Understanding the language of business lending gives you a real advantage at the negotiating table—you’ll know exactly what you’re agreeing to before you sign. This glossary of 50 key business loan terms helps small-business owners compare offers confidently and avoid costly surprises.
A – Terms Starting with A
- Accounts Payable
- Money your business owes to suppliers or vendors for goods and services already received. Lenders review accounts payable to gauge how well you manage short-term obligations.
- Accounts Receivable
- Outstanding invoices or money owed to your business by customers for completed work or delivered products. Accounts receivable can often be used as collateral or sold to a factoring company to unlock immediate cash.
- Annual Percentage Rate (APR)
- The true yearly cost of a loan expressed as a percentage, including interest and most fees. APR is the single best number to use when comparing loan offers side by side.
- Asset-Based Lending
- A financing arrangement where the loan is secured by business assets such as inventory, equipment, or receivables. Borrowing limits are typically set as a percentage of the appraised value of those assets.
B – Terms Starting with B
- Blanket Lien
- A legal claim that gives a lender the right to seize all of a borrower’s business assets if the loan goes unpaid. It is broader than a lien on a single piece of collateral and is common with SBA loans and MCAs.
- Business Credit Score
- A numerical rating—typically from 0 to 100 on major bureaus like Dun & Bradstreet or Experian Business—that reflects your company’s creditworthiness. A higher score unlocks better interest rates and larger loan amounts.
C – Terms Starting with C
- Cash Flow
- The net amount of money moving in and out of your business over a given period. Lenders prioritize strong, consistent cash flow because it demonstrates your ability to repay a loan on schedule.
- CDFI (Community Development Financial Institution)
- A federally certified lender focused on providing affordable financing to underserved businesses and communities. CDFIs often offer lower rates and flexible terms for startups or borrowers with thin credit histories.
- Collateral
- An asset pledged to a lender as security for a loan; the lender can seize it if you default. Common examples include real estate, equipment, inventory, and accounts receivable.
- Cosigner
- A third party—often a partner or family member—who agrees to repay a loan if the primary borrower cannot. Adding a cosigner with strong credit can help you qualify for better rates or larger amounts.
- Covenant
- A condition written into a loan agreement that requires the borrower to do—or refrain from doing—certain things, such as maintaining a minimum cash balance. Violating a covenant can trigger immediate repayment demands.
- Credit Utilization
- The percentage of your available revolving credit that you are currently using. Keeping utilization below 30% generally has a positive effect on both personal and business credit scores.
D – Terms Starting with D
- Default
- The failure to meet the repayment terms of a loan agreement, such as missing scheduled payments. Defaulting can result in collections, asset seizure, and serious damage to your credit profile.
- Draw Period
- The window of time during which a borrower can withdraw funds from a line of credit. Once the draw period ends, you typically enter a repayment phase where no additional draws are permitted.
- DSCR (Debt Service Coverage Ratio)
- A ratio calculated by dividing your net operating income by your total annual debt payments. A DSCR above 1.25 is generally considered healthy by most lenders.
E – Terms Starting with E
- Equipment Financing
- A loan or lease specifically used to purchase business equipment, with the equipment itself serving as collateral. This type of financing often features longer repayment terms and competitive rates because the lender’s risk is secured by a tangible asset.
F – Terms Starting with F
- Factor Rate
- A decimal multiplier—typically between 1.1 and 1.5—used to calculate the total repayment amount on a merchant cash advance instead of a traditional interest rate. A factor rate of 1.3 on a $10,000 advance means you repay $13,000 in total.
- Fixed Interest Rate
- An interest rate that stays the same for the entire life of the loan, making your monthly payments predictable. Fixed rates are ideal when market rates are low or when you need budget certainty.
G – Terms Starting with G
- Grace Period
- A set number of days after a payment due date during which a borrower can pay without incurring a late fee or penalty. Grace periods vary by lender but are typically 5 to 15 days.
- Gross Revenue
- The total income your business generates before any expenses or deductions are subtracted. Many lenders use gross revenue to determine maximum loan amounts, especially for revenue-based financing products.
H – Terms Starting with H
- Hard Inquiry
- A formal credit check initiated by a lender when you apply for financing, which can temporarily lower your credit score by a few points. Multiple hard inquiries in a short period can signal financial distress to future lenders.
I – Terms Starting with I
- Invoice Factoring
- The process of selling your outstanding invoices to a third-party factoring company at a discount in exchange for immediate cash. This is not a loan—it is the sale of an asset—so it does not add debt to your balance sheet.
L – Terms Starting with L
- Letter of Credit
- A bank-issued document that guarantees payment to a seller on behalf of a buyer, commonly used in international trade. It reduces the seller’s risk by ensuring funds are available before goods are shipped.
- Line of Credit
- A flexible financing arrangement that lets you borrow up to a set limit, repay it, and borrow again as needed. You only pay interest on the amount you actually draw, making it a cost-effective tool for managing cash flow gaps.
