Financing glossary.

Fixed daily or weekly debit from a borrower's bank account used to repay an MCA or short-term loan.

Unlike a percentage-of-sales split, an ACH holdback withdraws a flat dollar amount on a set schedule regardless of revenue. Faster to underwrite, less flexible for the borrower in slow weeks.

Percentage of a collateral asset's value a lender will lend against.

Common advance rates: 80–90% on eligible AR, 50–70% on inventory, 50–80% on equipment forced-liquidation value. Lower advance rates leave more borrowing-base cushion.

True annualized cost of a loan including interest plus fees.

For comparison across products. A 1.30 factor-rate MCA paid over 6 months can carry an APR north of 80% even though the 'rate' looks low.

Revolving credit facility secured by working-capital assets — AR, inventory, sometimes equipment.

Borrowing base recalculated monthly. Pricing usually SOFR + 3–6%. Best for operators with strong receivables but inconsistent cash flow.

Pool of eligible collateral against which an ABL or factoring facility can advance.

Calculated as: (eligible AR × advance rate) + (eligible inventory × advance rate) − reserves. Re-cut every period to keep the facility right-sized.

Short-term financing (typically 6–24 months) used to close a gap before a permanent take-out.

Used for acquisitions, refinancings, and value-add real estate. Underwriting focuses on the exit — refinance, sale, or stabilization — as much as the entry.

Period during which a borrower cannot prepay (or must pay a premium to prepay) a loan.

Common shapes: non-call 1/2/3 years, then declining premium (e.g. 102/101/100). Protects lender yield; matters most in mezzanine, unitranche, and second-lien debt.

Layered priority of capital funding a deal — senior debt, junior debt, mezzanine, preferred equity, common equity.

Priority of payment runs top-down; cost of capital and risk of loss run bottom-up. Sponsors blend layers to hit a target return while staying inside lender covenants.

Financing arranged and held by a small group of 2–5 lenders, without a broader syndication.

Faster to close than a syndicated deal, with relationship-driven terms. Typical for middle-market loans of $50–250M where one lead can't comfortably hold the entire commitment.

Lender's binding offer to fund subject to defined conditions precedent.

Sits between a term sheet (non-binding) and definitive docs (closing). Spells out market-MAC, financial-MAC, ratings, and CP language sponsors negotiate to protect deal certainty.

Share of a borrower's revenue or AR coming from a single customer.

Most ABL lenders cap eligible AR concentration at 15–25% per obligor. Anything above is excluded from the borrowing base.

Clause that lets a lender obtain a judgment without a trial if the borrower defaults.

Banned in many states. A red-flag clause in stacked MCA contracts — it lets the lender freeze accounts on the same day of default.

Loan documentation that omits maintenance financial covenants, retaining only incurrence-based tests.

Standard in broadly syndicated leveraged loans, less common in middle-market direct lending. Reduces sponsor default risk but gives lenders fewer early-warning triggers.

Ongoing financial tests a borrower must satisfy throughout the loan's life.

Common: minimum DSCR, maximum leverage, minimum liquidity. A missed covenant doesn't always mean default — but it triggers a lender conversation.

Cash flow available for debt service divided by total debt service.

Lender comfort starts at 1.20×. CRE deals often want 1.25–1.35×. Below 1.0× means cash flow doesn't cover debt — automatic decline at most banks.

Earnings before interest, taxes, depreciation, and amortization — proxy for operating cash flow used to size leverage.

Direct lenders underwrite to Adjusted EBITDA: reported EBITDA plus negotiated add-backs (run-rate synergies, one-time costs, owner comp). Add-back quality drives the real leverage multiple.

Loan or lease secured by the equipment being purchased.

Equipment serves as collateral, so credit requirements are softer. Terms 36–84 months. Pricing usually SOFR + 4–8%.

MCA pricing expressed as a multiplier (e.g. 1.30 means repay $130K on a $100K advance).

Not interest. To translate to APR: ((factor − 1) × 365) / repayment days. A 1.30 over 180 days ≈ 60% APR.

Selling AR to a factor at a discount in exchange for immediate cash.

Advance 80–90% on submission, balance (minus fee) on customer payment. Recourse factoring keeps credit risk with the borrower; non-recourse moves it to the factor.

The lender with the senior UCC lien — paid first if collateral is liquidated.

Stacking refers to taking second, third, or fourth-position MCAs behind a first. Each subsequent position commands higher pricing for higher risk.

