Reference

Every term they will use, before they use it

Defined in plain English and paired with the specific way each one gets misread. Where a term is arithmetic, the arithmetic is shown.

451 terms 451 with the misreading spelled out 179 worked through

#1

1099-K An IRS information return filed by payment processors and third-party settlement organisations reporting the gross amount of card and platform payments settled to a business. Common misreading Worked example underwriting

A39

ACH (ACH) The bank-to-bank network that moves nearly every small-business funding payment, in both directions, on banking days only. Common misreading Worked example operations ACH authorization The document by which you authorise a funder to debit your bank account, and the legal basis for every daily or weekly pull it takes. Common misreading contract ACH debit A pull of funds from your account initiated by the funder under the authorization you signed, and the collection method behind most daily and weekly funding payments. Common misreading Worked example operations Acceleration clause The clause that makes everything still owed due immediately on default, rather than on the original schedule. Common misreading Worked example contract Accounts Payable (AP) What you owe suppliers on open terms — the other half of the working capital picture, and the line an underwriter reads for stress before reading the profit and loss statement. Common misreading Worked example underwriting Accounts receivable (A/R) Money customers already owe for work delivered but not yet paid for; the asset that factoring, A/R financing and asset-based lines are built on. Common misreading Worked example underwriting Accounts receivable financing (A/R financing) Borrowing against unpaid invoices while keeping ownership of them, as distinct from factoring, which sells the invoices outright. Common misreading Worked example product Achievement of milestones Funding released in stages as defined work is completed and verified, rather than in one lump at closing. Common misreading Worked example contract Add-back An expense put back into reported profit because the lender accepts it is not a real recurring cash cost — the bridge between a tax return written to minimise income and a cash flow figure that predicts repayment. Common misreading Worked example underwriting Add-on interest Interest calculated once on the full original principal for the whole term, added to the loan, and repaid in equal instalments, which makes the true cost roughly double the quoted rate. Common misreading Worked example pricing Additional Insured (AI) A status added to someone else's liability policy that extends its defence and indemnity to you for claims arising out of that party's operations. Common misreading contract Advance rate The share of an asset's eligible value a funder will put up front, used in factoring, asset-based lending and equipment finance. Common misreading Worked example pricing Advance-Fee Scam A funding offer that requires you to send money before any money arrives — an insurance premium, a good-faith deposit, a first payment, a release fee — after which the funding never comes. Common misreading broker Adverse action notice The notice a creditor must give when it declines an application or grants credit on materially worse terms than requested, stating the specific principal reasons or how to obtain them. Common misreading legal Affidavit of confession of judgment The sworn document, signed at closing, in which a business and its guarantor admit the debt in advance and authorize judgment to be entered without a lawsuit or hearing. Common misreading legal After-acquired property The clause extending a security interest to collateral the business acquires after signing, so a lien granted years ago attaches to equipment and receivables that did not exist at the time. Common misreading legal Aging report (A/R aging) A schedule of unpaid invoices sorted by how long they have been outstanding, and the first document any receivables funder asks for. Common misreading Worked example underwriting Altman Z-Score A five-ratio model built in the 1960s to predict corporate bankruptcy, still used as a screening statistic, and calibrated on public manufacturers rather than on private small businesses. Common misreading Worked example underwriting Amortization Repaying a loan through scheduled payments that cover interest on the outstanding balance and reduce principal, so the debt reaches zero at the end of the term. Common misreading Worked example pricing Amount funded The money actually delivered to the business, which is not always the number on the front page of the agreement. Common misreading Worked example operations Annual percentage rate (APR) The cost of financing expressed as a yearly rate that accounts for fees and for how long you actually hold the money, which is the only figure that compares products with different structures. Common misreading Worked example pricing Annual revenue Total sales over twelve months before any costs, used as the headline sizing figure for most funding products and defined differently by almost every funder. Common misreading Worked example underwriting Annual revenue multiple The shortcut funders use to cap an offer at a share of trailing revenue — a multiple of average monthly deposits, or a percentage of trailing twelve-month sales — before anyone looks at margin. Common misreading Worked example underwriting Anti-stacking clause The contract term that makes taking further financing while an advance is outstanding an event of default, independent of whether payments are being made. Common misreading contract Application fee A charge collected before a funding decision, legitimate where it pays for genuine third-party work and a warning sign almost everywhere else. Common misreading pricing Appraisal An independent written opinion of value on collateral, ordered by the lender at your cost, and the number the advance is actually sized against. Common misreading underwriting Approval A funder's stated willingness to fund on named terms, which ranges from an automated indication to a signed commitment and is conditional at every stage until the money moves. Common misreading underwriting Arbitration clause A contract term sending disputes to a private arbitrator instead of a court, usually alongside a jury waiver and a class action waiver, and usually written to bind one side more than the other. Common misreading legal Asset-based lending (ABL) A revolving facility sized by a formula against the value of receivables, inventory and sometimes equipment or property, rather than by profitability. Common misreading Worked example product Assignment of Claims The statutory procedure for assigning money due under a US government contract to a bank or other financing institution, so the government pays the financier directly. Common misreading legal Assignment of contract Transferring your right to be paid under a contract to a funder, so the money is legally theirs to collect from your customer. Common misreading contract Attorney review Having a lawyer read the funding documents before signature, which in this market means reading the clauses that operate after something goes wrong. Common misreading legal Attorneys' fees clause The term making the business pay the funder's legal and collection costs on default, often as a fixed percentage of the balance rather than actual costs incurred. Common misreading Worked example contract Auto-renewal The clause extending an agreement for another full term unless written notice is given inside a defined window, which is standard in factoring agreements, equipment leases and processing contracts. Common misreading Worked example contract Automated underwriting Software that scores an application from bank transaction data, credit data and business records and returns an offer or a decline without a human reading the file. Common misreading underwriting Automatic stay The injunction that takes effect the instant a bankruptcy petition is filed, halting collection against the debtor and the estate — and which does nothing at all for a personal guarantor. Common misreading legal Availability What you can actually draw right now: the borrowing base less reserves, less loans outstanding, less letters of credit issued — a figure recalculated every reporting period rather than fixed at closing. Common misreading Worked example underwriting Average daily balance (ADB) The mean end-of-day balance in the operating account over a period, used as the main test of whether a business can absorb a daily or weekly debit. Common misreading Worked example underwriting Average monthly deposits (AMD) Total money into the business bank account per month, averaged over the statements reviewed, and the figure most cash advance offers are sized from. Common misreading Worked example underwriting

B23

Backend fee Money paid to a broker by the funder out of the deal, or added to the merchant's cost above the funder's buy rate, and invisible on the merchant's side of the paperwork. Common misreading Worked example broker Balloon payment A large final payment due at maturity because the scheduled payments were calculated on a longer amortization than the actual term. Common misreading Worked example pricing Bank Partner Model An arrangement in which a chartered bank is the lender named on the note while a non-bank platform sources the borrower, drives the underwriting and takes most or all of the economics after origination. Common misreading legal Bank statement underwriting Making a funding decision primarily from three to twelve months of business bank statements rather than from tax returns or financial statements. Common misreading underwriting Bank statements The months of business checking statements that most non-bank underwriting is actually built on — the primary evidence of revenue, balance behaviour, existing debt and how the business is run day to day. Common misreading Worked example underwriting Bank verification Confirming account ownership and transaction history through a direct data connection or a bank-issued report rather than uploaded statement PDFs. Common misreading underwriting Bankruptcy A federal court process that halts collection and either liquidates a business or restructures its debts, with sharply different consequences for the company and for anyone who personally guaranteed its funding. Common misreading legal Basis point (bp) One hundredth of one percentage point, used to state rate differences precisely: 100 basis points equals 1 percent. Common misreading Worked example pricing Beneficial owner An individual who owns a defined share of a business or exercises significant control over it, and who must be identified and verified before a regulated institution can fund it. Common misreading underwriting Blanket lien A security interest over substantially everything the business owns, perfected by a UCC-1 financing statement covering all assets rather than named collateral. Common misreading legal Borrowing base The pool of eligible collateral, each class multiplied by its own advance rate and reduced by reserves, that caps what can be drawn on an asset-based or factoring facility at any moment. Common misreading Worked example underwriting Bridge loan Short-term financing taken to cover the gap until a defined event, usually a sale, a refinance or a permanent facility closing, and repaid from that event rather than from operations. Common misreading Worked example product Broker (ISO) An intermediary who takes a business's application, submits it to funders and is paid by the funder that closes, typically as commission points or a rate spread. Common misreading broker Broker Fee What a broker is paid on a funded deal — commission from the funder, points deducted from your proceeds, markup buried in the rate, or some combination that is rarely presented as one number. Common misreading Worked example broker Broker agreement (ISO agreement) The contract between a funder and a broker setting commission, exclusivity, clawback and conduct terms, to which the merchant is not a party but which shapes what the merchant is offered. Common misreading broker Business Credit Credit established in the business's own name and reported under its own identifiers, built from supplier and lender trade lines, bureau files and public records, and separate from the owner's personal file. Common misreading underwriting Business credit report A file on the entity rather than the owner, built by commercial bureaus from voluntary trade payment data, public records and company demographics — with no consumer-style right to see it or fix it. Common misreading underwriting Business credit score A score describing a business entity's payment and credit behavior, kept separately from the owner's personal credit and calculated differently by each bureau. Common misreading underwriting Business days Days the banking system settles, excluding weekends and federal holidays, which is the calendar every payment schedule and contractual deadline in funding actually runs on. Common misreading Worked example operations Business line of credit (LOC) A facility you can draw on, repay and draw again up to a limit, paying for what you use rather than for the whole limit. Common misreading Worked example product Business plan The written case for the business and the use of funds, required for SBA and bank credit on startups and acquisitions and ignored entirely by cash flow funders. Common misreading underwriting Buy rate The price the funder is willing to fund at, before the broker's markup, with the gap between it and the rate the merchant signs forming the broker's compensation. Common misreading Worked example broker Buyout A new funder paying off an existing advance or loan, either fully or partially, and folding that payoff into the new balance. Common misreading Worked example contract