- Loan Origination Fee
- A one-time upfront charge by the lender for processing and funding your loan, typically ranging from 0.5% to 5% of the loan amount. This fee is included in APR calculations, so always ask about it when comparing offers.
- LTV (Loan-to-Value Ratio)
- The ratio of the loan amount to the appraised value of the collateral securing it. A lower LTV—meaning you are borrowing less relative to the asset’s value—generally results in better loan terms.
M – Terms Starting with M
- MCA (Merchant Cash Advance)
- An advance of cash repaid automatically through a fixed percentage of your daily credit and debit card sales. MCAs are fast and accessible but carry very high effective APRs—often exceeding 100%.
- Microloan
- A small loan, typically under $50,000, offered by CDFIs, nonprofit lenders, or the SBA microloan program to startups and small businesses that may not qualify for traditional financing. These loans often come with technical assistance and mentoring.
N – Terms Starting with N
- Net 30
- A payment term meaning a customer’s invoice is due in full within 30 days of the invoice date. Offering Net 30 terms can attract clients but may create temporary cash flow gaps that a line of credit can bridge.
P – Terms Starting with P
- Personal Guarantee
- A legal promise by a business owner to personally repay a loan if the business cannot. Signing a personal guarantee puts your personal assets—such as your home or savings—at risk in the event of default.
- Prepayment Penalty
- A fee charged by some lenders if you pay off your loan before the scheduled maturity date. Always check for this clause if you anticipate the ability to repay early, as it can eliminate any interest savings.
- Prime Rate
- A benchmark interest rate published by major U.S. banks, typically set 3 percentage points above the Federal Reserve’s federal funds rate. Many variable-rate business loans are priced as “prime plus” a certain number of percentage points.
- Principal
- The original amount of money borrowed, not counting interest or fees. Each loan payment reduces the outstanding principal, which in turn reduces the interest you owe going forward.
R – Terms Starting with R
- Revolving Credit
- A type of credit that automatically renews as you repay it, allowing repeated borrowing up to a set limit—similar to how a credit card works. Business lines of credit and business credit cards are the most common forms of revolving credit.
S – Terms Starting with S
- SBA (Small Business Administration)
- A U.S. government agency that supports small businesses by partially guaranteeing loans made by approved private lenders, reducing the lender’s risk. This guarantee allows small businesses to access larger amounts with longer terms and lower rates than they might otherwise qualify for.
- SBA 504 Loan
- An SBA program designed for purchasing major fixed assets like commercial real estate or heavy machinery, typically structured with a bank covering 50%, a Certified Development Company covering 40%, and the borrower contributing 10%. Loan amounts can reach $5.5 million with long repayment terms of up to 25 years.
- SBA 7(a) Loan
- The SBA’s most popular loan program, offering up to $5 million for a wide range of business purposes including working capital, equipment, and real estate. Approval typically requires good credit, at least two years in business, and demonstrated ability to repay.
- SBA SBSS Score
- The Small Business Scoring Service score used by the SBA to screen loan applications, combining personal credit, business credit, and financial data into a single number from 0 to 300. A score of at least 155 is generally required to pass the SBA’s initial screening for 7(a) loans.
- Secured Loan
- A loan backed by collateral that the lender can claim if you default on payments. Because the lender’s risk is lower, secured loans typically offer larger amounts and better interest rates than unsecured alternatives.
- Small Business
- As defined by the SBA, a small business is an independently owned and operated company that is not dominant in its field and meets specific size standards based on employee count or average annual revenues by industry. These definitions determine eligibility for SBA programs and many government contracting opportunities.
- SOFR (Secured Overnight Financing Rate)
- A benchmark interest rate based on overnight U.S. Treasury repo transactions, which replaced LIBOR as the primary reference rate for variable-rate loans after 2023. Many commercial loans now use SOFR plus a margin to determine the borrower’s interest rate.
- Soft Pull
- A credit check that does not affect your credit score, often used by lenders during pre-qualification to give you a loan estimate. You can undergo multiple soft pulls without any negative impact on your creditworthiness.
- Subordinated Debt
- Debt that ranks below senior debt in the repayment hierarchy if a business is liquidated or goes bankrupt—meaning senior lenders get paid first. Because subordinated lenders take on more risk, they typically charge higher interest rates.
T – Terms Starting with T
- Term Loan
- A lump-sum loan repaid over a fixed schedule—weekly, monthly, or quarterly—for a set period ranging from one to ten years or more. Term loans are one of the most straightforward financing products and are suited for one-time investments like equipment or expansion.
U – Terms Starting with U
- UCC Filing
- A Uniform Commercial Code filing that a lender records with the state to publicly announce its security interest in a borrower’s assets. A UCC lien can affect your ability to obtain additional financing until the original loan is repaid and the lien is released.
- Underwriting
- The process lenders use to evaluate the risk of approving a loan application by reviewing credit scores, financial statements, cash flow, and collateral. Underwriting determines whether you are approved, the loan amount, and the interest rate you receive.
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