers prioritize files before submission.
A funder's buy box is the set of criteria that defines the merchant files a funder is willing to fund, including minimum monthly revenue, time in business, FICO score, maximum existing positions, accepted industries, and states served. A deal that falls inside a funder's buy box is a candidate; one outside it is typically declined.
Matching a deal to a funder's buy box before submission saves time and improves funding rates.
A split percentage is the portion of a merchant's daily credit card receivables that a funder deducts to repay a merchant cash advance, used in split-funding arrangements rather than fixed ACH debits. A 15% split means the funder collects 15% of each day's card batch until the full RTR is collected.
Split funding is less common today than fixed daily ACH but is still used by some card-heavy merchants.
TIB, or time in business, is the number of months or years a merchant has been operating, measured from the business start date on formation documents. Most MCA funders require a minimum of 6 to 12 months in business, and stronger files show 2 or more years, which signals stability and lowers perceived risk.
TIB is a hard filter in most funders' buy boxes and is one of the first criteria checked in underwriting.
A UCC, or Uniform Commercial Code-1 filing, is a public lien a funder files against a merchant's business assets to secure their position on a merchant cash advance. The first funder to file a UCC-1 generally holds first position. Subsequent funders file in second or third position, increasing their risk.
Checking existing UCC filings before funding is standard practice; a merchant with multiple UCCs is already stacked.
A renewal is a new merchant cash advance offered to a merchant who has paid down a significant portion of an existing advance, often before the original is fully repaid. Renewals let funders retain performing merchants and let brokers earn repeat commissions, but they can extend a merchant's debt cycle if not structured carefully.
Renewals are a primary growth driver for MCA funders and a key commission source for brokers.
A buy rate is the base factor rate a funder offers an ISO or broker before the broker adds their own markup. If a funder quotes a 1.30 buy rate and the broker sells the deal at 1.35, the 0.05 difference is the broker's commission spread. Buy rates vary by funder, deal risk, and broker relationship.
Understanding the buy rate lets brokers calculate their commission spread and compare competing funder offers.
A commission split is the percentage of the total commission a funder pays to an ISO or broker for originating a funded merchant cash advance. Splits typically range from 50% to 90% of the funder's gross commission, with higher splits reserved for high-volume or exclusive broker relationships.
Commission splits are negotiated between the funder and the ISO and are a key factor in broker profitability.