the mca glossary

an ach debit is an automatic withdrawal pulled from a bank account through the automated clearing house network. most mca funders collect repayment this way: a fixed dollar amount leaves your business account daily or weekly, on business days, until the payback amount is delivered. the debit does not wait for a slow week, a late distributor, or a rent check, so size your cash flow around your slowest recent month, not your average one. a bounced debit can trigger nsf fees from your bank and default provisions in your contract. blocking the debits or moving deposits to a different account typically counts as breach — if sales drop, use the reconciliation clause instead.

related: remittance · holdback · nsf · reconciliation clause

average daily balance is the mean amount of money sitting in a business bank account across a statement period. funders read it as a measure of cushion: a shop with $60K in monthly deposits but a $900 average balance looks like it cannot absorb a daily debit without bouncing. underwriters weigh it alongside deposit consistency, nsf count, and existing debits — often more heavily than your credit score. for cash-heavy smoke shops, the practical move is depositing revenue on a regular schedule for at least 3 months before applying, so the statements show the balance the business actually carries.

related: underwriting · nsf · ach debit

a clawback is a funder's demand that a broker return commission on a deal that defaults or pays off within a set window after funding, often 30 to 90 days. merchants never see the clawback directly, but it shapes broker behavior. a broker who oversizes an advance a shop cannot carry risks losing the commission when the debits start bouncing — which is one structural reason honest sizing serves the broker too. it also explains some industry pressure against fast payoff and refinancing: a broker steering you away from an early payoff may be protecting a commission, not your interests. ask how your broker is paid and what happens to that payment if the deal fails.

related: iso (broker) · funder · renewal

a commercial financing disclosure law is a state law that requires providers of business financing, including merchant cash advances, to give merchants standardized cost disclosures with each offer. as of 2026, ten states have these laws in effect: California, Connecticut, Florida, Georgia, Kansas, Missouri, New York, Texas, Utah, and Virginia. the disclosures typically show the total dollar cost, estimated payment amounts, and broker compensation, and some states require an apr or apr-like metric. if your shop is in a disclosure state and an offer arrives without the required document, that absence tells you something about the provider. requirements and thresholds vary by state, and the list keeps growing.

related: factor rate · iso (broker) · merchant cash advance

a confession of judgment is a signed document that lets a funder enter a court judgment against a merchant without a lawsuit, notice, or hearing once the funder claims a default. with a judgment in hand, the funder can freeze bank accounts and garnish receivables before you know a dispute exists. New York banned filing confessions of judgment against out-of-state merchants effective August 30, 2019, which closed the industry's favorite courthouse — but contracts can still route them through other states that allow the practice, and New York merchants can still face them in New York. read your contract for one before signing, ask for it to be struck, and treat a funder who insists on it as a signal about how they collect.

related: default and acceleration · personal guarantee · ucc-1 lien

default is a breach of a funding contract, and acceleration is the clause that makes the entire remaining balance due at once when a default occurs. in mca contracts, default usually means blocking ach debits, switching bank accounts, steering deposits elsewhere, or concealing revenue — not a slowdown in sales. a slow month at your shop is what the reconciliation clause exists for; going dark on the funder is what triggers acceleration. once accelerated, the full payback amount is collectible immediately, and collection tools like judgments and ucc liens come into play. if revenue drops, notify the funder in writing and request an adjustment before a debit bounces, not after.

related: reconciliation clause · ach debit · confession of judgment

a factor rate is a multiplier applied to an advance amount to set the fixed total repayment. for illustration only: a $50,000 advance at a 1.3 factor means $65,000 repaid — that example is educational math, not an offer. a factor rate is not an interest rate. the cost is fixed the day you sign and does not shrink over time the way loan interest does, so paying early saves nothing unless the contract includes a prepayment discount. the factor also says nothing about time: the same factor over a shorter remittance schedule costs far more on an annualized basis. compare the payback amount and the estimated term together, never the factor alone. actual rates vary by funder, file strength, and term, subject to underwriting.

related: merchant cash advance · prepayment discount · remittance

a funder is the company that advances the money and collects the remittance — in an mca, the party actually purchasing the future receivables. the funder is distinct from the broker or iso who packages your file; the funder underwrites the deal, wires the advance, runs the debits, and holds the contract. funders differ sharply in appetite by industry. smoke shops, vape stores, and head shops are declined outright at many funders and workable at others, which is why placement matters more in this category than in most: the same file gets different answers depending on where it lands. a good broker knows which funders look at the category before sending your statements anywhere.

