Glossary
Every term,
defined plainly
The words in a funding offer, explained the way an operator would explain them.
A–Z
Terms
- Factor rateA factor rate is a multiplier used to price a merchant cash advance. Multiply the advance by the factor rate to get the total amount you'll remit.
- HoldbackThe holdback is the percentage of your daily or weekly sales remitted toward a merchant cash advance until the purchased amount is delivered.
- Merchant cash advanceA merchant cash advance is a purchase of a business's future receivables at a discount. It is not a loan. The business remits a percentage of sales until the purchased amount is delivered.
- Purchase of receivablesA purchase of receivables is a transaction where a funder buys a set amount of a business's future sales for a lower amount paid today. It is the legal structure behind a merchant cash advance.
- Annualized costAnnualized cost is an estimate of what a financing product costs per year, used to compare products with different terms and pricing methods on equal footing.
- APRAPR, or annual percentage rate, is the yearly cost of borrowing expressed as a percentage, including interest and certain fees.
- Term loanA term loan is a lump sum repaid in fixed installments over a set term, typically monthly, with interest.
- Working capitalWorking capital is the cash a business has available to run day-to-day operations. Working capital financing is funding used to cover those needs, typically repaid on a fixed schedule over 6–24 months.
- Cash flowCash flow is the movement of money into and out of a business over a period of time.
- Average daily balanceAverage daily balance is the average amount of money in a bank account at the end of each day over a period.
- Bank statement underwritingBank statement underwriting evaluates a business for funding based on its bank deposits, balances, and obligations rather than primarily on credit scores or tax returns.
- UnderwritingUnderwriting is the process of evaluating a business's risk to decide whether to fund it and on what terms.
- Credit boxA credit box is the set of criteria a funder uses to decide which businesses it will fund, such as industry, time in business, revenue, and geography.
- Funding partnerA funding partner is a third-party lender or capital provider that funds deals presented through a platform like Tovah.
- Hard credit pullA hard credit pull is a credit inquiry made when you apply for credit, which can temporarily lower your personal credit score.
- Soft credit pullA soft credit pull is a credit check that doesn't affect your credit score.
- Pre-qualificationPre-qualification is an early estimate of what a business may qualify for, based on limited information, before full underwriting.
- StackingStacking is taking on a second or third merchant cash advance while earlier ones are still being repaid.
- Second positionSecond position means a funder is repaid after an existing funder that holds first position on the same receivables.
- RefinanceRefinancing replaces existing debt or advances with new financing, usually to lower cost or combine payments.
- UCC filingA UCC filing is a public notice a funder files with a state to record its interest in a business's assets or receivables.
- Personal guaranteeA personal guarantee is a promise by a business owner to be personally responsible if the business doesn't meet its obligations under a financing agreement.
- DefaultDefault is a failure to meet the terms of a financing agreement, such as missing required payments.
- NSFNSF, or non-sufficient funds, is when a payment or debit is returned because the account didn't have enough money.
- RemittanceA remittance is a payment made toward a merchant cash advance, usually a percentage of daily or weekly sales.
- Split fundingSplit funding is a remittance method where a card processor sends a share of each settlement directly to the funder.
- ReconciliationReconciliation is the process of adjusting merchant cash advance remittances to match a business's actual sales.
- Early payoff discountAn early payoff discount reduces the total amount owed on an advance if it's paid off before the expected term ends.
- Prepayment penaltyA prepayment penalty is a fee charged for paying off a loan before the end of its term.
- AmortizationAmortization is repaying a loan through scheduled payments that cover both interest and principal over the term.
- Origination feeAn origination fee is a one-time charge for processing and funding a financing deal, usually a percentage of the amount.
- Cost of capitalCost of capital is the total amount a business pays to use financing, beyond the amount it receives.
- TermThe term is the length of time over which financing is repaid.
- Time in businessTime in business is how long a company has been operating, usually measured from formation or first revenue.
- Stipulations (stips)Stipulations are documents or conditions a funder requires before funding, such as ID, a voided check, or proof of ownership.
- KYBKYB, or know your business, is the process of verifying a business's identity, ownership, and legitimacy.
- RenewalA renewal is additional funding offered to an existing customer, often after a share of the current balance is paid down.
- Lead generationIn business funding, lead generation is collecting applicants' information and selling or sending it to multiple lenders or brokers.
- Embedded capitalEmbedded capital is business funding offered inside a software or payments platform, under that platform's brand.
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