C44

Capital lease An equipment lease that functions as a purchase on instalments, where the lessee ends up owning the asset for a nominal amount and carries it on the balance sheet. Common misreading Worked example product Capitalized Interest Interest that is added to the loan balance instead of being paid when it accrues, so it becomes principal and starts earning interest of its own. Common misreading Worked example pricing Cash Conversion Cycle (CCC) The number of days between paying for inventory and collecting the cash from selling it — the size, in time, of the hole that working capital finance has to fill. Common misreading Worked example underwriting Cash advance (MCA) A lump sum paid now in exchange for a larger fixed amount of the business's future receipts, collected by daily or weekly debit, and structured as a purchase rather than a loan. Common misreading Worked example product Cash flow The actual movement of money in and out of the business over a period, which is what funding is repaid from and is not the same as profit. Common misreading Worked example underwriting Certificate of Insurance (COI) A one-page summary issued by an insurance broker showing that coverage existed on the day it was printed, carrying an express disclaimer that it grants the holder no rights under the policy. Common misreading contract Change of Ownership A transaction in which the ownership of a business changes hands — financed as an acquisition loan on the target's cash flow, and simultaneously an event of default under most of the financing the target already has. Common misreading product Charge-off An accounting decision by the creditor to stop treating a balance as collectable, which changes the creditor's books and not your obligation to pay it. Common misreading legal Chargeback A reversal of money already credited to you, either a card transaction pulled back by the cardholder's bank or, in factoring, an unpaid invoice charged back to your reserve. Common misreading Worked example operations Choice of law The clause naming which state's law interprets the agreement, distinct from the forum clause that names where you have to litigate — and, in this market, chosen by the funder for reasons that are not neutral. Common misreading legal Class action waiver The term giving up your right to bring or join a class or collective action, so any dispute proceeds only on an individual basis — usually drafted inside an arbitration clause. Common misreading legal Clawback A contractual right to take back money already paid, most often a broker's commission when a funded deal defaults early or pays off early. Common misreading broker Clean-Up Provision A covenant on a revolving line requiring the balance to fall to zero, or to a stated level, for a set number of consecutive days in each annual period. Common misreading Worked example contract Closing costs Everything deducted or payable at funding beyond the financing cost itself, from origination and documentation fees to third-party charges and government filing fees. Common misreading Worked example pricing Collateral Property a lender can take and sell if the debt is not paid, identified in the security agreement and made effective against other creditors by filing or possession. Common misreading legal Collections What a funder does to recover a defaulted balance, from internal calls and restructures through third-party agencies to judgment and enforcement against the business and its guarantors. Common misreading operations Commercial bridge loan Short-term financing secured on commercial property or business assets, used to acquire or reposition an asset until permanent financing or a sale repays it. Common misreading Worked example product Commercial financing disclosure law (CFDL) State statutes requiring standardized cost disclosures on small commercial financing, including cash advances and factoring, in a market where federal Truth in Lending does not apply. Common misreading legal Commission The broker's pay on a funded transaction, expressed as points on the amount funded or earned as the spread over the funder's buy rate. Common misreading Worked example broker Commitment fee A charge for the lender's promise to lend, calculated on money you have not borrowed — either up front on the whole facility or periodically on the undrawn portion. Common misreading Worked example pricing Commitment letter A lender's written offer to fund on stated terms, subject to conditions, issued after credit approval and before closing. Common misreading contract Concentration How much of a business's revenue or receivables depends on a single customer, and the cap funders place on how much of that exposure they will finance. Common misreading Worked example underwriting Conditions precedent (CPs) The things that must be delivered or true before a lender is obliged to release money — the reason an approval and a funded deal are separated by weeks and, sometimes, by nothing at all. Common misreading Worked example contract Confession of judgment (COJ) A pre-signed admission of liability that lets a funder obtain a court judgment on default without suing you, without notice and without any opportunity to defend. Common misreading legal Consolidation Replacing several outstanding advances or loans with one facility, which genuinely helps only if the old balances are paid off and the total cost falls. Common misreading Worked example product Contract for the sale of future receivables The agreement behind a merchant cash advance, drafted as a sale of a fixed dollar amount of future receipts rather than as a loan, which is the point of the drafting. Common misreading contract Conversion rate In the broker and funder world, the share of applications at one stage of the pipeline that reach the next, most commonly submissions that become funded deals. Common misreading Worked example broker Corporate resolution The signed document by which the entity's owners or directors authorise the transaction and name who may sign for it, making the signature binding on the company rather than only on the person holding the pen. Common misreading operations Corporate veil The separation between a company's liabilities and its owners' personal assets, and the doctrine under which a court disregards it and holds an owner personally liable for company debts. Common misreading legal Cost of Goods Sold (COGS) The direct cost of producing or buying what you actually sold in the period — the costs that move with volume — and the line that separates a high-revenue business from a profitable one. Common misreading Worked example underwriting Covenant A promise in the loan documents about what the business will do, will not do, or will keep true, breach of which is a default even when payments are current. Common misreading Worked example contract Credit Insurance A policy covering non-payment by your customers, used by sellers to protect a concentrated receivables book and by factors and asset-based lenders to make a receivable eligible or to raise the advance against it. Common misreading product Credit Limit The maximum you may have outstanding at once on a revolving facility — a ceiling on availability rather than a promise that the money will be there when you draw. Common misreading Worked example product Credit box The set of parameters defining which files a funder will approve, covering time in business, revenue, credit, industry, state, position and account behavior. Common misreading underwriting Credit committee The group inside a bank or larger funder that approves credit above the level any individual can authorize alone. Common misreading underwriting Credit elsewhere test The SBA eligibility condition that the applicant could not obtain the credit on reasonable terms from non-federal sources without the agency's support, documented by the lender on every guaranteed file. Common misreading underwriting Credit pull A request for your credit file, either a soft inquiry that does not affect scores or a hard inquiry that does and is visible to other lenders. Common misreading underwriting Creditworthiness A funder's overall judgment of whether it will be repaid, assembled from cash flow, credit history, collateral, capital, character and conditions rather than from any single score. Common misreading underwriting Cross-aging The eligibility rule that disqualifies every invoice from a customer once too large a share of that customer's balance has gone past due, removing current invoices along with the late ones. Common misreading Worked example underwriting Cross-collateralization A clause making the collateral for one facility secure every other obligation to the same lender, so a default on one contaminates all of them. Common misreading contract Cross-default A provision making a default under one agreement an automatic default under this one, so a breach you never noticed elsewhere can put a performing facility into default. Common misreading Worked example contract Cure period The window a contract gives you to fix a breach before it becomes an enforceable default, which many funding agreements do not provide at all. Common misreading contract Current ratio Current assets divided by current liabilities, a rough measure of whether a business can meet the obligations falling due in the next year. Common misreading Worked example underwriting Cutoff time The daily deadline for submitting a payment or funding instruction, after which it is processed on the next banking day. Common misreading operations

