Quick answer: This glossary explains the most common small business financing terms in plain English so you can compare offers and understand what you’re signing.
A–C
Amortization: Paying off a loan with regular payments that cover interest and principal over time.
APR (Annual Percentage Rate): The yearly cost of borrowing including interest and many fees.
Balloon payment: A large lump-sum payment due at the end of a loan.
Blanket lien: A lender’s claim on all or most business assets.
Bridge loan: Short-term financing used until longer-term financing is in place.
Cash flow: The movement of money into and out of a business.
Collateral: An asset a lender can claim if a loan isn’t repaid.
Covenant: A condition in a loan agreement, such as keeping a minimum bank balance.
Credit utilization: How much of your available credit you’re using.
Cross-default: A clause that treats a default on one loan as a default on another.
D–L
Debt consolidation: Combining several debts into one loan.
Debt service coverage ratio (DSCR): Cash flow available to pay debt divided by debt payments.
Default: Failing to meet the loan terms, such as missing payments.
Draw: Taking money from a line of credit.
EIN: A business’s federal tax ID number.
Equipment financing: A loan or lease used to buy equipment, usually secured by the equipment.
Factor rate: A multiplier (like 1.25) used to calculate total payback; not an annual rate.
Fixed rate: An interest rate that doesn’t change.
Hard credit inquiry: A credit check that can lower your score slightly.
Invoice factoring: Selling unpaid invoices for immediate cash.
Line of credit: A revolving limit you can draw from and repay.
M–S
Maturity date: When a loan must be fully repaid.
Origination fee: A fee to process a loan, often a percentage of the amount.
Personal guarantee: An owner’s promise to repay if the business can’t.
Prepayment penalty: A fee for paying off a loan early.
Prime rate: A benchmark rate many variable-rate loans are based on.
Principal: The amount borrowed, not including interest.
Revenue-based financing: Financing repaid as a share of future revenue.
Revolving credit: Credit that becomes available again as you repay it.
SBA loan: A loan partly guaranteed by the U.S. Small Business Administration.
Section 179: A tax provision letting businesses deduct qualifying equipment in the year it’s placed in service.
Secured loan: A loan backed by collateral.
T–Z
Term: How long you have to repay a loan.
Term loan: A lump sum repaid on a set schedule.
Total cost of capital: Everything you’ll pay beyond the amount borrowed.
UCC-1 filing: A public notice that a lender has a claim on business assets.
Underwriting: The lender’s review of your application.
Unsecured loan: A loan without specific collateral.
Variable rate: An interest rate that can change over time.
Working capital: Current assets minus current liabilities — the money available to run daily operations.
Related Guides
- What Is Working Capital and How Much Should Your Business Keep?
- Best Working Capital Options for Seasonal Businesses
- How to Get Approved for a Small Business Loan: 12 Tips That Work
- Typical Small Business Loan Repayment Terms Explained
- Same-Day Business Loans: How They Work and How to Get Funded Today
- Business Term Loan vs. Line of Credit: Which Is Better for Your Business?
Frequently Asked Questions
What does APR mean on a business loan?
APR is the annual percentage rate: the yearly cost of borrowing including interest and many fees.
What is the difference between a secured and unsecured business loan?
A secured loan is backed by specific collateral; an unsecured loan is not, though it may still include a personal guarantee or general lien.
What is a draw on a line of credit?
Taking money from your available credit limit. You typically pay interest only on the amount drawn.
What is underwriting?
The lender’s review of your application, bank statements, credit and other information to decide whether to approve the loan and on what terms.
Need financing? Brookestone Funding offers business term loans, lines of credit and SBA loans from $10,000 to $2,000,000, with same-day funding available for qualified businesses. We’re rated 4.5 on Trustpilot by more than 240 customers. Apply in minutes, see our business loan options, or call 212-258-0602.
