The five terms that prevent beginner confusion
Underwriting starts by naming each economic component correctly. Mixing the funded amount, purchased amount, factor rate, holdback, and remittance produces bad calculations before any risk judgment begins.
- Purchase price
- The upfront amount the funder provides for the purchased receivables, before any separately stated up-front fees.
- Purchased amount
- The specified total amount of future income or receivables the contract says is being purchased.
- Factor rate
- The multiplier often used to connect purchase price to purchased amount. It is not, by itself, an annual percentage rate.
- Purchased percentage or holdback
- The agreed percentage of future receipts associated with delivery of the purchased amount in a variable-remittance structure.
- Remittance
- The amount delivered periodically. Some agreements use estimated fixed ACH remittances with a reconciliation process.
A simple fictional structure
$50,000 purchase price × 1.35 factor = $67,500 purchased amount
This multiplication explains the contract amount in the example. It does not determine whether the structure fits the business, convert the transaction into an APR, include every fee, or establish how quickly the purchased amount will be delivered.
Why substance matters more than a label
The CFPB describes MCAs as business financing that purports to be structured as a sale of potential future income and notes that products vary in form and substance. Underwriters and operators should avoid universal legal claims and use qualified counsel for contract and jurisdiction-specific questions.