D31

DBA (DBA) A trade name a business operates under that differs from the legal name on its formation documents or from the owner's own name. Common misreading legal Daily debit The ACH withdrawal a funder takes from a business operating account every banking day until an advance or short-term loan is satisfied. Common misreading Worked example operations Daily remittance The amount an advance agreement calls for each business day toward the purchased receivables, set either as a fixed dollar figure or as a percentage of that day's receipts. Common misreading Worked example contract Days sales outstanding (DSO) The average number of days a business waits to get paid after invoicing, calculated from the receivables balance against credit sales for the period. Common misreading Worked example underwriting Debt schedule (BDS) A one-page list of every obligation the business carries, showing lender, original amount, current balance, payment, rate, maturity and collateral, used to compute coverage and check disclosure. Common misreading underwriting Debt service The principal and interest a business is contractually required to pay on its borrowings over a period, normally expressed annually. Common misreading Worked example underwriting Debt service coverage ratio (DSCR) Cash available for debt payments divided by the payments due in the same period; above 1.0 means the cash covers the obligations with something left over. Common misreading Worked example underwriting Debt-to-income (DTI) A guarantor's monthly personal debt payments divided by monthly personal income, a consumer metric that enters business files through the personal guaranty. Common misreading underwriting Declaration page The summary page of an insurance policy showing the named insured, the coverages and limits, deductibles, the policy period, and any additional interests. Common misreading operations Default The condition of having broken an agreement, by missing payments or by breaching any other promise in it, which unlocks the remedies the contract has been holding in reserve. Common misreading contract Default rate The pricing a contract applies after a default: an elevated interest rate on a loan, or on a purchase agreement, a stated default fee plus immediate acceleration of everything uncollected. Common misreading contract Deferred payment An agreed pause or reduction in payments at the start of a facility or during a hardship period, with the deferred amount recovered later. Common misreading contract Deficiency What remains owing after collateral is repossessed, sold and the net proceeds applied — the reason handing the equipment back does not end the debt. Common misreading Worked example legal Delinquency Being behind on payments, tracked on conventional credit in 30-day aging buckets and on daily-remittance products from the first returned debit. Common misreading operations Delivery and Acceptance (D&A) The document confirming that equipment was delivered and is acceptable, which releases payment to the vendor, starts the lease clock, and in most agreements ends your ability to withhold payment because the equipment does not work. Common misreading contract Demand letter A written notice from a creditor or its counsel stating the default, the amount claimed, and a deadline, usually sent shortly before suit. Common misreading legal Deposit account control agreement (DACA) A three-party agreement among a borrower, its lender and its bank that gives the lender control of a deposit account, which is how a security interest in that account is perfected. Common misreading legal Deposit frequency How many separate deposits land in a business bank account each month, read by underwriters as a proxy for how many customers are paying and how evenly the money arrives. Common misreading underwriting Deposit volume Total dollars deposited into the business bank account over a month, the primary sizing input for advances and short-term working capital. Common misreading underwriting Dilution The gap between what a business invoices and what it eventually collects, caused by credits, returns, allowances, disputes, short-pays and customer offsets. Common misreading Worked example underwriting Direct funder The party deploying its own capital into the deal, named as buyer or lender on the agreement, as distinct from the broker who sourced it. Common misreading broker Disbursement The actual movement of money at closing, whether to the business, to a vendor, or to pay off another creditor, itemized on the closing statement. Common misreading operations Disclosure law State statutes requiring providers of small-business financing to give the applicant a standardized cost disclosure before signing, in some states including an annual percentage rate. Common misreading legal Discount rate Three different charges share this name: the factor's fee as a percentage of invoice face, the slice a card processor keeps from each sale, and the rate used to present-value future cash. Common misreading pricing Documentary stamp tax A state excise tax on written obligations to pay money, encountered most often in Florida, charged on notes and similar documents signed or delivered in the state. Common misreading legal Double dipping Refinancing an advance before it is paid off, so the old balance is rolled into a new and larger advance and the new factor rate is charged on top of fee the merchant has already agreed to pay. Common misreading Worked example pricing Draw A request to take money from an approved facility, turning available credit into an outstanding balance. Common misreading Worked example product Draw fee A charge applied every time money comes off a line of credit, usually a percentage of the amount drawn, sitting on top of any interest charged on the balance. Common misreading Worked example pricing Draw period The window during which a facility can be drawn on, after which no new draws are permitted and the outstanding balance converts to a repayment schedule. Common misreading contract Due diligence The verification work between approval and funding, testing everything the credit decision assumed: documents, identity, liens, banking, landlord, and existing obligations. Common misreading underwriting Dun & Bradstreet (D&B) A commercial credit bureau that identifies businesses by DUNS number and scores their trade payment behavior, best known through the Paydex score. Common misreading underwriting

E21

EBITDA (EBITDA) Earnings before interest, taxes, depreciation and amortization: a rough proxy for operating cash generation, used to size debt capacity, value businesses and set covenants. Common misreading Worked example underwriting Early payoff discount A written provision reducing the total owed on an advance if it is retired before a stated point, normally on a tiered schedule that shrinks as collections progress. Common misreading Worked example pricing Early termination fee (ETF) A charge for exiting a facility before its stated term, standard in factoring and equipment lease contracts and usually sized to what the provider expected to earn from the remaining term. Common misreading contract Effective APR (APR) The annualized cost of financing including fees and reflecting when the money is actually repaid, which is the only basis on which two differently structured offers can be compared. Common misreading Worked example pricing Eligibility criteria The published and unpublished conditions a file must clear before a funder will consider it: time in business, revenue, industry, state, credit, and what is already collecting from the account. Common misreading underwriting Eligible receivable An invoice that counts toward the borrowing base because it passes the lender's tests on age, customer, concentration, documentation and offset risk. Common misreading underwriting Employer Identification Number (EIN) The federal tax identifier the IRS issues to a business, used to open entity bank accounts, run payroll, file returns and key business credit files. Common misreading operations End-of-term option (EOT) What happens when an equipment lease reaches the end of its base term: buy, return, or keep paying, on terms fixed at signing rather than negotiated at the end. Common misreading contract Entity type How the business is legally organised — sole proprietorship, partnership, LLC, S or C corporation — which drives who is liable, what documents exist, how income appears on returns and whether the entity can be verified at all. Common misreading underwriting Equipment finance agreement (EFA) A single-document equipment financing in which the business owns the equipment from day one and the funder takes a purchase-money security interest, functioning as a loan while reading like a lease. Common misreading product Equipment financing Money advanced to acquire a specific machine, vehicle or system, secured by that asset, with the term set against how long the asset will keep earning. Common misreading product Equipment lease A contract to use equipment for a period in exchange for rent, with the lessor holding title and the end-of-term choices fixed at signing. Common misreading product Equity injection The borrower's own money going into a transaction alongside the loan, required by SBA on startups and changes of ownership and by most lenders on equipment and real estate. Common misreading underwriting Escrow Money or documents held by a neutral third party under written instructions, released only when defined conditions are satisfied. Common misreading operations Estoppel A signed statement of facts the signer is afterward barred from contradicting, used to pin down what a lease, an invoice or a balance actually is before someone lends against it. Common misreading legal Event of default (EOD) Any condition a contract lists as putting the borrower in default, most of which have nothing to do with missing a payment. Common misreading contract Evergreen Clause A term that renews itself for a further period unless you give written notice to cancel inside a specified window before the anniversary — and the window is usually short, early, and easy to miss. Common misreading contract Exclusivity clause A term binding a business to work with one broker or funder for a period, or barring it from shopping the same file elsewhere while an offer is live. Common misreading broker Exit fee A charge due at payoff or maturity rather than at closing, sized as a percentage of the facility or a flat sum, and rarely included in the quoted rate. Common misreading Worked example pricing Experian Business One of the three commercial credit bureaus, holding a file on your business keyed to its name, address and identifiers, compiled and scored whether or not you ever asked for it. Common misreading underwriting eXtensible Business Reporting Language (XBRL) The tagging standard that makes a filed financial statement machine-readable — the reason public-company filings can be parsed automatically, and something a small private borrower will never be asked to produce. Common misreading operations

F26

FICO SBSS (SBSS) FICO's Small Business Scoring Service score, combining the owner's personal credit, business credit data and application details into one figure on a 0 to 300 scale, used to screen small-business loan applications. Common misreading underwriting FICO score (FICO) The personal credit scoring model most funders pull on the owner-guarantor, on a 300 to 850 scale weighing payment history, utilization, file age, credit mix and recent inquiries. Common misreading underwriting Factor The company that buys receivables: the counterparty in a factoring relationship, and an entirely different thing from a factor rate. Common misreading product Factor rate A multiplier applied to the funded amount that fixes the total dollars to be remitted. It is a price, not a rate, it does not accrue over time, and it does not shrink if you repay faster. Common misreading Worked example pricing Factoring Selling unpaid invoices to a third party at a discount for cash now, with the buyer collecting the money from your customer. Common misreading Worked example product Factoring commission The factor's charge for buying an invoice, quoted as a percentage of face value for a defined period and charged again for each further period the invoice stays unpaid. Common misreading Worked example pricing Fair Market Value (FMV) The price a willing buyer and willing seller would agree, neither compelled and both informed — and, in an equipment lease, the basis of a purchase option whose dollar amount is unknown when you sign. Common misreading Worked example contract Fair market value lease (FMV lease) An equipment lease where at the end of the base term you buy at fair market value, return the equipment, or renew — with a lower payment because the lessor is banking on the residual. Common misreading Worked example product Fee schedule The exhibit listing every charge a facility can incur outside the headline rate: wires, lockbox, minimums, audits, terminations, misdirected payments and administration. Common misreading contract Field exam A structured review of a borrower's receivables, payables, inventory and books, performed before an asset-based or factoring facility funds and repeated periodically afterward. Common misreading underwriting Financial statements The profit and loss statement, balance sheet and cash flow statement — three documents answering three different questions, and an entirely different thing from a UCC financing statement. Common misreading Worked example underwriting Financing statement (UCC-1) The public filing that perfects a secured party's interest in a debtor's collateral, giving notice to anyone who searches and fixing priority by the date it was filed. Common misreading legal First position In secured lending, the claim that ranks ahead of later filers. In the advance market, shorthand for a business with no other advances currently collecting. Common misreading underwriting Fixed payment A set dollar amount debited on schedule regardless of what the business collected that day, as opposed to a percentage of receipts that moves with sales. Common misreading contract Float The gap between when money moves and when it counts as received, and in factoring, the extra days a contract adds before a customer's payment is treated as arriving. Common misreading Worked example pricing Floating lien A security interest that attaches not only to what the business owns when it signs but to whatever it acquires afterward within the covered categories. Common misreading legal Forbearance A written agreement in which a creditor holds off on its remedies for a defined period while the borrower performs a modified payment plan. Common misreading legal Form 4506-C (4506-C) The IRS form authorising a lender to obtain transcripts of a taxpayer's filed returns directly from the IRS, used to verify that the returns submitted with an application are the ones actually filed. Common misreading underwriting Full recourse The arrangement in which the seller of a receivable, or the borrower, carries the loss if the money never arrives, leaving the factor or lender out of the credit risk. Common misreading contract Fully amortizing A payment schedule that retires the entire balance plus all interest by the final scheduled payment, leaving nothing due at maturity. Common misreading Worked example pricing Funder The party providing the money, named as buyer under a purchase agreement or lender under a note, as distinct from the broker who sourced the deal. Common misreading broker Funding amount The gross figure the agreement is written on, before fees, payoffs and reserves are deducted from the wire. Common misreading Worked example pricing Funding call A recorded call the funder places to the owner before releasing money, confirming identity, bank details, the terms of the deal and that nothing has been left out. Common misreading operations Funding date The day the funder releases the money, which normally starts the clock for the first debit and for any early payoff window. Common misreading operations Funding statement The itemization signed at closing showing the gross funding amount, every deduction, every payoff and the net wire: the only document that reconciles what was agreed with what you receive. Common misreading operations Future receivables The money a business expects to collect from sales it has not made yet: the asset a merchant cash advance is documented as buying rather than lending against. Common misreading legal

