The merchant cash advanceglossary.
Twenty terms a business owner meets in an MCA contract, a funder’s letter, or a court notice, each defined in one paragraph and linked to the page that covers it.
Key points
- A merchant cash advance is a purchase of future revenue, repaid by fixed daily or weekly drafts.
- A factor rate fixes the total owed on day one, so paying faster saves nothing.
- A UCC-1 is a public notice of a claim on business assets, not a lawsuit or a seizure.
- Default is defined by the contract and is usually broader than a missed payment.
Twenty terms, in plain English
Jump to: Acceleration · ACH debit · Confession of judgment · Debt restructuring · Default · Factor rate · Holdback · Judgment · MCA debt relief · MCA stacking · Merchant cash advance · Personal guarantee · Position · Reconciliation clause · Renewal · Restraining notice · Reverse consolidation · UCC 9-406 notice · UCC-1 financing statement · UCC-3 termination
- Acceleration
A contract right that makes the entire remaining balance due at once after a default, usually with default fees added. It turns a payment problem into a full-balance demand overnight.
- ACH debit
An automatic electronic withdrawal from a business bank account that the MCA contract authorizes, pulled every business day or every week. It takes the same amount on the worst day as on the best, which is why it is the mechanism that strains a business first.
- Confession of judgment
A document signed at closing that lets a creditor obtain a court judgment without a lawsuit or a hearing. New York stopped accepting them against out-of-state debtors in 2019, and other states treat them differently, which makes them a question for a licensed attorney.
- Debt restructuring
Renegotiating the terms of what a business owes rather than the amount: how often it pays, how much each payment is, and for how long. The aim is a schedule the business’s deposits can carry, and no funder is required to agree.
- Default
The state the contract defines as a breach, usually far broader than a missed payment: a bounced draft, a blocked ACH, or a change of bank account can each qualify. Default is what triggers default fees, acceleration, liens being enforced, and lawsuits.
- Factor rate
The multiplier that sets the total a business repays on the day it signs: an advance of $50,000 at a factor rate of 1.4 means $70,000 is owed. Factor rates typically run from 1.1 to 1.5, according to NerdWallet, 2025, and because the total is fixed, paying faster saves nothing.
- Holdback
The share of each day’s revenue an MCA contract lets the funder collect, often called the specified percentage. In practice most modern advances pull a fixed dollar amount by ACH instead, estimated from past revenue, so the draft does not shrink on a slow day.
- Judgment
A court’s formal decision that a debt is owed, whether won in a lawsuit, entered because nobody answered, or obtained through a confession of judgment. A judgment is what turns collection letters into frozen accounts, levies, and garnishment.
- MCA debt relief
The renegotiation of merchant cash advance balances and payment schedules with each funder, in writing, so a business can replace daily and weekly drafts with payments its deposits can carry. Results vary, and nothing requires a funder to agree.
- MCA stacking
Carrying two or more merchant cash advances at once, usually because a new advance was taken to cover an older one’s payments. Every new position adds its own fixed draft against the same revenue, and many first-position contracts treat a second advance as a default.
- Merchant cash advance (MCA)
A lump sum paid to a business now in exchange for a larger, fixed amount of its future revenue, collected by automatic daily or weekly withdrawals from the business bank account. It is written as a purchase of receivables rather than a loan, which is why it has largely sat outside usury caps and lending rules.
- Personal guarantee
The owner’s personal promise, signed alongside the business, that makes the owner reachable if the contract is breached. Most MCA guarantees are guarantees of performance, triggered by breaches such as blocking the ACH rather than by the business simply failing.
- Position
Industry shorthand for one advance’s place in line against a business’s revenue: the first funder holds the first position, and later advances are second, third, and fourth positions. Each position is its own contract, its own draft, and usually its own lien.
- Reconciliation clause
A clause in most MCA contracts that lets a business ask for its payments to be adjusted to match actual revenue when sales fall. It exists because the deal is framed as a purchase of revenue, and each contract in a stack carries its own.
- Renewal
A funder’s offer of new money once an advance is partly repaid. The new advance pays off the old balance, including the part of the old cost not yet paid, and then charges a full new factor rate on the whole amount.
- Restraining notice
A demand served on a bank after a judgment, requiring it to hold the money in an account. The bank complies at once, which is why most owners learn about the judgment and the frozen account on the same day.
- Reverse consolidation
A new advance whose funder deposits money each week to cover a business’s existing MCA drafts while collecting its own payment. The old advances keep drafting, so it is a new position on top of the stack, not a payoff of it.
- UCC 9-406 notice
A notice, named for section 9-406 of the Uniform Commercial Code, that a funder sends to people who owe a business money, telling them to pay the funder instead. It can reach card processors, marketplaces, and customers.
- UCC-1 financing statement
A public filing, usually with a state’s Secretary of State, recording a creditor’s claim on a business’s assets as collateral. MCA funders often file one the day the contract is signed, and it is a notice, not a lawsuit, a judgment, or a seizure.
- UCC-3 termination
The follow-up filing that removes a UCC-1 from the public record once the debt it secures is resolved. Someone has to file it, so it belongs in the written terms of any agreement that resolves a balance.
These definitions explain concepts; they are not legal advice. A question about your own contract, a lawsuit, or a judgment is for a licensed attorney in your state. The resources page has a longer list of terms with a guide for each.
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