related: iso (broker) · underwriting · merchant cash advance

a holdback is the set percentage of a business's revenue that a funder collects until the advance's payback amount is fully delivered. it comes in 2 forms. the original structure was the card split, where the processor routed a share of each day's card sales to the funder. the dominant structure today converts the percentage into a fixed ach debit: the funder estimates revenue from your bank statements, applies the holdback percentage, and debits a fixed dollar amount each business day or week. for illustration only: $60,000 in monthly deposits at a 10 percent holdback is roughly $6,000 per month in debits. run that math against your slowest recent month before signing, because the debit does not slow down when sales do — only reconciliation adjusts it.

related: remittance · ach debit · reconciliation clause

an iso, or independent sales organization, is a broker that packages merchant files and places them with funders, earning a commission the funder pays on deals that close. mellow is a broker. the model itself is neutral — a broker who knows which funders approve smoke shops saves you weeks of declines — but the incentives deserve daylight. some brokers charge merchants a separate fee on top of funder commission, sometimes deducted from the advance without a clear line item, and any broker asking for money before an offer exists is a red flag. ask any broker to put their compensation in writing. in disclosure-law states, broker compensation must appear on the offer itself.

related: funder · clawback · commercial financing disclosure law (cfdl)

a line of credit is a revolving facility that lets a business draw funds, repay, and draw again up to a set limit, paying interest only on the amount outstanding. it is a loan product, and it is the contrast case for an mca: cheaper when you can get it, flexible because you only pay for what you use, and reusable without reapplying. the catch for smoke shops is access — banks broadly decline the category, and the online lenders that offer credit lines often exclude tobacco, vape, and hemp revenue. if a line of credit is genuinely available to your shop on your timeline, it usually beats an advance on cost. when it is not, that gap is the space mcas occupy.

related: term loan · sba loan · working capital

a merchant cash advance is a purchase of a business's future receivables: a funder pays a lump sum today in exchange for the right to collect a fixed, larger amount from the business's future revenue. an mca is not a loan — it is a sale, which is why state interest-rate caps generally do not apply and why the pricing can run far above what a loan could legally charge. the cost is set by a factor rate, and collection runs through daily or weekly remittance, usually by ach debit. for smoke shops, mcas are common because banks broadly decline the category; the product absorbs that risk in its price. courts can recharacterize an mca as a loan if it behaves like one, which is why the reconciliation clause matters.

related: purchase of future receivables · factor rate · holdback · reconciliation clause

nsf, or non-sufficient funds, is a bank's rejection of a debit because the account balance cannot cover it. every nsf shows on the bank statements funders read, and underwriters count them across your most recent 3 months as a direct signal of how tight the account runs. a bounced remittance debit is worse than an ordinary nsf: it can trigger fees from your bank and default provisions in your funding contract at the same time. a smoke shop with more than a few recent nsfs should expect fewer offers and tougher terms, and may be better served waiting a clean month or two before applying. if a debit is about to bounce because sales dropped, contact the funder in writing first.

related: ach debit · average daily balance · underwriting

a payoff letter is a funder's written statement of the exact amount required to close out an advance as of a specific date. get one before renewing, consolidating, or paying off early — never price a new deal against a balance you have not seen in writing. the remaining balance on an mca includes the unearned factor cost of the original advance, and in a renewal that balance gets paid off with new money that carries its own fresh factor. without the payoff letter, that double layer of cost stays invisible. a payoff letter also gives you the paper trail to confirm the balance hit zero and to demand that any ucc-1 filing be terminated afterward.

related: renewal · reverse consolidation · ucc-1 lien

a personal guarantee is a promise that a business owner will personally repay a business debt if the business cannot. most mcas use a narrower performance guarantee instead: the owner promises the business will honor the contract — keep the account open, allow the debits, not conceal revenue — but does not personally guarantee repayment if sales simply fall. the difference is not cosmetic. a full personal repayment guarantee is one of the factors courts weigh when deciding whether an advance is really a disguised loan, because a true purchase of receivables puts revenue risk on the funder. read your contract to see which one it contains, and treat a full personal guarantee in an mca as a question worth asking before you sign.

