Funding Glossary
The language of business funding, defined
Every industry has its jargon. Ours has more than most. Here's a plain-language reference for the terms you'll encounter in any funding conversation.
A
- Amortization
- The process of paying down a loan through scheduled principal-and-interest payments over time.
- Annual Percentage Rate (APR)
- An annualized cost of borrowing that includes interest and standard fees, used to compare loan costs on a common basis.
B
- Balance Sheet
- A financial statement summarizing a business's assets, liabilities, and equity at a specific point in time.
- Business Credit Score
- A score reflecting a business's creditworthiness, calculated by business credit bureaus using payment history, credit utilization, and other factors.
C
- Collateral
- An asset pledged by a borrower to secure a loan, which the lender may claim if the loan is not repaid as agreed.
D
- Debt Service Coverage Ratio (DSCR)
- A measure of cash flow available to pay debt obligations, calculated as net operating income divided by total debt service.
F
- Factor Rate
- A cost expressed as a multiplier of the funded amount (for example, 1.25) rather than as an annualized interest rate. Common in short-term products.
- Factoring
- The sale of accounts receivable to a third party (a factor) that then collects payment directly from the customer.
- Fixed Rate
- An interest rate that remains constant for the life of the loan.
G
- Guaranty
- A commitment by one party to be responsible for another party's debt if the primary borrower does not repay.
H
- Hard Credit Inquiry
- A credit check that occurs when a lender formally reviews credit as part of a lending decision; may temporarily affect a credit score.
L
- Line of Credit
- A revolving credit facility with a set limit that a borrower can draw from, repay, and draw from again.
M
- Merchant Cash Advance (MCA)
- An advance of capital repaid through a percentage of future sales or fixed remittances.
O
- Origination Fee
- A fee charged by a lender for processing a new loan, typically expressed as a percentage of the loan amount.
P
- Personal Guaranty
- A commitment by a business owner to be personally responsible for a business debt if the business cannot repay.
- Prepayment Penalty
- A fee charged when a loan is repaid before the scheduled term. Not all loans include one.
- Principal
- The original amount of a loan, excluding interest and fees.
R
- Revolving Credit
- A credit facility that can be repeatedly drawn from and repaid up to a specified limit.
S
- SBA (Small Business Administration)
- A U.S. federal agency that partially guarantees loans made by participating lenders to eligible small businesses.
- Secured Loan
- A loan backed by collateral. Typically offers better pricing than an unsecured equivalent.
- Soft Credit Inquiry
- A credit check that does not affect a credit score, often used for pre-qualification.
T
- Term Loan
- A loan repaid over a fixed period through scheduled payments of principal and interest.
U
- Underwriting
- The process a funding provider uses to assess the risk of extending credit to a borrower.
- Unsecured Loan
- A loan not backed by specific collateral. Typically relies more heavily on credit and cash-flow strength.
V
- Variable Rate
- An interest rate that can change over the life of a loan, typically tied to a benchmark rate.
W
- Working Capital
- The capital used to fund a business's day-to-day operations, typically calculated as current assets minus current liabilities.
Have a term we haven't covered?
Reach out — we're happy to explain any concept a funding conversation has thrown at you.