G15

Gap financing Short-term capital that covers the difference between what a primary lender will fund and what a deal actually costs, repaid when the permanent financing or the expected inflow lands. Common misreading product Garnishment A post-judgment collection tool that orders a third party holding your money — a bank, a customer, a payment processor — to hand it to the creditor instead of to you. Common misreading legal General intangibles The UCC's catch-all collateral category for business property that is neither goods nor accounts — goodwill, contract rights, licences, software, tax refunds, and the residual value in almost anything you own that you cannot physically hold. Common misreading legal Global cash flow analysis An underwriting method that adds the owner's personal income and personal debt to the business's, on the theory that a guarantor and the guaranteed business share one wallet. Common misreading Worked example underwriting Going concern The accounting assumption that a business will keep operating for the foreseeable future — and, separately, the premium a buyer pays for an operating business over the sum of its assets. Common misreading underwriting Good faith deposit Money a borrower is asked to pay before funding, nominally to cover third-party costs or demonstrate commitment, and the single most common shape taken by advance-fee fraud in commercial finance. Common misreading broker Good standing Confirmation from the state of organisation that the entity exists, has filed what it was required to file and paid its fees — evidenced by a recent certificate that most closings require. Common misreading operations Goodwill The part of an acquisition price that exceeds the fair value of the identifiable assets acquired — the intangible remainder that sits on the buyer's balance sheet and that no lender will take as collateral. Common misreading Worked example underwriting Grace period A stated number of days after a payment due date during which the payment can arrive without a late fee — which is not the same as time to cure a default. Common misreading contract Gross margin Revenue left after the direct cost of delivering the product or service, expressed as a percentage — the first number that tells an underwriter whether a business can survive a daily remittance. Common misreading Worked example underwriting Gross monthly deposits The total credited to a business bank account in a month, before any adjustment — the base figure most short-term funding offers are sized from, and rarely the same as revenue. Common misreading Worked example underwriting Gross receipts Total money taken in from sales before any deduction for costs, returns or discounts — a tax and eligibility measure, defined differently on different forms, and not interchangeable with bank deposits. Common misreading underwriting Guarantor The individual or entity who agrees to answer for a business's obligation if the business does not, putting personal assets behind a commercial debt. Common misreading legal Guaranty The separate contract in which a third party promises a creditor they will perform if the primary obligor does not — usually a short document containing the harshest terms in the file. Common misreading legal Guaranty fee The fee the SBA charges a lender for guaranteeing part of a 7(a) or 504 loan, calculated on the guaranteed portion and almost always passed through to the borrower. Common misreading pricing

H11

Haircut The reduction a lender applies to a stated value before lending against it — the gap between what an asset is said to be worth and what the lender will actually treat it as worth. Common misreading Worked example underwriting Hard costs Out-of-pocket amounts a lender pays to third parties on a specific deal — appraisals, searches, filings, inspections — as opposed to the lender's own margin, and in construction, the physical building costs. Common misreading pricing Hard credit pull A credit report request tied to an actual application for credit, recorded on the report where other lenders can see it, and capable of lowering a score. Common misreading underwriting Hard money loan Short-term financing underwritten primarily on the value of collateral rather than the borrower's cash flow or credit, usually secured by real estate and priced for speed and risk. Common misreading product Hell or high water clause The equipment lease provision making rent absolute and unconditional — payable in full whether or not the equipment works, arrives, survives or was ever the right machine, and without setoff or deduction. Common misreading Worked example contract High-risk merchant account A card-processing account for a business in a category the acquirer considers loss-prone, carrying higher pricing, reserves, and a much greater chance of sudden termination. Common misreading operations Hold harmless clause A promise not to hold the other party responsible for specified losses, usually bundled with an indemnity and a duty to defend, and read as one obligation by most courts. Common misreading contract Holdback Money withheld from what a business would otherwise receive and applied to an obligation — the daily slice of card settlements or deposits in an advance, or the unadvanced portion of an invoice in factoring. Common misreading Worked example pricing Holdback percentage The stated share of receipts a funder takes on each collection cycle — a measure of cash-flow strain and estimated speed of repayment, not a measure of cost. Common misreading Worked example pricing Home equity line of credit (HELOC) A revolving credit line secured by the owner's residence, frequently used to capitalise a small business because it is cheaper than commercial alternatives and much more dangerous. Common misreading product Hypothecation Pledging an asset as security for a debt while keeping possession and use of it — the ordinary structure of almost every secured business loan. Common misreading legal

I20

ISO agreement The contract between a funder and the sales organization that brings it deals, setting commission, clawbacks and conduct rules — and expressly denying the broker any authority to speak for the funder. Common misreading broker Illiquidity Owning value you cannot turn into cash quickly enough or at a price close to what it is worth — the condition that kills profitable businesses. Common misreading underwriting Indemnity A contractual promise to cover another party's losses, usually including their legal costs, and one of the few clauses that can cost more than the transaction it sits inside. Common misreading contract Independent sales organization (ISO) A sales firm that originates funding applications and places them with funders for a commission — the party most merchants actually deal with, and not the party whose money is at risk. Common misreading Worked example broker Ineligible receivables Invoices a factor or asset-based lender excludes from the borrowing base entirely, so they generate no availability no matter how genuine the underlying debt. Common misreading Worked example underwriting Insolvency Being unable to pay debts as they fall due, or owing more than you own — two different tests, either of which can trigger a contract clause long before any bankruptcy filing. Common misreading legal Installment loan A loan repaid in scheduled payments of principal and interest over a fixed term, where each payment reduces the balance and interest accrues only on what is still outstanding. Common misreading Worked example product Insurance requirement A contractual obligation to carry specified coverage naming the lender in a specified capacity, enforceable as a covenant and breachable without ever missing a payment. Common misreading contract Integration clause The provision stating that the signed document is the complete and final expression of the deal and supersedes everything said or written before it, which is what makes a salesperson's promises legally invisible. Common misreading Worked example contract Interchange The portion of a card transaction fee that the acquiring side pays to the card-issuing bank, set by the card networks and forming the largest and least negotiable part of what a merchant pays to accept cards. Common misreading operations Intercreditor agreement (ICA) A contract between two or more lenders to the same borrower setting out who ranks first, who may enforce and when, and how proceeds are split — negotiated between the lenders, with the borrower largely a spectator. Common misreading legal Interest rate The price of borrowed money expressed as a percentage of the outstanding balance per period — a rate that only exists where there is a balance that goes down. Common misreading Worked example pricing Interest-only (IO) A payment structure covering accrued interest and nothing else, leaving the principal balance exactly where it started until amortisation begins or the balance comes due in one payment. Common misreading Worked example pricing Interim Rent A charge covering the days between equipment acceptance or funding and the official lease commencement date, billed on top of the payment schedule you were quoted. Common misreading Worked example pricing Interim financing Temporary funding taken against a specific, identified source of repayment that has not arrived yet — a closing, a collection, a settlement, a refinance. Common misreading product Inventory financing Borrowing against goods held for sale, advanced at a conservative percentage of value because inventory in a liquidation almost never returns what it cost. Common misreading product Invoice A demand for payment for goods delivered or services performed, and — once the work is genuinely complete — an asset that can be sold or borrowed against. Common misreading operations Invoice discounting Borrowing against the receivables ledger while continuing to invoice and collect in your own name, so customers never learn the facility exists. Common misreading product Invoice factoring Selling receivables to a third party at a discount for immediate cash, with the buyer taking over collection from your customers. Common misreading Worked example product Invoice verification The factor's process of confirming with your customer that the work was delivered, the amount is right and nothing is disputed, before or shortly after advancing against the invoice. Common misreading operations

