Glossary: Merchant Cash Advance, RBF, Embedded Lending
1. Embedded Lending & Embedded Finance Terms
Embedded Lending - a financing model where loans or advances are offered directly inside another platform’s environment (e-commerce systems, PSP dashboards, SaaS tools, etc.) without redirecting the user to a bank.
Embedded Finance - financial products (credit, insurance, payments) built directly into non-financial platforms through APIs.
Embedded Credit - any credit product (loan, advance, credit line) integrated inside a platform where the user already operates.
Embedded Capital - working capital delivered through a partner platform using automated data access and scoring.
API-Based Lending - lending automated through APIs that connect a lender’s underwriting system with a partner platform’s data.
Partner-Led Financing - when a platform (e.g., PSP, SaaS, marketplace) becomes a distribution channel for a lender’s credit products.
Instant Embedded Offers - financing offers generated in real time using live business data through API integrations.
Partner Dashboard - a platform interface showing partner performance: number of financed merchants, commissions, volume, and repayments.
2. Revenue-Based Financing (RBF) Terms
Revenue-Based Financing (RBF) - a financing model where repayment is based on a fixed percentage of the borrower’s daily or weekly revenue.
Financing Amount - the capital amount a merchant receives upfront in an RBF agreement.
Revenue share - the percentage of daily/weekly sales automatically collected until the advance is repaid.
Payback Cap - the maximum total amount the borrower will repay.
Flexible Repayment - repayment that adjusts to sales volume - higher during stronger weeks, lower during weaker weeks.
Revenue Share Model - the merchant repays via a share of revenues rather than a fixed amortization schedule.
Settlement Cycle - How frequently repayments are collected (daily, weekly).
Top-Up Financing - a new financing offer sent to a merchant who is close to repaying an existing advance.
Automatic Renewal Offers - proactive capital offers generated using performance data (common at 80–90% repayment).
3. Merchant Cash Advance (MCA) & Alternative Lending Terms
Merchant Cash Advance (MCA) - financing where a provider purchases a share of future sales in exchange for an upfront advance.
Holdback Percentage - the percentage of sales automatically “held back” to repay an MCA.
Purchase of Future Receivables - the legal structure used in MCA: not a loan, but buying future revenue streams.
Fixed Fee Model - repayment structure where the repayment amount does not accrue interest but includes a fixed fee.
Business Advance - another term for non-loan, sales-linked financing.
Remittance - the payment collected from the merchant’s sales to repay the MCA.
Collections Method - how remittances are gathered - via PSP, bank debit, open banking, or card settlement.
Short-Term Working Capital - financing with a quick approval process and a short repayment horizon (1–6 months).
4. Risk, Underwriting & Data Analytics Terms
Underwriting - the process of evaluating risk, eligibility, and pricing based on business data.
Risk Score - a numerical score representing the probability of default.
Cash Flow Patterns - trends in inflows and outflows that indicate business stability.
Revenue Volatility - the extent to which revenue fluctuates over time.
Seasonality Index - a measure showing how sales vary across seasons or months.
Exposure - the total outstanding balance a lender has with a merchant.
Repayment Behavior - patterns that indicate how reliably a merchant completes repayments.
Default Probability - the likelihood that a borrower will fail to repay.
Portfolio Quality - the overall stability and performance of a group of financed merchants.
Automated Underwriting - underwriting handled by algorithms without manual review.
False Rejection Rate - percentage of incorrectly declined loan applications; reduced by Softloans bank statement analytics.
5. E-commerce & Merchant Performance Terms
Average Order Value (AOV) - average amount customers spend per order.
Conversion Rate - percentage of visitors who complete a purchase.
Gross Merchandise Volume (GMV) - total value of items sold through a platform.
Refund Ratio - percentage of orders that result in refunds, indicating operational or quality issues.
Inventory Turnover* - how frequently a merchant replaces stock, showing cash flow health.
Stockout Risk - risk that inventory runs out, harming sales and growth.
Customer Concentration - dependence on a small number of major customers, which increases risk.
Marketing ROI - return generated for each euro/dollar spent on advertising.
Sales Velocity - speed at which products sell over time.
Operational Cash Flow - cash generated through core business activities.
6. Banking, Payments & Transaction Data Terms
Open Banking - a system allowing financial institutions to share data securely via APIs.
Bank Statement Analytics - automated analysis of transaction-level data to assess risk, stability, and creditworthiness.
Transaction Density - the number of incoming/outgoing transactions, showing activity level.
Recurring Transactions - patterns of repeated revenue or expenses.
Chargeback Rate - percentage of revenue lost to card chargebacks.
PSP Data (Payment Service Provider Data) - information from payment processors showing real-time business performance.
Settlement Data - data from PSPs or card processors that shows actual revenue collected.
Cash Flow Categorization - process of grouping transactions into types for underwriting.
Bank Account Velocity - frequency of incoming payments indicating business momentum.
Credit Exposure Across Accounts - understanding the borrower’s existing loans across banks or platforms.
7. Finance & Capital Terms
Working Capital - capital used for day-to-day operations.
Bridge Financing - short-term capital that covers gaps until a major event (inventory arrival, seasonal demand).
Cash Buffer - the cash reserve a business holds to manage volatility.
Debt Service Coverage Ratio (DSCR) - a measure of a business’s ability to repay debt.
Gross Profit Margin - difference between revenue and cost of goods sold.
Operating Margin - profit after operating expenses.
Capital Efficiency - how effectively a company turns financing into revenue.
Leverage Ratio - indicates the level of debt relative to equity or income.
8. Creditworthiness & Scoring Terms
Creditworthiness - a borrower’s ability to repay based on financial behavior.
Automated Scoring Model - algorithm-based system that predicts repayment ability.
Fraud Indicators - patterns suggesting suspicious activity.
Credit Limit Recommendation - suggested maximum financing based on risk.
Affordability Assessment - analysis to determine how much repayment burden a merchant can sustain.