Business Financing Glossary · Loan & Lending Terms Explained

BUSINESS FINANCING GLOSSARY

Every funding term, in plain English.

138+ definitions — from APR and factor rate to DSCR, UCC liens, and SBA 7(a). Search it, or jump by letter. Many terms link straight to the product, calculator, or guide that goes deeper.

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1099: An IRS information return reporting payments to non-employees such as contractors. Relevant for staffing, gig, and contractor-heavy businesses.

Accounts Payable (AP): Money your business owes to suppliers and vendors for goods or services bought on credit. It sits on the balance sheet as a short-term liability.
Accounts Receivable (AR): Money your customers owe you for goods or services already delivered but not yet paid for. Outstanding AR is what invoice factoring advances against.Invoice factoring →
Accrual Accounting: Recording revenue and expenses when they’re earned or incurred, not when cash changes hands. Lenders often prefer accrual statements for a truer picture.
Advance Rate: In factoring, the percentage of an invoice’s value paid to you upfront — typically 80–90%. The rest (minus the fee) is released when your customer pays.Factoring calculator →
Aging Report: A breakdown of your unpaid invoices by how long they’ve been outstanding (e.g. 0–30, 31–60, 61–90 days). Factors use it to gauge collection risk.
Amortization: The schedule by which a loan is paid down over time. Each payment covers interest plus a slice of principal, so the balance falls to zero by the maturity date.Term loan calculator →
Annual Percentage Rate (APR): The yearly cost of borrowing expressed as a percentage, including interest and most fees. APR is the only fair way to compare offers priced differently.Business loan rates →
Annual Recurring Revenue (ARR): The predictable yearly revenue from subscriptions or contracts. A key metric for SaaS and recurring-revenue businesses raising capital.Revenue-based financing →
Annual Revenue: Your total gross sales over a 12-month period, before expenses. A core input lenders use to size how much you can borrow.How much can I borrow →
Articles of Incorporation: The legal document filed with the state to form a corporation. Lenders may request it to verify the entity.
Asset-Based Lending (ABL): Financing secured by business assets — receivables, inventory, equipment, or real estate — rather than cash-flow history. The asset is the lender’s safety net.
Average Monthly Revenue: Your total revenue divided across the months a lender reviews (usually 3–6 months of bank statements). Revenue-based and MCA underwriting leans heavily on this.Revenue-based financing →

Balance Sheet: A snapshot of what your business owns (assets), owes (liabilities), and the difference (equity) at a point in time. One of the three core financial statements.
Balloon Payment: A large lump-sum payment due at the end of a loan whose earlier payments didn’t fully amortize the balance. Common in some CRE and equipment deals.
Bank Statements: Monthly records of your business checking activity. Lenders read 3–6 months of them to verify revenue, cash flow, and account health — often the only “document” needed to start.
Blanket Lien: A UCC filing that claims a security interest in essentially all of a business’s assets, rather than one specific item. Broad protection for the lender.
Break-Even Point: The sales level at which total revenue exactly equals total costs — no profit, no loss. Everything above it is profit.
Bridge Loan: Short-term financing that “bridges” a gap until a longer-term solution or expected cash arrives — e.g. funding a property purchase before a sale closes.Commercial real estate →
Burn Rate: How fast a business spends its cash reserves each month. Paired with cash on hand, it tells you your runway.
Business Credit Card: A revolving line tied to a card, useful for everyday expenses and short float. Higher rates than most loans, but fast and flexible.Loan vs. credit card →
Business Credit Score: A score (e.g. Dun & Bradstreet PAYDEX, Experian Intelliscore) reflecting how reliably your business pays its obligations — separate from your personal FICO.Build business credit →
Business License: A government permit to operate legally in your industry and location. Lenders and the SBA may require proof.
Business Plan: A document outlining your model, market, financials, and projections. Often required for startup and SBA financing.Startup capital →
Buy Rate: In an MCA, the base factor rate a funder sets before any broker markup. The difference between the buy rate and your rate is the broker’s commission.

