Invoice Factoring
The practice of selling unpaid B2B invoices to a third party (the factor) for 75% to 95% of face value within 24 to 48 hours.
Picture factoring as a triangle. You at one corner, your customer at another, the factor at the third. The factor steps into the middle and buys the invoice from you at a slight discount — maybe 80 cents on the dollar — and advances most of the value within 24 to 48 hours. When the customer eventually pays, they pay the factor, not you. The factor takes its fee out of the held-back reserve and remits the rest to you. It's not a loan; it's a recurring sale of an asset, which is why it doesn't show up on your balance sheet as debt. And because it's backed by the receivable rather than your tax return, it scales as your sales grow — almost like water in a cup, the line fills back up as customers pay down.
Example: On a $1MM invoice paid in 90 days at 80% advance and 1.5% per month, you net about $955,000 — the factor keeps $45,000 as the cost of getting 80% of the money in 48 hours instead of waiting 90 days.
Asset-Based Lending (ABL)
A revolving credit line — typically $250K to $25M — secured by AR, inventory, equipment, and sometimes real estate.
Factoring and ABL are cousins. They both create a revolving line that's collateralized by your AR, and both can include an add-on piece for inventory at a lower advance rate. The difference is structural: factoring is a recurring sale of the asset (no debt on the balance sheet), while ABL is a true line of credit that does show up as debt. ABL still uses a separate lockbox or DACA to control the cash flow, and the borrower supplies either a weekly or a monthly borrowing-base certificate to update the lender on what eligible collateral is available. ABL is usually the answer when a company has outgrown its bank line but still has hard assets and wants to keep the structure of a traditional line.
Revolving Line of Credit
A credit line you can draw down, pay back, and draw down again — borrowing only what you need when you need it.
A revolver is the closest financial product to a credit card for a business. There's a ceiling — say, $1MM — and you can borrow against it, pay it down as customers pay you, and borrow against it again. The water-in-a-cup analogy works here: as payments come in and bring the balance down, your available capacity fills back up. Most asset-based facilities and most factoring facilities are structured this way, which is why they fit growing businesses better than a fixed term loan. You only pay interest on what you're actually using, not the whole ceiling.
Term Loan
A lump sum of capital borrowed at a fixed rate with a set repayment schedule over a defined period — usually 1 to 10 years.
A term loan is what most people picture when they hear 'business loan.' You borrow a fixed amount up front, you get the cash in your account, and you pay it back on a schedule — usually monthly, with principal and interest blended into each payment. The benefit is predictability: you know exactly what you owe each month. The tradeoff is flexibility: unlike a revolver, you don't get the money back to redraw after you've paid it down. Term loans make sense when you have a specific, one-time need — an acquisition, an equipment purchase, paying off a stack of MCAs — rather than a recurring working capital gap.
Bridge Loan
Short-term capital — often interest-only, 30 to 180 days — designed to exit when a specific event closes.
A bridge loan is a means to an end. The annualized rate looks higher than you'd like, but the math changes once you see how it functions — like a line of credit you pay off in two months. A 6% or 7% annualized cost sounds painful in the abstract, until you realize you're getting orders out the door at a 66% gross margin. The bridge is there to cover the gap until something specific closes: a contract, an acquisition, a property sale, a cleaner long-term refinance. You only pay interest for the days you actually use the money, and most bridge structures have aggressive early-payoff discounts.
Sale-Leaseback
A financing structure where you sell free-and-clear equipment to a lender and lease it back over 3 to 4 years, freeing up the cash equity locked in the asset.
A sale-leaseback is a fancy way of saying: it's like they own it now. You take a piece of equipment that you own free and clear, you sell it to the lender, and then you lease it back from them — making lease payments over a three or four year period. The point isn't to actually transfer the equipment; you keep using it the whole time. The point is to get cash out of an asset that was just sitting on your balance sheet doing nothing. It's a term note in lease clothing, and it's one of the cleaner ways to extract working capital from equipment you already own.
Merchant Cash Advance (MCA)
A short-term advance against future revenue, repaid through daily or weekly debits from the business bank account — often at triple-digit true APRs.
A merchant cash advance is a non-loan financing product where a funder buys a portion of your future deposits or card sales in exchange for an up-front lump sum. Repayment is a daily or weekly ACH pull until a fixed factor amount is collected. On the better end of the spectrum the true APR runs in the 50s; on the harder end — especially with stacked positions — effective APRs can reach the triple digits. MCAs have a legitimate but narrow use case: short-term, structured carefully, with a clear exit plan. Without that exit, the daily extraction pattern tends to drive borrowers toward additional advances rather than away from them.
