Business Financing Terms Every Owner Should Know

The business financing terms you most need to know are the ones that decide what leaves your bank account and when: factor rate, APR, holdback, ACH debit, term, prepayment, UCC filing, and personal guarantee. Master those eight and you can read almost any small-business funding offer without a translator. Everything else — origination fees, stacking, buy rates, reconciliation — hangs off that core. This glossary is written the way an underwriter reads a file: not by textbook definition, but by what the term does to your daily and weekly cash position once the money is deployed. Where a term is commonly misunderstood, we flag the trap. Where two terms look similar but behave differently (APR vs. factor rate is the classic), we put them side by side so the comparison is real instead of theoretical.

The core pricing terms: how a deal is priced

Every funding offer is priced one of two ways, and confusing the two is the single most expensive mistake owners make.

• APR (Annual Percentage Rate) — the annualized cost of borrowing, expressed as a percentage per year, including most fees. Because it is time-based, paying early lowers the total cost. Term loans, lines of credit, and SBA loans quote APR.
• Factor rate — a fixed multiplier (commonly quoted as something like 1.2 to 1.5) applied once to the amount advanced. It is not annualized and does not fall when you pay early. Revenue-based financing and merchant cash advances use factor rates. A factor rate is a fixed cost of capital, decided the day you sign.
• Buy rate — the wholesale rate a funder sets before a broker adds their margin. The gap between buy rate and the rate you're offered is the broker's commission (points). Worth asking about when you're working through a marketplace.
• Origination / underwriting fee — a one-time fee taken from the funded amount or added to the balance. A $50,000 approval with a 3% origination fee nets you roughly $48,500 for example; know whether the fee is deducted up front or financed.

The key mental switch: with APR, time is a lever you control. With a factor rate, the cost is locked regardless of how fast you repay, so factor-rate products reward speed of deployment, not speed of payoff.

How you actually repay: the mechanics that hit your account

Pricing tells you the cost; the repayment mechanics tell you what your bank balance looks like on a Tuesday. These are the terms that determine whether an affordable-looking deal is actually survivable.

• ACH debit — an automated withdrawal pulled directly from your business checking account on a fixed schedule (daily, weekly, or monthly). Most modern revenue-based and term products repay by ACH.
• Holdback (or split) — a percentage of daily card sales withheld and routed to the funder before the rest reaches you. A 12% holdback means 12 cents of every card dollar for example goes to repayment. Holdback is a percentage; the dollar amount rises and falls with sales.
• Fixed daily/weekly payment — a set dollar amount debited on schedule regardless of that day's sales. Predictable, but unforgiving in a slow week.
• Reconciliation (true-up) — a feature in better revenue-based products that adjusts the debit down when revenue drops, so repayment tracks actual sales. Ask whether reconciliation is automatic or requires you to submit statements and request it.
• Term — the expected length of repayment. Factor-rate products quote an estimated term because sales-linked repayment can finish early or run long.

Underwriter's note: two offers with the same total cost can feel completely different depending on whether repayment is a fixed daily debit or a sales-linked holdback with reconciliation. The second flexes with your revenue; the first does not.

The legal and risk terms lenders don't lead with

These live in the contract, not the offer summary, and they define your exposure if things go sideways.

• Personal guarantee (PG) — you personally promise to repay if the business can't. It pierces the liability shield of your LLC or corporation for that debt. Nearly all small-business funding requires at least a limited PG.
• UCC-1 filing — a public notice a funder files with the state declaring a lien on business assets (often a blanket lien on "all assets"). It doesn't take anything, but it establishes priority and can block or complicate future financing until released.
• Confession of judgment (COJ) — a clause where you waive your right to contest a judgment if you default. Heavily restricted or banned in several states; treat any COJ as a red flag and read it closely.
• Stacking — taking a new advance on top of an existing one before the first is repaid. It multiplies the total daily debits against one cash flow and is the fastest route to a debt spiral. Most reputable funders prohibit it and will decline a file that shows it.
• Default / cure period — what counts as a default (often a set number of missed or bounced debits) and how long you have to fix it before acceleration.
• Prepayment terms — on APR products, early payoff usually saves interest (watch for prepayment penalties). On factor-rate products, early payoff rarely reduces the fixed cost unless the contract offers an explicit early-payoff discount — always ask.

Qualification terms: what underwriting looks at

When a file crosses an underwriter's desk, these are the words in the decision.

• FICO / personal credit score — still checked, but for revenue-based financing it's a gate, not the driver. Many marketplaces work with a 500+ FICO.
• Bank statements / average daily balance — the real test for revenue-based approvals. Underwriters read the last 3-6 months of business deposits, consistency of revenue, and how often the account goes negative (NSFs).
• Time in business (TIB) — months or years operating. Common floor is 6 months for revenue-based products.
• Monthly revenue / deposits — the primary approval input for revenue-based financing. Approval is built on deposits and revenue trend more than on credit.
• Debt service coverage — whether cash flow comfortably covers the new payment plus existing obligations. This is what "can they actually afford it" means in underwriting.

For a fuller walkthrough, see our pillar guides on business loan requirements and how to read a funding offer.

Example: the same term, three different products

Terms don't mean much in isolation. Here's how the core vocabulary shows up across three common products, using illustrative figures.

Figures above are illustrative ranges, not quotes. The point is that "term," "rate," and "repayment" each mean something different depending on the product wrapper.

Decision framework: matching the terms to your situation

Once you can read the terms, the question becomes which structure fits your cash flow. Here's the underwriter's shorthand.

A factor-rate, revenue-based / MCA marketplace product works best when:

• You need funds in 24-48 hours and can't wait weeks for a bank decision.
• Your credit is bruised (FICO 500+) but your bank deposits and revenue are steady — because approval leans on deposits and revenue over credit.
• You need at least ~$10,000 and the capital will generate return quickly (inventory that turns, a job that bills soon, filling a specific revenue-producing gap).
• You want repayment that can flex with sales via reconciliation rather than a rigid amortization schedule.

Avoid it — or slow down — when:

• Revenue is thin, seasonal at a trough, or your account already shows frequent NSFs; a daily debit will make it worse.
• You're using it to pay off another advance (that's stacking) or to cover a structural loss rather than a timing gap.
• You qualify for and can wait on lower-cost APR credit (bank term loan, SBA, line of credit) and the need isn't urgent.
• The use of funds won't produce cash faster than the repayment consumes it.

A marketplace's advantage is that it shops your bank-statement profile to multiple funders at once, so you compare real structures instead of taking the first offer. No legitimate funder guarantees approval — anyone who does is a warning sign, not a benefit.

Fast-reference glossary

• Advance amount — the capital deployed to you before fees.
• Amortization — the schedule by which a balance is paid down over the term.
• Blanket lien — a UCC lien covering all business assets rather than one specific asset.
• Draw — pulling funds from an approved line of credit.
• NSF — non-sufficient funds; a bounced debit. Repeated NSFs can trigger default and hurt future approvals.
• Points — broker commission expressed as a percentage of the deal.
• Renewal — refinancing an existing advance once a portion is repaid; different from stacking because the old balance is paid off, not layered.
• Servicing — the ongoing administration of collecting payments after funding.
• Working capital — the everyday cash that covers operations; the most common use of funds.