Cap Rate (Capitalization Rate): A property’s net operating income divided by its value, as a percentage. CRE lenders use it to gauge return and risk.Commercial real estate →
Cash Accounting: Recording income and expenses only when cash actually moves. Simpler than accrual and common for small businesses.
Cash Flow: The net movement of money in and out of your business over a period. Positive, steady cash flow is what most cash-flow lenders underwrite to.
Cash Flow Statement: A financial statement that tracks actual cash moving through operations, investing, and financing — distinct from profit, which can include non-cash items.
CDC (Certified Development Company): A nonprofit, SBA-approved entity that provides the second-mortgage portion of an SBA 504 loan, alongside a bank’s first mortgage.SBA loans →
Charge-Off: When a lender writes off a debt as unlikely to be collected. It badly damages credit and can still be pursued for collection.
Chargeback: A forced reversal of a card payment initiated by the customer’s bank. High chargeback rates can hurt MCA and card-based underwriting.
Chart of Accounts: The organized list of every account in your bookkeeping — assets, liabilities, income, expenses — that structures your financial statements.
Collateral: An asset pledged to secure a loan that the lender can seize if you default. Equipment, real estate, receivables, and inventory are common forms.Secured vs. unsecured →
Commercial Real Estate (CRE) Loan: Financing to buy, build, or refinance income-producing or owner-occupied commercial property. Structures range from SBA 504 to bridge and hard-money.CRE financing →
Concentration: In factoring, heavy reliance on one customer for most of your invoices. Factors watch it as a risk, though a strong debtor offsets it.
Cost of Goods Sold (COGS): The direct costs of producing what you sell, mainly materials and labor. Revenue minus COGS is your gross profit.
Covenant: A condition written into a loan agreement the borrower must meet — e.g. maintaining a minimum DSCR. Breaking one can trigger default even if payments are current.
Current Ratio: Current assets divided by current liabilities. Above 1.0 means you can cover short-term obligations — a quick read on liquidity.

Days Sales Outstanding (DSO): The average number of days it takes to collect payment after a sale. A high DSO is exactly the cash-flow gap factoring closes.Invoice factoring →
DBA (Doing Business As): A registered trade name a business operates under that differs from its legal name. Also called a fictitious or assumed name.
Debt Consolidation: Combining multiple business debts into a single new loan, ideally at a lower rate or longer term, to simplify payments and cut total cost.Debt consolidation →
Debt Schedule: A list of all your current business debts — balances, rates, monthly payments, and lenders. Underwriters use it to assess how much more you can service.
Debt Service Coverage Ratio (DSCR): Net operating income divided by total debt payments. Above 1.0 means you generate more than enough to cover debt; lenders often want 1.15–1.25+.
Debt Yield: A CRE metric — net operating income divided by the loan amount. Lenders use it as a size check independent of rate or value.
Debtor: In factoring, your customer — the party who owes the invoice. Because the factor collects from them, approval rides on the debtor’s credit, not yours.Invoice factoring →
Default: Failing to meet the terms of a loan — usually missed payments, but also broken covenants. It can accelerate the full balance and trigger collateral seizure.
Depreciation: Spreading the cost of an asset over its useful life on the books. A non-cash expense that lowers taxable income.
Disbursement: The release of approved loan funds to the borrower. Also called funding — the moment money hits your account.
Down Payment (Equity Injection): The portion of a purchase you fund yourself rather than borrow. SBA acquisition and real estate loans typically require 10–15%.
Draw Period: The window during which you can pull funds from a line of credit. After it ends, the line may convert to repayment-only.Line of credit →

EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for operating cash flow used to value businesses and gauge debt capacity.
Effective APR: The true annualized cost of financing priced as a factor rate or fee, once you account for how fast it’s repaid. Short paybacks make low-looking factor rates expensive.Factor-rate calculator →
EIN (Employer Identification Number): A federal tax ID for your business, issued by the IRS. Lenders use it to pull business credit and verify the entity.
Equipment Financing: A loan or lease used to acquire equipment, where the equipment itself secures the deal — so credit requirements stay flexible and up to 100% can be financed.Equipment financing →
Equipment Lease: Paying to use equipment over a term rather than buying it outright, often with an option to purchase, renew, or return at the end. Lower payments, no ownership until buyout.Financing vs. leasing →