J5

Joint and several liability Each obligor is liable for the entire debt, not a share of it, so the creditor may collect the whole balance from whichever one is easiest to reach. Common misreading Worked example legal Judgment A court's final determination that one party owes another a sum of money, which converts a contractual claim into an enforceable public debt with collection powers behind it. Common misreading legal Judgment lien A lien created by recording a money judgment, attaching to the debtor's property in that jurisdiction and blocking any sale or refinance until it is paid or released. Common misreading legal Junior lien A security interest that ranks behind another on the same collateral, entitled only to what is left after the senior lender is paid in full. Common misreading Worked example legal Jurisdiction clause The provision fixing which state's law governs the contract and where any dispute must be brought — the clause that decides whether you can realistically defend yourself. Common misreading contract

K3

Key person life insurance Life insurance on an owner or essential employee, collaterally assigned to the lender, so the debt can be repaid if the person the business depends on dies. Common misreading contract Know your business (KYB) Verification of the business entity itself — that it legally exists, is in good standing, operates where it claims, and is owned by the people signing. Common misreading underwriting Know your customer (KYC) The identity verification a financial institution performs on the individuals behind an account or transaction, driven by anti-money-laundering law and by fraud control. Common misreading underwriting

L30

LIBOR / SOFR transition The replacement of LIBOR as a floating-rate benchmark with SOFR and other alternatives, and the fallback machinery that determined what happened to existing contracts. Common misreading pricing Landlord Waiver A signed agreement in which your landlord gives up or subordinates any claim to the equipment and inventory sitting at the leased premises and lets the lender in to remove it. Common misreading contract Late fee A charge for a payment that arrives after its due date, distinct from the returned-payment fees and default interest that often accompany it. Common misreading Worked example pricing Lender The party whose money is actually at risk in the transaction — which is frequently not the party that marketed it to you, nor the one collecting the payments. Common misreading operations Lending license State authorisation to make or broker loans, required in some states, for some products, at some sizes — and largely absent from the merchant cash advance market because an advance is not structured as a loan. Common misreading legal Letter of intent (LOI) A short document setting out the principal terms of a proposed deal, mostly non-binding on the commercial terms and fully binding on several provisions people skim past. Common misreading contract Leverage The proportion of a business funded by debt rather than owner capital, measured against equity or against earnings, and the first thing a credit analyst calculates. Common misreading Worked example underwriting Leverage Ratio Any of several ratios measuring how much of the business is funded by debt rather than owner capital, most often total liabilities to tangible net worth or funded debt to EBITDA. Common misreading Worked example underwriting Levy The actual seizure of funds or property to satisfy a debt, as opposed to a lien, which is only a claim against it — and, for most small businesses, a bank account frozen without warning. Common misreading legal Liability An obligation to pay or perform — used in three distinct senses across a funding file: the balance sheet line, legal responsibility, and the contingent exposure created by a guaranty. Common misreading legal Lien A legal claim over property securing an obligation, entitling the holder to be paid out of that property if the obligation is not met. Common misreading legal Lien position The order in which secured creditors are paid out of the same collateral — decided almost always by who filed first, and the single provision that determines who recovers anything in a default. Common misreading Worked example legal Lien search A pre-funding check of the public record for existing security interests, judgments and tax liens against a business — the step that reveals undisclosed funding. Common misreading underwriting Lien waiver A signed release giving up the right to file a mechanic's lien for work performed, exchanged for payment — and in construction, the document that decides whether you can enforce against the property. Common misreading legal Limited liability company (LLC) An entity structure that shields owners from business debts by default — a shield that a personal guaranty voluntarily removes for the specific debt guaranteed. Common misreading legal Line of credit (LOC) A facility allowing repeated borrowing up to a limit, where repaid principal becomes available again and interest accrues only on what is drawn. Common misreading Worked example product Liquidated Damages A sum fixed in the contract as the agreed measure of loss on a specified breach, enforceable where it is a reasonable pre-estimate of harm and vulnerable where it functions as a penalty. Common misreading Worked example contract Liquidation value (OLV / FLV) What collateral realistically fetches in a distressed sale after costs — the number that actually sets advance rates, and far below book value or what you paid. Common misreading Worked example underwriting Liquidity The cash and near-cash a business can actually deploy right now, measured against what it must pay in the near term. Common misreading Worked example underwriting Loan agreement The contract governing a loan — usually one of several documents that operate together, with the provisions that cause the most damage sitting in the ones nobody reads. Common misreading contract Loan broker An intermediary who places a borrower's file with lenders for a commission, sitting between the business and the money without lending any of it. Common misreading broker Loan committee The group inside a bank or SBA lender with authority to approve credit above a threshold — the only party whose 'yes' means anything. Common misreading underwriting Loan modification A written change to the terms of existing debt — and, in most cases, a document that gives the lender more than it gives the borrower. Common misreading contract Loan servicing The administration of a loan after funding — collecting payments, applying them, issuing statements, handling payoffs — performed by a party that may not own the debt or have authority over it. Common misreading operations Loan-to-value (LTV) The loan amount as a percentage of the collateral's appraised value — the lender's measure of how much cushion sits between the debt and a bad outcome. Common misreading Worked example underwriting Lockbox A bank account controlled by the lender into which customer payments are directed, so collections reach the lender before they reach the business. Common misreading operations Long-term financing Debt with a maturity beyond roughly a year, amortising over a period that matches the life of what it paid for. Common misreading product Lookback period A defined stretch of history a decision is based on — the months of bank statements an underwriter reviews, or the window before a bankruptcy in which past transfers can be unwound. Common misreading underwriting Loss payee The party named on a property insurance policy as entitled to claim proceeds up to its interest — how a secured lender makes sure an insurance payout reaches it and not just the borrower. Common misreading contract Loss reserve The amount a lender or funder sets aside against advances it expects will not be repaid — an accounting estimate that quietly determines what everyone else is charged. Common misreading pricing

M13

Margin The fixed spread a lender adds to a published index such as prime or SOFR to arrive at the interest rate on a variable-rate facility. Common misreading Worked example pricing Material adverse change (MAC) A clause letting a lender suspend funding, demand more collateral or call the facility when the borrower's condition worsens significantly, on a test the lender largely applies itself. Common misreading contract Maturity The date the final scheduled payment falls due and any remaining balance must be repaid in full. Common misreading Worked example contract Mechanic's lien A statutory claim against real property filed by a contractor or supplier who was not paid, which can outrank other creditors and is why construction receivables are financed differently. Common misreading legal Merchant In advance and processing documents, the business receiving the money - the contracting entity, whether or not it accepts card payments. Common misreading product Merchant account The account with an acquiring bank or processor that lets a business accept card payments and through which card batches settle into the operating account. Common misreading operations Merchant cash advance (MCA) A purchase of a fixed dollar amount of a business's future receipts at a discount, collected as a percentage of receipts and documented as a sale rather than a loan. Common misreading Worked example product Merchant processing statement The monthly summary from a card processor showing gross card volume, transaction count, fees and net settlement, used to verify card revenue and size advances against it. Common misreading underwriting Microloan A small business loan made through a nonprofit intermediary under the SBA microloan program, or a similar small loan from a CDFI, usually paired with technical assistance. Common misreading product Mid-prime The tier between bank-quality credit and high-cost advance paper: businesses that miss bank underwriting on a point or two but can carry amortising, rate-priced debt. Common misreading underwriting Minimum Volume Fee A charge that makes up the gap when you factor, process or borrow less than the volume you committed to, so the facility costs the same whether you use it or not. Common misreading Worked example pricing Minimum payment The smallest amount that must be paid in a period to stay current - on revolving credit a percentage of balance plus charges, and on some advances a floor below which reconciliation will not go. Common misreading Worked example contract Monthly deposit average Total deposits into the operating account over the reviewed statement period divided by the number of months, used as the base figure for sizing an advance or line. Common misreading Worked example underwriting

N14

NAICS code (NAICS) The federal industry classification attached to a business, used by funders for restricted-industry screening and by the SBA to apply size standards. Common misreading underwriting NSF fee (NSF) A charge applied when a scheduled debit is returned unpaid, usually levied twice for the same event - once by the bank and again by the funder under the agreement. Common misreading pricing Negative days Days within a statement period on which the operating account closed with a negative balance, counted per month as a direct measure of cash fragility. Common misreading Worked example underwriting Net 30 Trade credit terms giving a customer thirty days from the invoice date to pay in full, with net 15, net 60 and net 90 as the common variants. Common misreading Worked example operations Net Margin What is left of revenue after every cost including overhead, interest and tax, expressed as a percentage — the number that decides whether a financing payment is actually affordable. Common misreading Worked example underwriting Net funding The money that actually reaches the business account after origination fees, ACH and wire charges, broker compensation and payoffs of prior positions are deducted from the approved amount. Common misreading Worked example pricing Net funding amount The exact figure that will land in your bank account after every deduction — the one number worth demanding in writing before you sign anything, and the one nobody volunteers. Common misreading Worked example pricing Non-bank lender A funder deploying its own or investors' capital without a bank charter, and therefore without deposit funding or the bank supervisory regime. Common misreading product Non-notification factoring Factoring arranged so the client's customers are not told the invoices have been sold, with payments still routed to a lockbox the factor controls. Common misreading product Non-recourse A structure in which the funder cannot come back to the client for repayment if the underlying obligation goes unpaid - almost always limited to one narrowly defined cause. Common misreading contract Non-solicitation clause A provision in an ISO or broker agreement restricting who may approach a funded merchant - typically barring the broker from moving them, and sometimes barring the funder from bypassing the broker. Common misreading broker Notice Provision The clause setting how formal communication under the agreement must be delivered, to which address, and when it counts as received — which decides whether your objection, cure or cancellation was made in time. Common misreading contract Notice of assignment (NOA) The written notice telling a customer that its invoices have been assigned to a factor and that payment must now go to the factor to count as payment. Common misreading legal Notice of default The creditor's written statement that a specified default has occurred and what follows from it - and, where the agreement provides a cure period, often the event that starts the clock. Common misreading legal