Maximum dollar amount a single lender will keep on its own balance sheet from one deal.

Drives whether a deal is club, syndicated, or single-lender. Direct-lending hold sizes typically run $25–150M; BDCs and insurance accounts go higher. Excess above hold size is syndicated or sold down.

Percentage of daily card-receipt revenue automatically diverted to repay an MCA.

Typical split holdback: 10–20% of daily card sales. Slow days mean smaller payments; busy days mean faster payoff.

Contract between two or more lenders defining lien priority, payment waterfalls, and standstill rights.

Required whenever first- and second-lien (or senior and mezzanine) tranches share collateral. Negotiates standstill periods, payment-blockage triggers, and remedies on default — usually more contested than the loan documents themselves.

Broker that sources commercial-finance deals and submits to lenders.

Compensated by commission from the lender — typically 3–10% of the funded amount, paid out of borrower fees.

Debt subordinated in payment and/or lien priority to senior secured loans.

Includes second-lien term loans, mezzanine, and unsecured notes. Higher coupon to compensate for subordination, often with PIK options, warrants, or call protection layered in.

Lender that structures, underwrites, and distributes a syndicated loan.

Holds the largest piece pre-syndication, negotiates the credit agreement, and manages allocations. Earns an arrangement fee on top of its pro-rata yield.

Total funded debt divided by trailing-twelve-month EBITDA — the headline metric in middle-market underwriting.

Senior leverage typically caps at 3.5–4.5× for sponsor deals; total leverage including unitranche or mezz pushes 5.0–6.5×. Above 6.5× is regulated-bank red flag territory and usually private-credit-only.

Order in which secured creditors are paid from collateral proceeds.

First-lien gets paid in full before second-lien sees a dollar; second-lien before unsecured. Set by UCC filing date and the intercreditor agreement, not by deal date or relationship.

Loan amount divided by collateral value.

CRE banks usually max at 65–75% LTV; bridge lenders 70–80%; hard money 60–70%. Lower LTV usually means lower pricing.

Out that lets a lender walk from a commitment if business conditions deteriorate meaningfully before close.

Two flavors: business-MAC (borrower-specific) and market-MAC (debt-markets). Sponsors negotiate tight, objective triggers — undefined or subjective MAC language is a closing-risk red flag.

Lump-sum purchase of a business's future revenue at a discount.

Legally not a loan — no interest, no APR disclosure required. Repaid via daily ACH or split holdback. Best for fast-cash, short-duration needs.

Subordinated debt that sits below senior loans and above equity in the capital stack.

Typically unsecured or second-lien. All-in pricing of 10–14% blended (cash coupon + PIK), sometimes with warrants for equity upside. Used to bridge the gap between senior leverage and sponsor equity in LBOs.

Working capital used by contractors to fund payroll and materials at the start of a new contract.

Repaid out of progress draws. Common structures: line of credit, AR-backed facility, or short-term loan tied to contract backlog.

Up-front discount to par at funding that lifts the lender's effective yield without raising the coupon.

A 2-point OID on a SOFR + 600 unitranche means the lender funds at 98 and is repaid at 100, adding ~50 bps to yield over a 4-year life. Negotiated alongside coupon, call protection, and fees.

One-time fee charged at funding, usually 1–5% of principal.

Deducted from proceeds at close. Should be included in any APR comparison — a 'no fee' lender with a higher rate often costs more.

Owner's personal commitment to repay if the business cannot.

Required on most non-bank commercial loans below $5M. Usually full recourse; rarely limited to a percentage.

Interest paid by adding to loan principal instead of cash — preserves borrower liquidity at the cost of higher payoff.

Common in mezzanine and unitranche structures. Full-PIK, partial-PIK (e.g. 8% cash + 4% PIK), or PIK-toggle (borrower's option). Compounds quickly — a 12% PIK doubles principal in about 6 years.

Taking on additional MCAs while existing ones are still being repaid.

Each new MCA is a 'position.' Most lenders will not fund a 4th or 5th position; stacking is the leading cause of small-business cash-flow collapse.

Indicative review of a borrower's profile against a lender's box — no credit pull.

Output: a range of rates, structures, and amounts the borrower is likely to qualify for. Used to triage before formal underwriting.

Equity-classified instrument with debt-like priority over common equity but subordinated to all debt.