Factor Rate: A pricing multiple (e.g. 1.25×) used for MCAs and some revenue-based financing instead of an interest rate. You repay the advance times the factor — convert it to APR to compare honestly.Factor rate to APR →
Factoring Fee: The discount a factor charges to advance against an invoice — typically 1–5% of the invoice value, varying with customer terms and volume.Invoice factoring →
FICO Score: The most common personal credit score (300–850). Lenders weigh it to gauge risk; many business products fund from 600, some lower on asset-based deals.Bad-credit options →
Financing Marketplace: A platform that routes one application to many competing lenders so you compare real, side-by-side offers — instead of applying to one bank at a time. It connects you to lenders; it isn’t the lender.Marketplace vs. bank →
Form 941: The quarterly IRS payroll-tax return employers file. Lenders may review it to verify payroll and headcount.
Funding: The disbursement of approved loan proceeds into your account. With many products, funding follows acceptance by 24–48 hours.

General Ledger: The master record of all financial transactions, organized by account — the backbone of your books.
Gross Margin: Revenue minus the direct cost of goods sold, as a percentage of revenue. It shows how much each sale contributes before overhead.
Gross Merchandise Value (GMV): The total value of goods sold over a period before fees and costs. A scale metric for e-commerce and marketplaces.
Gross Profit: Revenue minus the cost of goods sold, before operating expenses. What’s left to cover overhead and profit.
Gross Revenue: Total sales before any expenses or deductions. The headline “top line” lenders start from when sizing an offer.
Guaranty Fee: A one-time SBA fee on the guaranteed portion of a 7(a) loan, scaling with loan size (waived under $150K). Usually financed into the loan.SBA calculator →

Hard Inquiry (Hard Pull): A credit check that posts to your report and can dent your score a few points. It happens when you formally accept or apply to a specific lender — not when you compare offers.
Hard Money Loan: Short-term, asset-based real estate financing from private lenders, priced higher but funded fast and underwritten on the property and your equity rather than income.Commercial real estate →
Holdback: In an MCA, the fixed percentage of daily or weekly card/bank deposits the funder withholds toward repayment. It flexes with your sales volume.MCA vs. RBF →

Interest Rate: The percentage charged on the outstanding principal of a loan, separate from fees. Combine it with fees to get the true cost — the APR.
Inventory Financing: Capital used to buy stock, with the inventory itself often serving as collateral. Frees cash for businesses with seasonal or bulk purchasing needs.Inventory financing →
Invoice Factoring: Selling unpaid B2B invoices to a factor at a small discount for immediate cash. Approval rides on your customers’ credit, so newer businesses qualify.Invoice factoring →
Invoice Financing: Borrowing against unpaid invoices used as collateral, while you still collect from your customers yourself — unlike factoring, where the factor collects.Invoice factoring →

K-1 (Schedule K-1): A tax form reporting a partner’s or shareholder’s share of a pass-through entity’s income. Often requested for owners in SBA underwriting.

Letter of Intent (LOI): A non-binding outline of the key terms two parties intend to agree to — common in business acquisitions before a definitive purchase agreement.Acquisition loans →
Line of Credit (Business): Revolving capital you can draw on as needed, repay, and reuse — paying interest only on what you draw. Ideal for uneven or seasonal cash flow.Line of credit →
LLC (Limited Liability Company): A structure that shields owners’ personal assets while passing profits through to their personal taxes — the most common small-business entity.
Loan-to-Value (LTV): The loan amount as a percentage of the collateral’s value. Lower LTV means more equity cushion for the lender; CRE often runs 65–90% depending on structure.
Lockbox: A bank-controlled account where customer payments are sent directly — common in factoring so the factor collects remittances cleanly.

