Plain-English definitions for 27 business financing terms U.S. lenders, brokers, and underwriters use every day. Grouped into loan products, credit and underwriting, the funding process, and collateral and security. Each term links to a deeper guide where one exists; if you can read this glossary you can read a term sheet.
This is the same vocabulary lenders use on real applications. We wrote each definition in 2-3 sentences so a business owner without a finance background can read a term sheet, a UCC search, or a credit decision memo and know what is being said. When a deeper guide exists on the site, the term links straight to it.
Loan Products
The named financing products you will see quoted on a term sheet. Each one solves a different problem; matching the product to the use of funds is the single biggest determinant of whether a deal closes cleanly.
SBA Loan
A small-business loan partially guaranteed by the U.S. Small Business Administration. The SBA does not lend directly; it insures bank loans, letting lenders offer longer terms and lower rates than they would on a conventional loan. Learn more about SBA loans.
SBA 7(a) Loan
The SBA's flagship general-purpose program. Up to $5 million for working capital, equipment, real estate, debt refinance, or business acquisition. Terms run 7-25 years depending on use of funds.
SBA 504 Loan
An SBA program for owner-occupied commercial real estate and major fixed assets. Combines a bank first mortgage, a CDC second mortgage, and 10% borrower equity. Lower rates than 7(a) but slower to close. Compare 7(a) and 504.
Equipment Financing
A loan or lease used to purchase business equipment, where the equipment itself secures the debt. Asset-backed underwriting means credit requirements are often lighter than unsecured loans. Learn more about equipment financing.
Working Capital Loan
A short-term loan that funds day-to-day operations rather than long-term assets. Typically 6-24 month terms; used to bridge cash-flow gaps, cover payroll during slow seasons, or fund inventory. Learn more about working capital.
Business Line of Credit
A revolving credit facility that lets a business draw funds up to a set limit, repay, and redraw. Interest accrues only on the drawn amount. Sized for ongoing cash-flow management, not one-time purchases. Learn more about lines of credit.
Term Loan
A lump-sum loan repaid over a fixed schedule, typically 1-10 years, with monthly principal-and-interest payments. Used for one-time investments like expansion, acquisition, or major equipment. Learn more about term loans.
Bridge Loan
Short-term financing (typically 6-24 months) used to bridge a gap until permanent financing closes or an asset sells. Common in commercial real estate transactions and acquisitions. Learn more about bridge loans.
Revenue-Based Financing
Capital provided in exchange for a fixed percentage of future revenue until a set repayment cap is reached. No fixed monthly payment; payments rise and fall with sales. Learn more about revenue-based financing.
Merchant Cash Advance (MCA)
A purchase of a business's future revenue at a discount, repaid via daily or weekly fixed ACH withdrawals. Priced as a factor rate, not an APR. Among the fastest-funding products but also the most expensive — usually the wrong tool when a term loan or line of credit is available.
Credit and Underwriting
The metrics, signals, and ratios underwriters use to decide whether to fund a deal and at what price.
FICO Score
A 300-850 personal credit score used by most U.S. lenders to assess consumer credit risk. Equipment financing typically requires 550-600+; SBA loans typically require 660-680+; the best rates go to 720+. Lenders pull personal FICO on virtually every small-business loan because of the personal guarantee.
APR (Annual Percentage Rate)
The yearly cost of borrowing expressed as a percentage, including interest plus most fees. The standard apples-to-apples comparison metric for installment loans. Always confirm whether a quote is APR or factor rate before comparing offers.
Factor Rate
A multiplier (e.g., 1.25) used to express the total payback on a merchant cash advance or short-term loan. A $50,000 advance at a 1.25 factor rate repays $62,500. Not directly comparable to an APR — the same dollar cost of capital looks much smaller as a factor rate.
DSCR (Debt Service Coverage Ratio)
Net operating income divided by total debt service. A DSCR of 1.25x means a business earns $1.25 for every $1.00 of loan payments. SBA lenders typically require 1.15-1.25x minimum; commercial real estate lenders often require 1.20-1.40x.
LTV (Loan-to-Value)
The loan amount divided by the appraised value of the collateral, expressed as a percentage. A $700,000 loan on a $1,000,000 property is 70% LTV. Lower LTV means lower lender risk, which usually translates into better rates.
ARV (After Repair Value)
The projected market value of a property after planned renovations are complete. Fix-and-flip lenders typically advance 65-75% of ARV, not the as-is purchase price. Learn more about fix-and-flip financing.
Time in Business (TIB)
How long a business has been operating, usually counted from the date of formation or the first revenue-generating activity. Most equipment lenders want 6+ months; SBA wants 2+ years. TIB under 6 months is “startup” territory and requires specialty lenders.
Personal Guarantee
A signed promise that the business owner will personally repay a loan if the business cannot. Required on virtually all small-business loans, including SBA. Pierces the corporate veil for that specific debt — a key reason owners scrutinize “no PG” claims carefully.
The Funding Process
The vocabulary used between application and money landing in the operating account.
Pre-Approval
A conditional commitment from a lender stating the maximum loan amount and approximate terms a borrower qualifies for, subject to final documentation review. Not a binding loan offer. Learn more about pre-approval.
Stipulations (Stips)
The list of documents an underwriter requires to clear conditional approval and fund a loan. Typical stips: bank statements, vendor invoice, EIN letter, voided check, insurance certificate. Slow stips are the single biggest cause of delayed funding.
Origination Fee
An upfront fee charged by a lender to process and fund a loan, typically 1-5% of the loan amount. Often financed into the loan rather than paid out of pocket. Disclosed on the loan agreement and reflected in APR.
Prepayment Penalty
A fee charged for paying off a loan before its scheduled maturity. Common on SBA 7(a) loans (declining over the first 3 years on terms over 15 years) and most commercial real estate loans. Always read the prepayment terms before signing.
EIN (Employer Identification Number)
A 9-digit federal tax ID assigned by the IRS to identify a business entity, similar to an SSN for an individual. Required on virtually every business credit application. Free to obtain at IRS.gov.
Collateral and Security
The vocabulary of what secures the loan and how lender claims rank against each other.
UCC-1 Filing
A public notice filed with a state's Secretary of State that secures a lender's interest in business assets used as collateral. Establishes lien priority — first to file generally has first claim if the borrower defaults. Learn more about UCC liens.
Blanket Lien
A UCC-1 filing that secures a lender against all of a business's assets rather than a specific piece of collateral. Common with working-capital and line-of-credit lenders. Can block other secured lenders from financing the same borrower until released.
Soft Costs
Non-equipment expenses that lenders may include in a financing package: installation, freight, training, software licenses, taxes. Equipment financing typically allows 10-25% in soft costs to be financed alongside the asset.
Owner-Occupied
A commercial property where the business that owns it occupies at least 51% of the usable square footage. SBA 504 and 7(a) real estate loans require owner-occupancy; investor-only purchases need conventional CRE financing. Learn more about owner-occupied SBA.
Take this glossary to a real conversation
Knowing what these terms mean is the cheap part. Knowing which combination of products fits your situation is the part where most owners burn months going lender to lender. Submit one application; get matched with the lenders whose product, credit boxes, and time-in-business minimums actually fit your business.