related: purchase of future receivables · confession of judgment · default and acceleration

a position is an advance's place in line among a business's active advances: first position is the earliest advance still being repaid, and second and third positions sit behind it. later positions cost more — higher factors, shorter terms — because those funders can see exactly how much daily pull is already ahead of them in your bank statements, and they price for the leftovers. many funders will not fund behind existing positions at all. a smoke shop carrying 2 or 3 positions should expect fewer options and should hear a broker's pitch for another position with skepticism: the honest playbook for a stacked file is usually consolidation or paydown, not more money behind position 3.

related: stacking · reverse consolidation · funder

a prepayment discount is a contract schedule that reduces an mca's fixed payback amount if the merchant pays off within a set window, such as 30, 60, or 90 days. it is the exception to the default rule: because the payback is a fixed total, paying early saves nothing unless the contract says otherwise — the same dollars are owed whether the balance clears in 4 months or 14. if early payoff is realistic for your shop, get the discount schedule in the contract before funding, in writing, not as a promise on a phone call after. a funder's willingness to include one tells you something useful about the funder before you sign.

related: factor rate · payoff letter · renewal

a purchase of future receivables is a transaction in which a funder buys a fixed dollar amount of a business's future revenue at a discount, paying a lump sum now and collecting the receivables as they are generated. this is the legal structure underneath every mca, and it is what makes the product a sale rather than a loan — which is why usury caps generally do not apply. the label only holds if the contract behaves like a purchase: courts look at substance, and an advance with fixed payments regardless of revenue, no real reconciliation right, and full personal repayment obligations can be recharacterized as a loan. the New York attorney general won a judgment of more than $1 billion against Yellowstone Capital on exactly that theory.

related: merchant cash advance · reconciliation clause · personal guarantee

a reconciliation clause is a contract provision that lets either party adjust an mca's fixed debit up or down to match the business's actual revenue. it is the most important paragraph in the contract and the least read. because the funder bought a percentage of your sales — not a fixed payment — a revenue drop entitles you to request a smaller remittance. use it correctly: notify the funder in writing, send the bank statements or processing records the contract requires, and keep copies. the clause is also part of what keeps the transaction a legal purchase rather than a loan, so a funder who refuses reconciliation the contract promises is handing you a legal argument. what the clause does not excuse is blocking debits or hiding revenue.

related: true-up · holdback · default and acceleration

remittance is the payment a merchant delivers to a funder — most often a fixed ach debit pulled daily or weekly on business days — until the advance's payback amount is fully collected. daily and weekly schedules move the same total; weekly just gives your cash flow more room between pulls, which matters for a shop whose deposits cluster around weekend sales. the remittance size also sets the real term. an mca has no maturity date on paper, but the debit amount implies one, commonly a matter of months — and a shorter implied term means a higher effective annualized cost at the same factor rate. before signing, check the debit against your slowest month, not your average.

related: ach debit · holdback · factor rate

a renewal is a new advance taken while an existing one is still open, with part of the new money used to pay off the old balance. expect the call around the halfway point of your payback — renewals are the core of the mca business model. the mechanic to watch is what the industry calls double dipping: the old balance being retired includes the unearned factor cost of the first advance, and the new advance applies a fresh factor to the full new amount, including the part that just paid off the old one. renew 3 or 4 times and the effective cost of your capital climbs while the cash you actually receive shrinks. a renewal is not automatically a bad move — but get the payoff letter and price it as a brand-new deal.

related: payoff letter · factor rate · prepayment discount

a reverse consolidation is a financing structure in which a new funder deposits money into a merchant's account on a schedule that covers the daily debits of existing advances, while collecting its own smaller, longer payment. the existing positions keep getting paid on their original terms; the net effect is that the merchant's daily outflow drops and the repayment stretches out. it is a cash flow tool for stacked files, not a discount — the new money carries its own cost, so the total owed usually goes up even as the daily pressure goes down. for a stacked smoke shop, it can create breathing room, but compare it honestly against paying positions down, and get payoff letters on everything before anyone prices it.

related: stacking · position · payoff letter

an sba loan is a bank loan partially guaranteed by the U.S. Small Business Administration, which lets lenders offer longer terms and lower rates than they otherwise would. it is the cheapest capital most small businesses can reach, and it is the contrast case worth knowing before taking an advance: if your shop can qualify and can wait, it wins on cost. the two catches for smoke shops are real. approval takes weeks, not days, and sba-guaranteed lending rarely reaches shops with tobacco, vape, or hemp revenue in practice, whatever the program terms say on paper. if a bank or sba lender will actually fund your shop on your timeline, take that path — most shops in this category find the door closed, which is why the mca market exists.

