Business debt glossary

Plain-English definitions for the 44 terms most relevant to merchant cash advance, SBA loan, COJ defense, and general business-debt workout matters. Compiled by Delancey Street senior advisors.

Merchant cash advance terminology

Vocabulary specific to MCA contracts and the litigation that flows from them. If you've signed a merchant cash advance, every term below appears somewhere in your paperwork.

ACH (Automated Clearing House): The U.S. electronic banking network used by MCA funders to debit your operating account on a daily or weekly schedule. The MCA's ACH authorization is the operational mechanism for the daily debit.
Confession of Judgment (COJ): A clause in many MCA contracts that lets the funder obtain a court judgment against you without prior notice or a hearing once they declare default. New York amended its COJ rules in 2019 to limit out-of-state usage. See also: COJ Defense service page
Daily debit: The fixed dollar amount the funder pulls from your business bank account every business day under the MCA's ACH authorization. Total payback = daily debit × number of business days in the term. See also: MCA Settlement guide
Factor rate: The cost-of-capital multiplier on the advance. A 1.45 factor on $100,000 means you owe $145,000 — the 0.45 is the funder's margin. Factor rates are NOT interest rates and are not subject to most state usury caps for that reason. See also: MCA Settlement guide
Holdback: A percentage of daily card-processor receipts the funder claims as the daily payment. Used in true split-funding MCAs where payment scales with revenue. Most modern MCAs use fixed daily ACH instead.
Lockbox: A receivables account controlled by the funder. Customer payments deposit there first; the funder takes its cut and forwards the rest to the merchant. Typically only used in distressed restructures.
Merchant cash advance (MCA): A contract structured as a 'purchase of future receivables' rather than a loan. The funder advances cash today against the merchant's future revenue. Whether MCAs are loans in disguise is the central legal question in the industry. See also: MCA Settlement guide
Notice of Assignment: A funder's letter to your customers instructing them to send payments directly to the funder rather than to you. Sent post-default. The single most damaging step a funder can take operationally. See also: What to do if an MCA lender files a UCC lien
Reconciliation clause: The contract clause that promises the daily payment will be adjusted down when revenue drops. Underused — most borrowers never invoke it, but funders are obligated to honor written reconciliation requests. See also: Reconciliation Shield™ service page
Stacking: Taking on a second, third, or fourth MCA while earlier MCAs are still outstanding. Most contracts prohibit it. Most funders allow it anyway until you default. See also: MCA Settlement guide
True sale doctrine: The legal test that determines whether an MCA is genuinely a purchase of receivables (true sale) or a disguised loan. If recharacterized as a loan, civil and criminal usury caps may apply. See also: Merchant Cash Advance Debt Relief Attorneys guide
UCC-1 filing: A public security-interest filing made by the funder at the state Secretary of State, putting other lenders on notice that the funder claims the merchant's receivables as collateral. Filed at funding, not default. See also: What to do if an MCA lender files a UCC lien
UCC-3 termination: The filing that releases a UCC-1. Settlement agreements should make UCC-3 termination an explicit, dated obligation; without it, funders drag and your AR remains 'tagged' in the public record. See also: What to do if an MCA lender files a UCC lien
Usury (civil & criminal): Most U.S. states cap the maximum lawful interest rate on a loan (civil usury) and impose criminal liability above a higher threshold (criminal usury). MCAs structured as true sales are typically outside these caps; MCAs recharacterized as loans are typically inside. See also: Merchant Cash Advance Debt Relief Attorneys guide

SBA loan & workout terminology

SBA-backed loans operate under their own rule set. The vocabulary below is from SBA SOP 50 57 (the servicing & liquidation handbook) and routine workout practice.

SBA 7(a) loan: The SBA's primary loan program for general business purposes. Made by a participating bank with a partial SBA guaranty (typically 75-85% of the principal). The bank services until liquidation, then SBA may take over. See also: SBA Workouts service page
SBA 504 loan: A two-loan structure for fixed-asset financing (real estate, heavy equipment): a bank first loan + a CDC second loan with SBA debenture. Different workout posture than 7(a). See also: SBA Workouts service page
EIDL (Economic Injury Disaster Loan): Direct SBA loan made during declared disasters (notably COVID-19, 2020-22). Different default and workout treatment than 7(a) — workouts go through SBA Office of Disaster Assistance, not the bank. See also: SBA Workouts service page
Liquidation Plan: The lender's documented plan to recover collateral and pursue guarantors after default. Required by SBA before guaranty purchase. The plan can be challenged on commercial-reasonableness grounds. See also: SBA Workouts service page
Offer in Compromise (SBA OIC): The SBA's program for settling SBA-guaranteed debt for less than the full amount. Tighter standards than IRS OIC; requires a complete liquidation analysis, financial disclosures, and a defensible discount rationale. See also: SBA Offer in Compromise service page
Personal guarantee: The owner's contractual promise to repay the SBA loan personally if the business defaults. Required on most SBA loans for owners with 20%+ stake. The PG survives liquidation of the business. See also: SBA Workouts service page
SBA Loan Guaranty Center: The SBA office that processes guaranty purchases, charge-offs, and OIC packages after a 7(a) loan defaults. Currently centralized in Herndon, VA and Little Rock, AR. See also: SBA Workouts service page
SOP 50 57: The Standard Operating Procedure governing SBA loan servicing and liquidation. The current version is SOP 50 57 3 (2023). Lenders must follow it; deviations are reviewable on guaranty purchase. See also: SBA Workouts service page
Treasury cross-servicing: When a charged-off SBA loan moves from SBA to the U.S. Treasury for collection. Treasury can offset federal payments (tax refunds, Social Security, contracts) to recover. Settlement at Treasury stage uses different math than at SBA stage. See also: SBA Workouts service page
Trust Fund Recovery Penalty (TFRP): An IRS assessment under IRC § 6672 against responsible persons for unpaid 941 (payroll) trust-fund taxes. Personal liability for what the business should have remitted. Defended via the Form 4180 interview and willfulness arguments. See also: IRS 941 Workouts service page
Workout: Any negotiated modification of an SBA loan short of liquidation: forbearance, extended maturity, rate reduction, deferment, or principal restructuring. Requires lender concurrence (and SBA concurrence if material). See also: SBA Workouts service page