Maturity Date: The date a loan’s final payment is due and the balance reaches zero (or a balloon comes due).
Merchant Cash Advance (MCA): A lump sum repaid as a fixed share of daily/weekly card or bank deposits, priced with a factor rate. Fast and credit-flexible, but often the most expensive option — check the effective APR.MCA vs. RBF →
Mezzanine Financing: A hybrid of debt and equity that sits between senior loans and ownership in the capital stack. Used for growth or buyouts; lenders may take a small equity kicker.
Microloan: A small loan (often up to $50K), including the SBA Microloan program, aimed at startups and underserved businesses that need modest capital.

NAICS Code: The North American Industry Classification System code that identifies your industry. Lenders and the SBA use it to assess eligibility and risk — know yours before applying.
Net 30 / Net 60 / Net 90: Invoice terms giving a customer 30, 60, or 90 days to pay. The longer the terms, the wider the cash-flow gap.Invoice factoring →
Net Income (Net Profit): What’s left after all expenses, interest, and taxes are subtracted from revenue — the “bottom line.”
Non-Recourse Factoring: Factoring where the factor absorbs the loss if your customer fails to pay due to insolvency. Costs more than recourse factoring for that protection.Invoice factoring →
Non-Sufficient Funds (NSF): A bounced transaction from too little money in the account. Frequent NSFs on bank statements are a red flag that can sink cash-flow underwriting.
Notification Factoring: Factoring where your customers are told to pay the factor directly. Non-notification keeps the arrangement private and you collect as usual.

Operating Agreement: The internal document governing how an LLC is run and owned. Lenders may request it to confirm ownership.
Operating Expenses (OpEx): The ongoing costs of running the business — rent, payroll, utilities, marketing — excluding the direct cost of goods.
Origination Fee: An upfront fee a lender charges to process and fund a loan, usually a percentage of the amount. It’s baked into the APR.
Owner-Occupied: Commercial property where the operating business occupies the majority of the space. It unlocks SBA 504 and better CRE terms.Commercial real estate →
Owner’s Draw: Money an owner takes out of the business for personal use. It reduces equity and isn’t a deductible expense.

Personal Financial Statement (PFS): A summary of an owner’s personal assets, liabilities, and net worth. SBA and larger loans require it alongside business financials.
Personal Guarantee: A promise that you’ll repay the business debt personally if the company can’t. Standard on most small-business loans, secured or not.
Pre-Approval: A lender’s conditional offer based on a deeper review than prequalification — closer to a real commitment, pending documentation and a hard pull.
Prepayment Penalty: A fee for paying a loan off early, charged to recover interest the lender expected. Many small-business loans have none — check the terms.
Prequalification: An early, soft-pull estimate of what you’re likely to qualify for, with no hit to your credit. Comparing marketplace offers happens at this stage.
Prime Rate: The benchmark rate banks charge their most creditworthy customers (the WSJ Prime). Many business loan rates are quoted as “Prime + a margin.”
Profit & Loss Statement (P&L): Also called the income statement — it summarizes revenue, costs, and profit over a period. Lenders read it to judge profitability and capacity.
Profit Margin: Profit as a percentage of revenue. Net margin (after everything) and gross margin (after direct costs) tell different parts of the story.
Purchase Order (PO) Financing: Funding that pays your supplier to fulfill a confirmed customer order you couldn’t otherwise afford to produce. Repaid when the customer pays.

Quick Ratio: A stricter liquidity test: (current assets minus inventory) divided by current liabilities. Shows if you can pay bills without selling stock.