related: term loan · line of credit · working capital

split funding is a repayment structure in which a card processor automatically routes a set percentage of each day's card sales to a funder before the rest reaches the merchant. the lockbox is its cousin: revenue lands in a bank account the funder controls, the funder takes its share, and the remainder is forwarded to the merchant. both structures predate the fixed ach debit that dominates today. they self-adjust with sales — a slow day means a smaller payment, with no reconciliation paperwork — but they also put the funder between you and your own revenue, and a lockbox can delay your access to cash by a day or more. card-heavy shops still see these structures from some funders.

related: holdback · remittance · ach debit

stacking is taking a second, third, or fourth cash advance while earlier advances are still being repaid, layering a new daily debit on the same revenue. nearly every mca contract prohibits it without consent, so stacking is usually a breach of the first agreement — and the first funder finds out, because the new debits appear in the bank statements you send with your next application. the math is the real danger: each position is priced as if it were the only one, and 3 positions can pull more per day than the shop clears. that is the spiral behind most mca horror stories. some funders will look at stacked smoke shop files, but the honest playbook is usually consolidation or paydown before new money.

related: position · reverse consolidation · default and acceleration

a term loan is borrowed money repaid in fixed installments, with interest, over a set period ending on a maturity date. it is the product most people picture when they hear the word loan, and it is the clean contrast to an mca. interest on a term loan accrues over time, so paying early saves money; an mca's payback is fixed at signing, so it does not. a term loan has a maturity date; an mca's term is implied by the debit size. a term loan is subject to usury caps; a purchase of receivables generally is not. for smoke shops the comparison is often academic — banks broadly decline the category — but knowing the mechanics keeps an advance's cost from hiding behind loan vocabulary.

related: line of credit · sba loan · merchant cash advance

a true-up is an adjustment that resets an mca's fixed debit to match the percentage of revenue the funder actually purchased. it is the mechanism the reconciliation clause operates through, and it runs both directions: if your sales fell, the debit comes down; if they rose, the funder can move it up. the process is paperwork, not a phone call — the contract typically requires a written request with bank statements or processing records for the period, on a set schedule such as monthly. keep copies of everything you send. for a seasonal shop, a true-up after a slow stretch is the legitimate way to shrink the daily pull; quietly blocking debits accomplishes the same arithmetic and is a breach.

related: reconciliation clause · holdback · remittance

a ucc-1 lien is a public financing statement a funder files with the state to claim a security interest in a business's assets or receivables. every future funder or lender who searches the public record sees it, which is how later funders know exactly what positions sit ahead of them. two practical points for merchants. first, a ucc-1 left unterminated after you pay off an advance can quietly block your next deal, so after payoff, use your payoff letter to demand the filing be terminated and verify it was. second, some funders send ucc notices to your card processor or customers to redirect receivables during a dispute — a collection tactic worth knowing exists before you sign anything.

related: position · payoff letter · default and acceleration

underwriting is a funder's review of a merchant's file to decide whether to make an offer and on what terms. for mcas, the review runs on your last 3 months of business bank statements more than on your credit score: deposit consistency, average daily balance, nsf count, and existing daily debits carry the most weight, because the funder is buying your future revenue and the statements show what that revenue looks like. decisions typically come back in 24-72 hours, and every offer is subject to underwriting — no broker can promise an approval. for smoke shops, the file review sits on top of an industry screen: some funders decline the category outright, so where the file is sent matters as much as what is in it.

related: average daily balance · nsf · funder

working capital is the money a business uses to run day-to-day operations — inventory, payroll, rent, utilities — before the revenue those operations generate comes in. accountants define it as current assets minus current liabilities; for a shop owner it is the answer to whether you can cover the next 60 days without sweating. it is also the usual reason smoke shops seek funding: a bulk inventory buy at a real discount, a bridge through a planned slow season, or a build-out for a category pivot such as the shift away from intoxicating hemp. capital with a specific short-term job and a return that beats its cost is what an advance is built for. patching ongoing losses is not — that only adds a daily debit to a problem the money cannot fix.

related: merchant cash advance · line of credit · term loan