Reverse Consolidation
An MCA-style product marketed as a consolidation loan that actually just stacks another advance on top of your existing MCAs.
A reverse consolidation sounds like a solution. The pitch is that one new funder will pay your existing MCA payments on your behalf each week and you'll pay them back on a slightly easier schedule. But the math usually doesn't work in your favor: you're not eliminating the old debt, you're just adding a new payment on top of it and the funder is taking a margin in the middle. It's a Band-Aid: another MCA structurally identical to the ones it claims to consolidate. A true MCA exit means a real refinance into a longer-term, lower-cost product — typically a term loan or asset-based line — not another product from the same world.
Revenue-Based Financing (RBF)
A loan or line underwritten primarily on the business's historical cash flow and trailing-12-month revenue, not on a specific asset.
All business lending falls into one of two underwriting buckets: asset-backed (the lender is sized to your AR, inventory, equipment, or real estate) or revenue-based (the lender is sized to your historical cash flows and trailing 12-month revenue). RBF is the second bucket. It's what you use when you don't have AR or inventory to pledge but you do have a real, growing top line. Typical sizing is 10% to 15% of annual revenue, sometimes pushing 20%. The better RBF lenders offer monthly payments, longer terms, 100% interest forgiveness on prepayment, and even a revolving structure that acts more like a true line of credit. The harder end of the RBF spectrum starts to look operationally like an MCA — daily debits, factor-rate-style pricing, triple-digit effective APRs.
Example: A company doing $5MM in annual revenue can typically qualify for $500K to $750K in revenue-based financing — the standard 10% to 15% of trailing revenue.
SBA Loan (7a / 504 / Express)
A government-guaranteed loan made by a bank or credit union, typically the cheapest non-real-estate capital a growing business can access — but the slowest to close.
An SBA loan isn't actually from the SBA — it's from a bank, with the SBA guaranteeing a portion of the loan to reduce the bank's risk. That guarantee is what lets the bank offer longer terms and better rates than they'd otherwise approve. The 7(a) is the general-purpose program, the 504 is for fixed-asset purchases (real estate, big equipment), and SBA Express handles faster, smaller deals. The catch is timing: SBA underwriting runs 4 to 12 weeks, and the documentation requirements are real. For a business that fits the SBA credit box and can wait, it's almost always the cheapest option. For a business that needs cash in 10 days, it's the wrong product.
PO Funding (Purchase Order Funding)
Capital that pays your suppliers — domestic or international — for 70% to 100% of a confirmed customer purchase order, before you ship the goods.
PO funding solves the cash trapped between you and your supplier. You've got a real purchase order from a real customer, but you can't fulfill it because you don't have the cash to pay the vendor for the materials or finished goods. A PO funder steps in and pays the supplier directly on your behalf. They typically advance 70% to 100% of the cost, and they get paid back once you invoice the customer and the receivable is collected (or factored). PO funding pairs naturally with AR financing — PO covers production, factoring covers the wait after delivery — and it's how most importers and manufacturers fund growth that's outrunning their bank line.
Subordinated Debt / Mezzanine Financing
Debt that sits behind senior secured lenders in repayment priority — typically lending at 1 to 5 times EBITDA, priced higher to reflect the lower position.
Subordinated debt — sometimes called mezzanine — is what you reach for when you've already pledged everything to your senior lender and you still have a growth opportunity to fund. It sits behind the senior lender in line for repayment, which is why it costs more. But it lets you stack additional capital on top of an asset-based line or a real-estate mortgage without forcing you to refinance the whole structure. Most sub-debt lends at 1 to 5 times EBITDA, and some structures come without a UCC filing or even a personal guarantee. It's the layer that makes a layered-capital strategy actually work.
Cash-Out Refinance
A new loan that pays off existing debt and pulls additional cash out of the underlying collateral — usually real estate or equipment.
A cash-out refinance is a way to take dead equity sitting in an asset and turn it into deployable working capital. The most common use: an owner has a building with a first mortgage but real equity behind it, and the new loan pays off the old mortgage at a better rate and writes a check for the difference. Same principle works on free-and-clear equipment via sale-leaseback. The underlying logic: if you have real estate with equity behind it and cost of capital is the priority, that's where you start. Real estate consistently commands the lowest rates because it's the safest collateral lenders see — it doesn't move, it tends to appreciate, and it's straightforward to value. Same logic applies when you're trying to wipe out stacked MCAs: cash out of an asset at a much lower rate and clean the slate.