O6

OFAC screening (OFAC) The sanctions check every US funder runs against Treasury's Specially Designated Nationals and other blocked-persons lists before releasing funds. Common misreading operations Obligor Whoever owes money under a given instrument - which, depending on which document you are reading, may be the business, a guarantor, or the customer who owes a factored invoice. Common misreading legal Operating agreement The internal governing document of an LLC, requested to confirm ownership percentages, who has authority to bind the company, and whether members must consent to a financing. Common misreading underwriting Origination fee A charge for putting the transaction on the books, usually deducted from the disbursement rather than billed, so the business receives less than the approved figure. Common misreading Worked example pricing Overadvance Funding beyond what the borrowing base formula supports, extended as a temporary and usually discretionary accommodation with its own fee and repayment schedule. Common misreading Worked example contract Owner-occupied Commercial property in which the borrowing business itself occupies the required share of the space, which is what makes it eligible for SBA real estate financing rather than investment property lending. Common misreading underwriting

P26

Paper grade The informal tiering funders and brokers use to sort files by quality, from bank-eligible A paper down through progressively weaker tiers priced and structured accordingly. Common misreading underwriting Participation An arrangement in which one funder sells part of a transaction's economics and risk to others while continuing to service the deal and hold the merchant relationship. Common misreading operations Payment frequency How often payments are taken - daily on banking days, weekly, biweekly or monthly - which changes both the cash-flow burden and the effective cost even when the total repaid is identical. Common misreading Worked example contract Payoff letter The funder's binding written statement of the exact amount required to retire an obligation, the date through which the figure holds, and where to send it. Common misreading operations Payoff quote An indicative figure for what it would take to retire an existing position, given to a merchant or a competing funder and usually valid only for a short window. Common misreading Worked example operations Payroll financing Financing timed and sized to cover payroll for businesses that pay staff weekly but bill customers on terms, most often delivered as invoice factoring on a same-week cycle. Common misreading product Percentage of receivables The share of the business's receipts a funder has bought and is entitled to collect - the operative obligation in an advance, even where collection happens as a fixed daily debit. Common misreading Worked example contract Perfection The steps that make a security interest effective against other creditors - for most business collateral, filing a UCC-1 in the right state office against the debtor's exact legal name. Common misreading legal Performance guarantee A guarantee limited to the merchant's conduct - not blocking the debits, not closing the account, not misrepresenting the business - rather than a promise to repay the advance if receipts genuinely fall. Common misreading Worked example legal Personal financial statement (PFS) A signed schedule of an individual's assets, liabilities, income and contingent liabilities, required from significant owners and guarantors on most bank and SBA files. Common misreading underwriting Personal guarantee (PG) An individual's separate promise to pay the business's obligation out of personal assets, enforceable even after the business has closed or its entity protection would otherwise apply. Common misreading Worked example legal Points Fees quoted as percentage points of the funded amount - one point equals one percent - used for origination charges, broker compensation and the spread over a buy rate. Common misreading Worked example pricing Portfolio The set of live deals a funder, ISO or investor holds, and the aggregate performance data on it that drives what the credit box looks like this month. Common misreading operations Position Where a funder sits in the order of advances or liens against the same business - first position funded first, with each later position layered on top of the existing debits. Common misreading Worked example contract Pre-approval A non-binding indication of what a funder might do based on limited information, subject to full underwriting, verification and a final credit decision. Common misreading broker Prepayment penalty A charge for repaying early - a flat fee, a stepped percentage, a lockout or a yield-maintenance calculation - and on advances, a cost imposed instead by the absence of any early payoff discount. Common misreading Worked example pricing Prime rate The benchmark published from a survey of large US banks' base lending rates, used as the index in variable-rate business loans and in SBA maximum rate calculations. Common misreading pricing Principal The amount borrowed and still owed before interest and charges - a concept that exists in loans and does not exist in a factor-rate advance. Common misreading Worked example pricing Profit and loss statement (P&L) The statement of revenue, cost of sales and expenses over a period, requested on larger files to show margin and profitability rather than just cash moving through an account. Common misreading underwriting Progress payment Payment released against work completed to date rather than on delivery of a finished job — standard in construction and custom manufacturing, and much harder to finance than an ordinary invoice. Common misreading Worked example operations Promissory note The written promise to pay a sum on defined terms - the instrument that makes a transaction a loan, with a stated rate, payment schedule and maturity date. Common misreading legal Purchase and sale agreement The contract documenting an advance as a sale of a specified amount of future receipts rather than a loan, containing the purchase price, purchased amount, specified percentage and reconciliation terms. Common misreading contract Purchase order financing (PO financing) Funding that pays a supplier to produce or ship goods against a confirmed customer purchase order, repaid when the resulting invoice is collected. Common misreading Worked example product Purchase price What the funder pays for the receipts it is buying - the gross contract figure before fees and payoffs, which is not the amount that reaches the bank account. Common misreading Worked example pricing Purchase-money security interest (PMSI) A security interest in the specific asset the credit paid for, which can outrank an earlier all-assets lien in that asset provided the filing and notice steps in UCC Article 9 are followed. Common misreading Worked example legal Purchased amount (RTR) The total dollars of future receipts the funder has bought and is entitled to collect - a fixed figure set at signing that does not shrink because you pay faster. Common misreading Worked example pricing

Q2

Qualification criteria The published floors a funder applies before a file is properly reviewed - time in business, monthly revenue, credit score, industry, state, existing positions - which are gates rather than approvals. Common misreading underwriting Quick ratio Cash, marketable securities and receivables divided by current liabilities - a test of whether a business could meet near-term obligations without selling inventory. Common misreading Worked example underwriting

R26

Rate sheet The funder's pricing grid distributed to brokers, showing buy rates, terms, maximum funding and commission points available for each credit tier and position. Common misreading broker Receivable Money a customer owes for goods delivered or services already performed - the asset that factoring buys and asset-based lending advances against. Common misreading product Recharacterization A court treating a purported purchase of future receivables as a secured loan instead, which brings the transaction inside usury, licensing and lending law it was drafted to sit outside of. Common misreading legal Reconciliation Comparing what the funder actually collected against the percentage of receipts it was entitled to, and adjusting the payment where the two have diverged. Common misreading Worked example contract Reconciliation clause The contract provision setting out whether, when and how the fixed payment gets adjusted back to the agreed percentage of actual receipts - and whether the funder must do it or merely may. Common misreading Worked example contract Recourse The funder's right to come back to the client when the underlying obligation goes unpaid - in factoring, the standard structure, under which unpaid invoices are charged back. Common misreading Worked example contract Refinance Replacing an existing obligation with a new one that pays it off - changing rate, term, structure or lender - as distinct from a renewal, which the same funder writes on top of a partly repaid balance. Common misreading Worked example product Remittance The periodic transfer of purchased receipts to the funder - taken by ACH debit from the operating account, by a split of card settlement, or through a lockbox the funder controls. Common misreading operations Renewal New funding from the same funder while an existing advance is still outstanding, where the remaining balance is netted out of the new purchase price rather than separately repaid. Common misreading Worked example product Repurchase The client's obligation to buy an invoice back from the factor when it turns out to be disputed, ineligible, already paid or otherwise not what was warranted. Common misreading contract Reserve The portion of an invoice's face value a factor holds back at funding and releases, less fees, once the customer pays - or, in asset-based lending, an amount the lender deducts from availability. Common misreading Worked example pricing Residual Ongoing compensation to a broker or ISO after the original transaction - processing residuals on card volume, or a share of commission on renewals of a merchant they placed. Common misreading broker Residual value The lessor's estimate of what equipment will be worth when the base term ends, subtracted from what the rent has to recover — which is why a lease payment can be lower than a loan payment on the same machine. Common misreading Worked example pricing Restraining Notice A post-judgment document served by a judgment creditor's attorney that freezes a judgment debtor's accounts and property in the hands of banks and other third parties, without any further trip to court. Common misreading legal Restricted industry Business types a funder will not fund at all, maintained as an internal list keyed to industry codes and driven by regulation, bank partner requirements, reputational policy or loss history. Common misreading underwriting Restructure A negotiated change to the terms of a distressed deal - smaller payments over a longer period, sometimes with deferrals or added fees - documented as an amendment or a replacement agreement. Common misreading contract Retainage A percentage of each construction progress payment withheld by the owner or general contractor until the project is complete and accepted, sometimes for months after the work was done. Common misreading Worked example operations Retrieval rate Retrieval requests - a card issuer asking for documentation on a transaction - as a share of total transactions, watched alongside chargeback ratio as an early indicator of dispute risk. Common misreading Worked example underwriting Revenue-based financing (RBF) Funding repaid as a fixed percentage of revenue until an agreed multiple of the amount advanced has been paid, with no fixed maturity and no equity given up. Common misreading Worked example product Reverse consolidation A structure in which a new funder deposits money into the merchant's account each week to cover the debits on existing advances, in exchange for a single larger payment - without retiring the original balances. Common misreading Worked example product Reverse factoring A program set up by a large buyer allowing its suppliers to be paid early on approved invoices at a cost based on the buyer's credit rather than the supplier's. Common misreading product Revolving credit A facility you can draw, repay and redraw up to a limit, where cost applies to the outstanding balance and repayment restores availability. Common misreading Worked example product Right of offset A creditor's right to apply funds it holds for you against what you owe it - most commonly a bank taking money from your deposit account to cover a defaulted loan. Common misreading legal Right to cure A contractual window in which a borrower may fix a default before the creditor can accelerate or enforce - present in some agreements and entirely absent from many commercial ones. Common misreading contract Risk-based pricing Setting the price of an offer from the assessed risk of the specific file - credit, operating history, deposit stability, industry, position - rather than from a posted rate. Common misreading pricing Rule of 78s A method of allocating precomputed interest across a loan's payments so that far more is treated as earned in the early months, which shrinks the rebate you receive if you pay off early. Common misreading Worked example pricing

