64 funding terms defined in plain English. By industry experts.
Automated Clearing House — the U.S. electronic banking network used for direct deposits and bill payments. Most alternative business loans are repaid via daily or weekly ACH withdrawals from your business bank account.
A standardized billing form (AIA G702/G703) used in construction. Contractors submit pay applications to bill for completed work. Many factoring companies specialize in advancing AIA-based receivables.
Annual Percentage Rate. The total cost of borrowing for a year, expressed as a percentage. Includes interest plus mandatory fees. APR is the standardized comparison metric for term loans.
Money owed to your business by customers for goods or services already delivered. AR is the asset that invoice factoring monetizes — sell unpaid invoices for cash now.
Loans secured by business assets: AR, inventory, equipment, real estate. ABL provides higher limits for asset-rich businesses. Common for $1M+ funding needs.
A large, lump-sum payment due at the end of a loan term. Common in commercial real estate and some equipment financing. Watch for these — they can blindside borrowers.
Lender approval based on 3 months of business bank statements rather than tax returns. The standard at most alternative lenders. Allows funding in days instead of weeks.
A UCC filing claiming security interest in ALL business assets, not specific items. More restrictive than asset-specific liens. Limits your ability to take additional financing.
A tax deduction allowing accelerated depreciation of equipment. 60% in 2026 (down from 80% in 2025), phasing out to 0% by 2027. Combines with Section 179.
Short-term financing to bridge a cash gap. Usually 6-12 months at higher rates. Often used for real estate transactions awaiting permanent financing. (Note: MFE does not offer commercial bridge loans.)
A borrower's ability to repay debt, measured by cash flow and debt service coverage ratio. One of the 5 Cs banks evaluate. Capacity matters more to alternative lenders than character (credit score).
Money moving in and out of your business. Positive cash flow means more money coming in than going out. Lenders care about cash flow more than profit, because cash flow is what repays the loan.
A financial document showing how cash moves in and out of your business across operations, investing, and financing activities over a specific period.
An asset pledged to secure a loan. If the borrower defaults, the lender can seize the collateral. Common collateral: real estate, equipment, AR, inventory, vehicles.
Financing for purchasing or refinancing business property. Terms typically 5-25 years. Down payments 20-30%. (MFE focuses on operating capital, not commercial real estate purchases.)
A clause where the borrower waives the right to defend in court if they default. Common in some MCAs. Now banned in most states for business loans. Avoid contracts containing COJs.
A hard credit pull is a formal credit inquiry that drops your FICO 5-10 points temporarily. A soft pull (used in pre-qualification) has zero impact. Always pre-qualify before formally applying.
Dun & Bradstreet's 0-100 business credit score based on payment history. 80+ is good (pays on time), 100 is best (pays early). Used by trade creditors and some lenders.
Your business income divided by debt payments. Lenders want 1.25 or higher (income exceeds debt by 25%). DSCR below 1.0 means cash flow doesn't cover debt — usually a denial.
The fee charged in invoice factoring, typically 1-5% per 30 days that the invoice is outstanding. So a 90-day invoice factored at 2%/30 = 6% total fee.
A 9-digit federal tax ID issued by the IRS for businesses. Free at irs.gov. Required for: business bank accounts, hiring, business credit, business loans. Your business's SSN equivalent.
Equifax's 101-992 business credit score. 711+ is good. Less commonly used than D&B PAYDEX but still consulted by some lenders.
A loan specifically for purchasing business equipment. The equipment serves as collateral. Terms up to 60 months. May qualify for Section 179 tax deduction.
Equity funding (selling ownership) vs debt funding (loans). Equity has no repayment but dilutes ownership. Debt requires repayment but you keep 100%. Most small businesses use debt.
Experian's 0-100 business credit score based on credit utilization, payment history, and public records. 76-100 is good. Used by many alternative lenders.
Federal law governing credit reporting. Gives consumers rights to dispute errors, get free annual credit reports, etc. Applies to personal credit; business credit has fewer protections.
FICO Small Business Scoring Service — a 0-300 business credit score used by SBA. 155+ minimum for SBA approval. 200+ for best terms. Combines personal credit, business credit, and financials.
A personal credit score from 300-850 used by most lenders. Alternative business lenders accept 500+. Banks typically require 680-720+. The most-used credit scoring model in the US.
A decimal multiplier (typically 1.10-1.49) used in MCAs and short-term loans instead of APR. Multiply by loan amount to get total payback. Factor 1.30 on $50K = $65K total.
Selling unpaid B2B invoices to a factor for immediate cash (80-90% advance). The factor collects from your customer when due. Not technically a loan — no debt added.
Fixed rate stays constant entire loan term. Variable rate changes (typically pegged to prime). Fixed = predictable. Variable = potentially lower start, higher risk if rates rise.
Same as variable rate — interest rate that changes during the loan term. Common in lines of credit. Usually tied to prime rate plus a margin.