Pays a fixed or PIK dividend with a defined redemption right. Used as gap-filler between mezzanine and common equity, or as rescue capital when debt capacity is tapped. Doesn't count toward leverage but dilutes common returns.

Fee charged when a borrower repays a loan ahead of schedule.

Shapes: yield maintenance (make-whole NPV of remaining payments), step-down (e.g. 3-2-1), or fixed premium. Heaviest on CRE debt and middle-market term loans; absent on most lines of credit.

Portion (5–10%) of each construction progress payment held by the GC or owner until project close.

Major cash-flow drag for subs and GCs. Often financed via AR-backed lines or invoice financing.

MCA refinance that pays existing positions and replaces them with a single, lower daily payment.

Reduces daily debt burden but typically extends total payback and increases lifetime cost. Use selectively.

Selling owned equipment or property to a lender and leasing it back.

Unlocks equity in owned assets without a refinance. Common in fleet, manufacturing, and CRE.

Government-guaranteed loan originated by a bank under the SBA 7(a) or 504 program.

Lower rates, longer terms, but slower (45–90 days) and tighter underwriting. Best for established profitable businesses.

Term loan secured by the same collateral as the first-lien facility but subordinated in payment priority.

Sits between first-lien and mezzanine. Priced SOFR + 700–1000 with call protection. Governed by an intercreditor agreement defining standstill and payment-block rights.

Top-of-the-stack debt with a first-priority lien on collateral and first-out payment rights.

Lowest cost of debt capital — bank revolvers and first-lien term loans price SOFR + 250–600. Sets the leverage anchor that mezzanine, second-lien, and equity layers price off of.

Credit inquiry that does not affect the borrower's credit score.

Used for pre-qualification. A hard pull (which does affect score) typically happens only at formal application.

Private-equity firm that owns or is acquiring a portfolio company financed with private credit.

Sponsor reputation drives deal terms — repeat sponsors get tighter pricing, looser docs, and faster execution. 'Sponsor-backed' deals carry institutional discipline; 'non-sponsor' deals trade wider for the same leverage.

Covenants that activate only when a trigger is hit — e.g. revolver utilization above 35% or liquidity below a threshold.

Standard in cov-lite first-lien revolvers. Lets a lender stay hands-off while the borrower is healthy and impose discipline the moment metrics deteriorate.

Documents a lender requires before funding — bank statements, tax returns, AR aging, etc.

Common stip list: 4–6 months bank statements, driver's license, voided check, last 2 years tax returns. Faster stip turnaround = faster funding.

Fee earned by an arranger or advisor only if a transaction closes.

Aligns the advisor with execution. Typical at 0.5–2.0% of deal size for capital-raise mandates. Distinct from retainer or work fees, which are paid regardless of outcome.

Distribution of a loan to multiple lenders, each taking a fractional commitment.

Lead arranger underwrites and sells down. Broadly syndicated loans clear through a primary book; middle-market syndications go to a defined club. Lets a single name finance deals far larger than any individual hold size.

Permanent financing that pays off a bridge or interim loan.

Bridge lenders underwrite the take-out (refinance source, sale, or stabilization) as carefully as the bridge itself. No credible take-out = no bridge.

Fixed-amount loan with a scheduled amortization over 1–10 years.

Most predictable structure. Pricing depends heavily on credit profile — SOFR + 3% for prime borrowers, 12–25% for subprime.

Public notice filed under the Uniform Commercial Code claiming a lien on a borrower's collateral.

Visible in public records. Multiple UCC filings against a single business is the most common signal of MCA stacking.

Single loan that blends first-lien and second-lien (or senior and mezzanine) into one tranche at one blended rate.

Simplifies execution — one lender, one credit agreement, one rate (SOFR + 500–750 typical). Behind the scenes, an Agreement Among Lenders (AAL) splits cash flows into first-out and last-out pieces with different yields and recovery rights.

Equity warrants granted alongside subordinated debt to enhance the lender's return.

Quoted as a percentage of the loan (e.g. 5% warrant coverage on a $20M mezz = $1M of warrants struck at fair value). Common in venture debt and growth mezz; rare in sponsor-backed unitranche.

Prepayment formula that makes the lender whole for lost interest if a loan is paid off early.

Calculated as the NPV of remaining scheduled payments discounted at a benchmark Treasury rate. Standard in CMBS, life-co CRE debt, and many middle-market term loans. Can run into millions on a large prepayment.