S44

SBA 504 loan (504) A three-part structure for owner-occupied real estate and long-life equipment: a bank first mortgage, a fixed-rate debenture through a Certified Development Company, and a borrower cash injection. Common misreading Worked example product SBA 7(a) loan (7(a)) The SBA's main guaranteed loan program, usable for working capital, equipment, real estate, business acquisition and certain debt refinancing, with maturity set by what the proceeds buy. Common misreading Worked example product SBA Express A faster 7(a) variant where the lender uses its own credit procedures and forms in exchange for a lower guarantee percentage and a lower maximum loan size. Common misreading product SBA size standards The ceilings — by industry receipts or employee count, or under an alternate net worth and income test — that decide whether an applicant is small enough to be eligible for SBA-guaranteed credit. Common misreading Worked example underwriting SIC code (SIC) A numeric industry classification attached to a business that funders use to screen against restricted-industry lists, set pricing tiers and route files to the right underwriting box. Common misreading underwriting Same-day ACH (SDA) An ACH option that settles on the banking day it is submitted rather than the next one, provided the file makes one of the network's same-day windows and clears the originating bank's earlier internal cutoff. Common misreading Worked example operations Same-day funding Money wired to the business on the day the contract is signed, available on a narrow set of products and gated by cut-off times, clean stips and a clear UCC search rather than by underwriting speed alone. Common misreading operations Seasonality A predictable annual swing in revenue that makes averaged bank deposits a poor guide to what a business can afford to pay in its slow months. Common misreading Worked example underwriting Second position (2nd position) A claim on the same collateral that ranks behind an existing one, so it is paid only after the senior claim is satisfied — and in advance-market usage, shorthand for a deal taken on top of an outstanding advance. Common misreading legal Section 1071 (1071) The Dodd-Frank provision requiring covered financial institutions to collect and report data on small business credit applications, including demographic information about the applicants. Common misreading legal Section 179 (§179) The Internal Revenue Code election letting a business deduct the full cost of qualifying equipment in the year it is placed in service, subject to an inflation-indexed dollar cap, a phase-out threshold and a taxable income limit. Common misreading Worked example legal Secured loan Credit where the borrower grants the lender a security interest in identified property, giving the lender a direct claim on that property if the loan is not paid. Common misreading legal Security agreement The contract in which a borrower grants a creditor a lien over described collateral; it is the document that creates the interest, separate from the UCC-1 that publicises it. Common misreading contract Sell rate The rate written on the paper the merchant signs, as distinct from the buy rate the funder approved at — the gap between the two being the broker's compensation. Common misreading Worked example broker Seller note A promissory note the seller of a business accepts as part of the purchase price, paid out of the acquired business's future cash flow rather than at closing. Common misreading contract Seller's Discretionary Earnings (SDE) A small-business cash-flow measure that adds one working owner's compensation and non-recurring or personal expenses back to pre-tax profit, used to price main-street business sales and to size acquisition debt. Common misreading Worked example underwriting Senior lien The claim on collateral that ranks ahead of all others, satisfied in full out of that collateral before any junior claim receives anything. Common misreading legal Servicing The administration of a funded deal after closing — taking payments, keeping the ledger, sending statements, handling reconciliation requests, issuing payoffs and managing collections. Common misreading operations Setoff A creditor's right to apply money it already holds for you — usually deposits — against what you owe it, without going to court first. Common misreading legal Settlement An agreement to resolve a defaulted balance for less than the amount claimed, or on a restructured payment schedule, documented in writing and usually conditioned on performance. Common misreading legal Short-term loan A fixed-amount business loan repaid over roughly three to eighteen months by daily or weekly ACH debits, usually quoted as a total payback figure rather than an annual rate. Common misreading Worked example product Shotgunning A broker submitting one application package to many funders at once, so the same file is pulled, priced and marketed by a dozen shops the business never chose. Common misreading broker Simple interest Interest charged on the outstanding principal for the time it is actually outstanding, so paying down principal reduces the charge immediately and paying off early stops it entirely. Common misreading Worked example pricing Small Business Administration (SBA) The federal agency that guarantees a portion of loans made by banks and non-bank lenders to small businesses, rather than lending the money itself in most programs. Common misreading product Soft costs In equipment finance, everything on the invoice that is not the machine — freight, rigging, installation, training, software, tax — which lessors cap or refuse because none of it can be repossessed. Common misreading Worked example pricing Soft credit pull A credit file review that does not affect the score and is not visible to other lenders, used for pre-qualification before a formal application. Common misreading underwriting Sole proprietor An unincorporated business owned by one individual, where there is no legal separation between the owner and the business and therefore no liability shield. Common misreading underwriting Source of Funds (SOF) Evidence of where money came from — an equity injection, a large deposit, a gift, a rollover — required by lenders to verify the money is yours and by anti-money-laundering rules to know who is behind it. Common misreading underwriting Specific lien A security interest attached to identified property only, leaving the rest of the business's assets free of that creditor's claim. Common misreading legal Specified percentage The share of a business's future receipts that a merchant cash advance agreement says has been purchased — the figure the daily or weekly debit is supposed to be an estimate of. Common misreading Worked example contract Split funding Repayment taken by the card processor at settlement, which diverts an agreed share of each day's card batch to the funder before the remainder reaches the merchant's bank. Common misreading operations Spread The difference between the terms a funder is willing to write — the buy rate — and the terms presented to the merchant, which is where broker compensation comes from. Common misreading Worked example broker Stacking Taking an additional advance or loan while an existing one is outstanding, so two or more fixed debits run against the same deposits — usually a breach of the first agreement on the day the second funds. Common misreading Worked example contract Standby agreement A written agreement in which a creditor agrees to take no payments and pursue no collection for a defined period, used in SBA deals so subordinated debt can count as equity or stay out of debt service. Common misreading contract Statement of account The funder's or servicer's running record of a deal: amounts debited, payments applied, fees charged, and the balance remaining as the creditor computes it. Common misreading operations Statute of limitations (SOL) The deadline for filing suit on a claim, running from when the claim accrued — after which even an obviously valid claim is barred, in either direction. Common misreading legal Stips The documents and conditions an underwriter requires before an approval turns into funded money — the list that decides whether a deal closes today or next week. Common misreading broker Stop payment An instruction to your bank not to honour a specific debit or series of debits — distinct from revoking the underlying authorisation, and in a funding agreement almost always an event of default. Common misreading operations Submission A broker packaging a merchant's application and documents and sending them to funders for a decision — and, when sent to many at once, the point where control over the merchant's data is lost. Common misreading broker Subordination An arrangement in which one creditor agrees to rank behind another for payment or for claims on collateral, changing the order that priority rules would otherwise produce. Common misreading legal Subordination agreement The signed document by which one creditor accepts a position behind another, specifying which obligations and which collateral it covers and what the junior party may still do. Common misreading contract Subprime A lender-defined risk tier for borrowers who do not meet conventional credit standards, expressed in this market through shorter terms, higher factors and more frequent payments rather than a single rate. Common misreading underwriting Sweep Automatic movement of collected funds from a designated account to the lender, applied against the outstanding balance as receipts arrive rather than on a payment schedule. Common misreading operations Syndication Several funders each putting up part of one advance or loan and sharing the return in proportion, while one of them contracts with the merchant and services the deal. Common misreading operations