Total business income before expenses. Lenders typically need $10,000+ monthly gross revenue (different from profit). Gross revenue determines maximum funding amount.
In an MCA, the percentage of daily credit card sales the funder collects until the advance is repaid. Typically 5-20%. Slow days = lower payment, busy days = higher payment.
International Fuel Tax Agreement — fuel tax reporting system for interstate trucking. Quarterly filings required. Trucking lenders consider IFTA compliance in underwriting.
International Registration Plan — the truck registration system for interstate commercial vehicles. Required for trucking businesses operating across state lines.
Selling unpaid B2B invoices to a factor for immediate cash. Different from invoice financing (which uses invoices as collateral for a loan). Most factoring is recourse by default.
A business structure providing personal liability protection. Separates owner's personal assets from business debts. Recommended structure for borrowers — strengthens loan application.
A revolving credit facility — draw what you need, pay only on what you use, available credit refreshes as you repay. Typical limits $10K-$250K. Best for fluctuating cash needs.
A purchase of future receivables, not technically a loan. Lump sum repaid as percentage of daily card sales. Uses factor rates 1.10-1.49. Fast funding but expensive.
Small business loan typically $1K-$50K. Common at SBA microloan program, Kiva, Accion, LiftFund. Often available to early-stage businesses that don't qualify elsewhere.
North American Industry Classification System — the 6-digit code identifying your industry. Lenders use NAICS codes to assess industry risk. Some industries get higher rates or are blacklisted.
When a bank returns a check or ACH due to insufficient funds. NSFs on bank statements hurt loan applications — they signal cash flow problems. Lenders see your last 3 months of NSFs.
Payment terms in B2B invoicing — payment due 30, 60, or 90 days after invoice. Slow Net terms create cash flow gaps that invoice factoring solves.
Operating lease = like renting (lessee returns equipment). Capital lease = like financing (lessee owns at end). Tax treatment differs significantly. (MFE offers equipment financing, not leases.)
Upfront fee charged by the lender to process your loan, usually 1-5% of the loan amount. Often deducted from disbursement (you receive less than approved amount). Always ask total fees upfront.
A modified personal guarantee with capped liability — you're personally liable up to a specific dollar amount or percentage rather than 100%. Available on larger loans ($1M+).
A signed agreement making the owner personally liable if the business defaults. Required for almost all small business loans. Survives business closure. Limited PG available on $1M+ loans.
A fee for paying off a loan early. Banks sometimes charge these. Most alternative loans don't — but always check. Factor-rate products effectively penalize early payoff (no savings).
The interest rate banks charge their best customers. Used as a base for variable-rate loans. Expressed as "Prime + X%" — e.g., Prime + 5%. Set by major banks, follows Fed rate decisions.
A financial document showing revenue, expenses, and profit over a specific period (usually monthly, quarterly, annually). Required for SBA and most bank loans.
Recourse: you remain liable if customer doesn't pay. Non-recourse: factor absorbs credit risk (for non-payment due to credit issues, not disputes). Non-recourse costs 1-2% extra.
Financing repaid as a fixed daily/weekly ACH based on monthly revenue. Different from MCA — uses bank ACH not credit card splits. Predictable payment for businesses with steady revenue.
Credit that refreshes as you repay (vs term loans which don't). Lines of credit and credit cards are revolving. You can re-borrow up to your limit indefinitely.
Federal agency that guarantees a portion of loans made by approved lenders. SBA 7(a) is the most common program (up to $5M). 60-120 day approval process. (MFE is not an SBA lender.)
A U.S. tax provision allowing businesses to deduct the full purchase price of qualifying equipment placed in service the same year, up to $1.16M in 2026. Equipment financing qualifies.
A non-impactful credit check used during pre-qualification. Doesn't affect FICO score. Allows you to shop multiple lenders without credit damage. Always pre-qualify before formally applying.
A traditional loan with fixed monthly payments over a set term (3 months to 25 years). Uses APR. Term loans contrast with revolving credit (LOC) and factor-rate products (MCA).
How long your business has been operating. Most lenders require 6+ months minimum. 2+ years opens better rates and bank loans. SBA usually requires 2+ years profitable.
Uniform Commercial Code financing statement — public legal notice of a lender's security interest in your business assets. Filed with state government. Appears on business credit reports.
The process by which lenders evaluate loan applications and decide whether to approve. Underwriting at alternative lenders takes hours; at banks takes weeks. Real underwriters are humans (vs algorithms).
The minimum working capital needed to operate. Calculated from operating cycle. Helps determine appropriate loan size — borrow what you need, not more.
Funds for everyday business operations — payroll, inventory, marketing, etc. Distinct from equipment financing or commercial real estate. Working capital loans are the most flexible product.
Current assets divided by current liabilities. Measures short-term financial health. Above 1.0 means you can cover short-term obligations. Below 1.0 signals cash flow problems.
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