COJ & litigation terminology

Procedural vocabulary that controls every COJ defense matter. Most of this comes from CPLR §§ 3218 and 5015 (New York's confession-of-judgment and judgment-vacatur statutes) since most MCA COJs venue in NY.

Affidavit of confession: The notarized statement signed by the borrower confessing the judgment. CPLR § 3218 requires it to be signed within 3 years of filing, properly notarized, and to specify the sum or how it's calculated. Procedural defects in the affidavit are the most common vacatur ground. See also: COJ Defense service page
CPLR § 3218 (NY): New York's confession-of-judgment statute. Amended August 2019 to bar entry of confessions against debtors who do not reside in New York or are not licensed/located in New York. Pre-2019 COJs against out-of-state debtors are vulnerable to vacatur on this ground alone. See also: COJ Defense service page
CPLR § 5015 (NY): New York's general motion-to-vacate statute. Grounds include excusable default, newly discovered evidence, fraud or misrepresentation, lack of jurisdiction, and reversal of prior judgment. Used in conjunction with § 3218 challenges.
Motion to vacate: The legal motion that asks the court to undo an entered judgment. In COJ cases, filed under CPLR § 5015 or § 3218 with affidavits and exhibits documenting the procedural or substantive defect. See also: COJ Defense service page
Order to show cause (OSC): An expedited motion that asks the court to order the opposing party to appear and explain why specific relief should not be granted. Used in COJ cases when bank-account restraints need to be lifted before normal motion-calendar timing.
Restraining notice: A judgment creditor's notice served on the debtor's bank that freezes funds in the account up to the judgment amount. Issued under CPLR Article 52. The first sign for most borrowers that a COJ has been entered. See also: COJ Defense service page
Service of process: The legal delivery of court papers. In COJ matters, service rules vary by state and the specific procedural posture; defects in service are a routine vacatur ground.
Stay request: A request to the court to pause enforcement of a judgment pending the outcome of a motion to vacate. Critical in the days between OSC filing and hearing — without a stay, the funder can keep restraining accounts while the motion is briefed.
Vacatur: The court's order undoing an entered judgment. The judgment is treated as if never entered for most purposes; restraining notices and other enforcement levers fall away. The underlying debt remains and can be litigated normally. See also: COJ Defense service page

General workout & restructuring terminology

Cross-cutting vocabulary used in any business-debt workout, regardless of debt type.

Aging report: A schedule that lists how long each receivable has been outstanding (current, 30 days, 60 days, 90+). Used to assess cash-flow timing and prioritize collection.
Cross-default clause: A contract clause that triggers default under one obligation when the borrower defaults under any other named obligation. Common in commercial leases and SBA loans. Means a single default can cascade across creditors. See also: Business Debt Resolution service page
Deficiency: The shortfall between what a creditor recovered (typically through liquidation or short payoff) and what was owed. The deficiency is a separate claim the creditor can pursue against the borrower or guarantor. See also: Defaulted Mortgage Workouts service page
Forbearance: A creditor's written agreement to refrain from enforcing remedies (acceleration, foreclosure, suit) for a defined period in exchange for specified borrower performance. Common first step in commercial mortgage and SBA workouts. See also: Defaulted Mortgage Workouts service page
Guarantor: A person or entity that has agreed in writing to pay another's debt if the principal obligor defaults. In small-business lending, the owner is almost always a personal guarantor.
Lien: A creditor's documented claim against specific collateral (real estate, equipment, receivables). Created by mortgage, security agreement, UCC filing, or court judgment. Released by satisfaction or termination filing.
Personal guarantee carve-out: A negotiated exception in the personal guarantee that limits the guarantor's exposure — typically capped at a dollar amount or restricted to specific events (fraud, misrepresentation). Worth pushing for at origination and in restructures. See also: Business Debt Resolution service page
Pro-rata payment: Dividing a fixed payment pool across creditors in proportion to each creditor's claim. Used in coordinated multi-creditor workouts to demonstrate fairness when total available cash is insufficient to satisfy any single creditor.
Restructuring: Any modification to the original debt terms — interest rate, principal, maturity, payment schedule, or guarantor obligations — that resolves the default short of full payment or bankruptcy. See also: Business Debt Resolution service page
Subordination: An agreement under which one lien-holder agrees to take a lower priority position than another. Often required when refinancing or bringing in new capital while existing UCC filings remain in place.

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