T18

Tax Transcript The IRS's own record of what you filed and what you owe, ordered by the lender with your signed authorisation and compared line by line against the returns you supplied. Common misreading underwriting Tax lien A statutory claim by a taxing authority over a taxpayer's property for unpaid tax, which in the federal case attaches to substantially everything the taxpayer owns or later acquires. Common misreading legal Term The length of time over which a facility is repaid — fixed and enforceable on a loan, and only an estimate on a receivables purchase where repayment moves with sales. Common misreading Worked example pricing Term loan A fixed sum lent at origination and repaid in scheduled instalments of principal and interest over a set maturity, with the obligation due regardless of the business's revenue. Common misreading Worked example product Term sheet A summary of proposed terms issued before contract documents, mostly non-binding as to the financing itself but frequently binding as to a handful of clauses buried in it. Common misreading contract Termination fee A charge for ending a facility before its contracted period expires, standard in factoring and asset-based agreements and often paired with automatic renewal. Common misreading Worked example contract Third-party processor (TPP) A company that handles payment transactions on behalf of others — either card acceptance and settlement for a merchant, or ACH origination for a funder debiting merchant accounts. Common misreading operations Time in business (TIB) How long the business has been operating, measured by the funder from a date it can verify — usually entity formation, EIN issuance or the earliest bank activity it can see. Common misreading underwriting Total cost of capital Every dollar leaving the business for a financing, measured against every dollar actually received — fees deducted at funding included, expressed in money before it is expressed in percentages. Common misreading Worked example pricing Total repayment amount (RTR) The full sum a funder is entitled to collect — funded amount multiplied by the factor rate — which is fixed at signing and does not shrink because the money is repaid quickly. Common misreading Worked example pricing Trade Line A single credit relationship as it appears on a credit file — who extended credit, how much, on what terms and how it was paid — and the unit from which a whole credit profile is built. Common misreading underwriting Trade credit Terms extended by a supplier allowing a business to take goods now and pay later, functioning as short-term financing that usually costs nothing unless a discount is forgone. Common misreading Worked example product Trailing twelve months (TTM) The most recent twelve consecutive months of results, used instead of a fiscal year so that underwriting sees current performance rather than a stale year-end. Common misreading underwriting Tranche A portion of a financing released or held separately from the rest — either money advanced in stages against milestones, or a slice of one deal held by one participant. Common misreading contract True Lender The doctrine asking which party is really making a loan when a bank is named on the note but a non-bank markets it, sets the credit criteria and takes the economics — a question that decides which state's rate and licensing law applies. Common misreading legal True Revenue What an underwriter concludes you actually sold, after stripping transfers, funding proceeds, refunds, redeposited items and third-party money out of your gross bank deposits. Common misreading Worked example underwriting True-up An after-the-fact correction bringing an estimated amount into line with actual figures — refunding over-collection on an advance, or settling the difference between a reserve estimate and real collections. Common misreading Worked example contract Truth in Lending Act (TILA) The federal statute requiring standardised cost disclosure — including APR — on consumer credit, which generally does not reach credit extended for business purposes. Common misreading legal

U10

UCC search A search of state filing records against a debtor's exact legal name to find existing financing statements, run by underwriters to establish who already claims the collateral. Common misreading underwriting UCC termination (UCC-3) A filing that removes an existing financing statement from the public record, made by the secured party once the debt is satisfied — and not something that happens automatically on payoff. Common misreading legal UCC-1 financing statement (UCC-1) A short public notice filed with a state office announcing that a creditor claims a security interest in described collateral of a named debtor, which fixes that creditor's place in the priority queue. Common misreading legal Underwriting The lender's assessment of whether and on what terms to fund, which in the bank-statement market is driven far more by cash-flow behaviour than by credit score or financial statements. Common misreading underwriting Unsecured Credit extended without a security interest in specific collateral, leaving the creditor with a claim against the business generally rather than a direct right to any particular asset. Common misreading legal Unused Line Fee A periodic charge on the part of a committed line you have not drawn, paid because the lender is holding capital available to you whether or not you use it. Common misreading Worked example pricing Use of proceeds What the money is for — stated on the application, restricted in the agreement, and a covenant you can breach while making every payment on time. Common misreading underwriting Usury Charging interest above what state law permits on a loan; the doctrine applies to loans, which is why the loan-versus-purchase characterisation of a merchant cash advance is the whole legal question. Common misreading legal Usury cap The maximum interest rate a state permits on a loan, set by statute, differing by state, by type of lender and often by whether the borrower is an individual or a business entity. Common misreading legal Utilization rate The share of an available credit limit currently drawn, watched by lenders on a line of credit as an indicator of both dependence and remaining cushion. Common misreading underwriting

V6

Validity guarantee In factoring, the owner's personal guarantee that the invoices sold are genuine — not that the customer will pay, which is the credit risk a non-recourse factor keeps. Common misreading legal Variable payment A repayment amount that moves with the business's actual receipts rather than being fixed in dollars, so a slow week costs less and a strong week costs more. Common misreading Worked example pricing Variable rate A rate stated as an index plus a margin, so the payment changes when the index moves — which makes the monthly figure quoted at closing a snapshot rather than a commitment. Common misreading Worked example pricing Vendor Program Financing offered at the point of sale under the seller's brand, where the equipment dealer, software vendor or supplier presents the credit and a third party underwrites, funds and services it. Common misreading product Vendor financing Financing arranged by the seller of equipment or goods, either from the vendor's own balance sheet or through a finance partner introduced at the point of sale. Common misreading product Verification of deposit (VOD) Confirmation of a business's bank activity taken from the bank directly rather than from documents the applicant supplied — by read-only data connection, by a form completed by the bank, or by a call. Common misreading underwriting

W10

Waiver of jury trial A clause in which both parties give up the right to a jury in any dispute arising from the agreement, leaving the case to be decided by a judge. Common misreading contract Warrant of attorney A clause authorising someone else to appear in court on the signer's behalf and consent to judgment against them, which is the operative mechanism inside a confession of judgment. Common misreading legal Weekly payment Repayment debited once per week instead of every business day, which leaves the same total cost but changes how the money moves through the operating account. Common misreading Worked example pricing White Label An arrangement where one company's funding product is presented under another company's brand, so the name on the website and the emails is not the entity underwriting, funding or holding the deal. Common misreading broker Wire fee A charge for sending funds by wire rather than ACH, deducted from the amount disbursed so the business receives less than the approved figure. Common misreading Worked example pricing Wire transfer A same-day, bank-to-bank transfer that settles with finality — irreversible once credited, which is why funders use it for large disbursements and why wire fraud is unrecoverable. Common misreading operations Working capital Current assets minus current liabilities — the cash and near-cash a business has to run on after short-term obligations — and, loosely, the category of financing used to fill that gap. Common misreading Worked example product Working capital ratio Current assets divided by current liabilities, giving a single figure for whether a business can cover its next twelve months of obligations from short-term resources. Common misreading Worked example underwriting Writ of execution A court order directing an officer to seize a judgment debtor's property or funds to satisfy a judgment, which is how a paper judgment turns into money taken. Common misreading legal Write-off A creditor's accounting decision to stop treating a balance as collectible on its books, which does not cancel the debt or release the borrower from owing it. Common misreading legal

X1

X-Date The projected date on which your available cash plus remaining borrowing availability reaches zero at the current rate of burn — a forecast you maintain yourself, not a term in any contract. Common misreading Worked example operations

Y3

Year-to-date (YTD) Results from the start of the current fiscal year to the present, used by underwriters to see how a business is performing since its last completed return. Common misreading underwriting Yield The return a funder earns on capital deployed, expressed as a rate over time — which is why the same factor rate produces a very different result depending on how fast the money comes back. Common misreading Worked example pricing Yield Spread Premium (YSP) Compensation paid to a broker for delivering a loan at a higher rate than the lender would have accepted, funded out of the extra interest the borrower pays over the life of the loan. Common misreading Worked example broker

Z3

Zero Balance Account (ZBA) A subsidiary bank account automatically funded from, or swept into, a master concentration account each day, so it ends every day at zero. Common misreading operations Zombie Debt An old, written-off, settled or time-barred obligation that resurfaces years later in the hands of a debt buyer, usually with thin paperwork and an expired limitation period. Common misreading legal Zoning Compliance Confirmation that the local code permits your intended use at the address — a closing condition on real estate loans and a live risk on equipment installations. Common misreading legal

About this glossary

What is this glossary for?

Every term a funder, broker or underwriter will put in front of you, defined in plain English — and paired with the specific way each one gets misread, because a definition alone is a dictionary.

Why does every entry have a 'where this catches people' section?

Because the misunderstanding is usually the expensive part. Knowing that a factor rate is a multiplier helps less than knowing that 1.40 sounds like 40% a year and is not.

Are the worked examples real prices?

No. Every one is labelled illustrative. They show the arithmetic, not a quote.

How many terms are there?

Over four hundred, covering pricing, products, contracts, legal mechanics, underwriting, operations and the broker side of the market.

Which terms matter most before signing?

Factor rate, purchased amount, holdback, personal guarantee, confession of judgment, UCC-1, reconciliation and stacking. If those eight are unfamiliar, read them before any call.

Have these definitions been checked?

Some have. An entry that has been verified against sources says so at the top and lists them; one that has not carries an amber notice saying nobody has checked it yet.

Is this specific to merchant cash advances?

No. It covers advances, term loans, lines of credit, SBA lending, equipment finance, factoring, asset-based lending and the contract and legal vocabulary common to all of them.

Can I link to a single term?

Yes, every term has its own permanent address. Linking to one is welcome.

What if a term I met is not here?

Tell us at [email protected] and we will add it. The list grows from what people are actually shown in contracts.