Recourse Factoring: The common form of factoring, where you’re responsible for buying back any invoice your customer doesn’t pay. Cheaper than non-recourse.Invoice factoring →
Refinancing: Replacing an existing loan with a new one — usually to lower the rate, extend the term, or consolidate higher-cost debt like stacked MCAs.Refinancing →
Reserve: In factoring, the portion of an invoice held back beyond the advance (e.g. the remaining 10–20%), released minus the fee once your customer pays.
Retained Earnings: Cumulative profits a business has kept and reinvested rather than paid out to owners. Builds equity over time.
Revenue-Based Financing (RBF): Capital repaid as a percentage of revenue until a set amount is met, with no fixed term and no collateral. Payments flex up in strong months and down in slow ones.Revenue-based financing →
Runway: How many months a business can operate on its current cash at its current burn rate before it runs out. Key for startups raising or borrowing.Startup capital →

S Corporation: A tax election letting a corporation pass income to owners’ personal returns, avoiding double taxation while keeping liability protection.
Sales Tax: Tax collected from customers on taxable sales and remitted to the state. Unremitted sales tax can become a serious liability.
SBA 504 Loan: An SBA program for major fixed assets — owner-occupied real estate and heavy equipment — combining a bank loan and a CDC loan at long terms and below-market fixed rates.SBA loans →
SBA 7(a) Loan: The SBA’s flagship, most flexible program — up to $5M for working capital, acquisitions, equipment, or real estate, with low rates and long terms via approved lenders.SBA loans →
SBA Loan: A loan partially guaranteed by the U.S. Small Business Administration, which lowers lender risk so you get the lowest rates and longest terms in commercial lending.SBA loans →
SBA Microloan: An SBA program offering loans up to $50K through nonprofit intermediaries, aimed at startups and small or underserved businesses.
Schedule C: The IRS form sole proprietors use to report business profit or loss on their personal return. Lenders read it to verify self-employed income.
Seasonal Business: A business whose revenue concentrates in certain months — landscaping, retail, tax prep. A line of credit smooths the off-season.Line of credit →
Secured Loan: A loan backed by collateral the lender can claim on default. Lower rates than unsecured debt, because the lender takes less risk.Secured vs. unsecured →
Side-by-Side Offers: Competing loan offers presented together so you can compare rate, term, and total cost at a glance — the core benefit of applying through a marketplace.
Soft Inquiry (Soft Pull): A credit check that doesn’t affect your score, used to prequalify and estimate offers. You can compare freely without any credit impact.
Sole Proprietorship: The simplest structure — one owner, no legal separation between personal and business liability. Income is reported on Schedule C.
Stacking: Taking on multiple cash advances or loans at once, with each lender drawing from the same deposits. It signals distress and often triggers auto-declines.
Startup Capital: Financing for new businesses underwritten on the founder’s credit, plan, and trajectory rather than years of revenue — including non-dilutive debt options.Startup capital →

Tax Lien: A government claim against your assets for unpaid taxes. It appears on credit and can block or complicate financing.
Term Loan: A lump sum repaid over a fixed period with set payments, typically 1–10 years. Predictable and well-suited to one-time investments.Term loans →
Term Sheet: A document laying out a financing offer’s key terms — amount, rate, term, fees, collateral — before final documents. Compare term sheets, not just headline rates.
Time in Business (TIB): How long your business has operated. Many cash-flow lenders want 6+ months; asset-based, SBA, and startup products can fund earlier.
Total Cost of Capital: Everything you’ll pay for financing — interest, fees, and any holdbacks — over the full life of the deal, not just the rate. The number that actually matters.
Tradelines: Individual credit accounts on a business or personal credit report. More positive tradelines build a stronger credit profile.Build business credit →

UCC Lien (UCC-1 Filing): A public notice a lender files to claim a security interest in your assets. It can be specific to one asset or a blanket lien over all of them.
Underwriting: The lender’s process of assessing risk — reviewing revenue, credit, time in business, and bank health — to decide whether and how to fund you.
Unsecured Loan: Financing not backed by specific collateral, approved on cash flow and credit. Faster but usually higher-rate, and still typically requires a personal guarantee.Unsecured loans →
Use of Funds: What you intend to do with the money — working capital, equipment, expansion, acquisition. Some products and SBA rules restrict eligible uses.

W-9: The IRS form a business provides to share its taxpayer ID for 1099 reporting. Routine in vendor and factoring relationships.
Working Capital: The cash available to run day-to-day operations — current assets minus current liabilities. The fuel for payroll, inventory, and growth between paydays.What is working capital →