- Amortization
- The schedule by which loan principal is paid down over the life of the loan.
- APR (Annual Percentage Rate)
- The total cost of borrowing for a year, including interest plus most fees, expressed as a percentage.
- Asset-based lending (ABL)
- A revolving line of credit secured by a borrowing base of A/R, inventory, and sometimes equipment or real estate.
- Borrowing base
- The current amount available to draw on an ABL or factoring facility, recalculated from eligible collateral.
- Bridge loan
- Short-term financing used between today and a future event (refinance, sale, or stabilization).
- Covenant
- A condition in a loan agreement (financial or operational) the borrower must maintain.
- DSCR (Debt Service Coverage Ratio)
- Net operating income divided by total debt payments. Lenders typically want 1.20x or higher.
- Factor rate
- A multiplier (e.g. 1.30) applied to an advance to determine total payback. Common on MCAs and short-term loans.
- Guaranty
- A personal or corporate promise to repay if the borrower defaults. Most SBA and small business loans require personal guaranties.
- LTV (Loan-to-Value)
- Loan amount divided by the appraised value of the collateral, expressed as a percentage.
- Merchant cash advance (MCA)
- A purchase of future business receivables at a discount, repaid as a percentage of daily sales.
- Origination fee
- An upfront fee charged by the lender to process and fund the loan, often 1% to 5% of the loan amount.
- Prime rate
- The benchmark short-term interest rate set by U.S. banks. Most variable-rate business loans price as Prime + a spread.
- Recourse vs non-recourse
- Recourse: the borrower repays unpaid invoices in factoring. Non-recourse: the factor takes the credit risk.
- SBA 7(a)
- The most flexible SBA loan program, used for working capital, real estate, acquisitions, and equipment.
- SBA 504
- An SBA program for owner-occupied commercial real estate and major equipment, with fixed long-term rates.
- Term loan
- A lump sum loan repaid on a fixed schedule (monthly, weekly, or daily) over a set period.
- UCC-1 filing
- A public notice filed with the state showing a lender has a security interest in specific business assets.
- Underwriting
- The lender's process of evaluating creditworthiness, collateral, and cash flow before approving a loan.
- Working capital
- Current assets minus current liabilities. Working capital loans fund the gap between expenses and incoming cash.