We understand that finance terminology can be confusing when applying for business loans, even for experienced business owners. We’ve compiled this A–Z glossary to help you secure business financing with confidence.
A | B | C | D | E | F | G | H | I | L | M | N | O | P | Q | R | S | T | U | V | W | Y | Z
Click a letter above to jump directly to that section of the glossary.
A
Annual Percentage Rate (APR)
The annual cost of borrowing expressed as a percentage, including interest and fees. APR provides a more accurate picture of loan costs than the interest rate alone because it includes fees and other charges.
Borrower tip: It’s important to look at APR rather than just the interest rate, because many predatory lenders advertise low rates to make their offers seem attractive, then make up the difference by charging excessive fees.
Amortization
The schedule of paying down a loan’s principal and interest over time through regular payments. Each payment reduces the outstanding balance until the loan is fully repaid.
Example: A 3-year amortization for a $100,000 business loan breaks repayment into 36 equal monthly payments of approximately $3,226, including principal and interest.
Accounts Receivable (AR)
Money owed to a business by its customers for goods or services that have been delivered but not yet paid for.
Accounts Receivable Financing
Financing evaluated primarily based on a company’s accounts receivable rather than the other factors banks typically consider. Providers advance a percentage of outstanding invoices, allowing companies to convert receivables into cash quickly.
Advance Rate
The percentage of an asset’s value that a lender is willing to provide in the form of a loan. This metric is commonly used in asset-based or receivables-based financing.
Example: A $70,000 loan secured by $100,000 in equipment represents a 70% advance rate.
Asset-Based Lending (ABL)
A type of financing in which a loan is secured by business assets such as accounts receivable, inventory, equipment, or real estate.
Available Credit
The portion of a credit line that a borrower can still access. It’s calculated by taking the total credit limit minus any outstanding balance.
Automated Clearing House (ACH)
An electronic network used to process bank-to-bank payments. Lenders use ACH to deposit loan funds directly into your bank account.
Accrued Interest
Interest that has accumulated on a loan but has not yet been paid.
Alternative Lending
Financing provided by lenders that are not traditional banks. Alternative lenders often fund faster and may have more flexible qualification requirements, though interest rates are typically higher.
B
Bank Statement Underwriting
A simplified approval process that evaluates loan applications primarily based on bank deposits rather than tax returns, profit and loss statements, or debt-to-income ratios.
Example: Redline Capital can approve financing with just four months of bank statements, allowing businesses to close the same day they apply rather than waiting weeks for traditional bank approval.
Burn Rate
The rate at which a business spends its available cash reserves, typically measured monthly. Monitoring burn rate helps businesses plan for funding needs and assess how long existing cash will last.
Example: A startup with $120,000 in cash and a $10,000 monthly burn rate would exhaust its cash in 12 months without additional revenue or financing.
Business Line of Credit
A flexible credit limit that businesses can draw from as needed and pay interest only on the amount used. Unlike term loans, lines of credit can be repaid and reused multiple times during the term.
Brokers
Brokers connect businesses with multiple lenders and can often secure better terms through established relationships, while direct lenders fund loans with their own capital but limit options to their specific products.
Why this matters: Working with a quality broker like Redline Capital can help you secure better rates than applying directly to lenders. That’s because we leverage the volume of business we send to our lending partners to secure lower rates, exclusive discounts, and larger loan amounts.
Balloon Payment
A large, lump-sum payment made at the end of the loan term. Balloon payments allow businesses to secure larger financing amounts while making smaller monthly payments throughout the loan term.
Bridge Loan
Short-term financing that bridges the cash flow gap that occurs when businesses want to buy an asset while waiting to sell.
Base Rate
The minimum interest rate set by a lender, often used as a reference for calculating variable loan rates.
Borrowing Capacity
The maximum amount a lender is willing to loan a business based on its financials, cash flow, and creditworthiness. Banks typically determine borrowing capacity using cash flow analysis, debt service coverage ratios (DSCR), and overall financial strength. Depending on the lender and loan type, it may represent a percentage of monthly recurring revenue.
C
Cash Flow
Net cash moving in and out of a business over a specific period. Positive cash flow indicates the business generates enough money to cover expenses and service debt payments.
Collateral
Assets pledged to secure a loan that the lender can seize if the borrower defaults. Collateral reduces lender risk but puts business assets at stake.
Example: Equipment financing may use the purchased machinery as collateral. If payments stop, the lender can repossess the equipment.
Cash Flow Forecast
A projection of a business’s expected cash inflows and outflows over a future period to help plan for expenses and financing needs. Most lenders require businesses to submit a cash flow forecast based on upcoming work to secure financing.
Credit Line (or Line of Credit)
Any type of loan arrangement that allows a borrower to draw funds up to a set limit, repay, and borrow again as needed. There are various types of credit lines, including business lines of credit, personal lines of credit, Home Equity Line of Credit (HELOC), and Securities-Backed Line of Credit (SBLOC).
Credit Score
A numerical representation of a business’s or individual’s creditworthiness based on credit history, repayment history, financial behavior, and debt obligations.
Creditworthiness
An assessment of a borrower’s ability to repay a loan. This is based on their financial health, credit history, and current obligations.
Contract Financing
Funding provided to a business based on a signed contract or purchase order, which is often used to pay for materials and labor. Contract financing is most commonly used in the construction industry, where construction companies and contractors need to pay for a project but only get paid after it’s completed.
Covenants
Terms in a loan agreement requiring the borrower to meet certain financial metrics or operational standards throughout the loan term. Violating covenants can trigger default.
Example: Maintaining a minimum cash balance in a business bank account of $50,000 throughout the term, or keeping debt-to-income ratios below specified levels.
D
Debt Service Coverage Ratio (DSCR)
A ratio showing a business’s ability to cover debt payments with its operating income. DSCR is calculated by dividing monthly income by monthly debt payments.
Example: A business with $12,000 in net operating income and $10,000 in monthly debt payments has a DSCR of 1.2, indicating it generates 20% more income than needed to cover debt obligations.
Debt
Money a business owes to lenders or creditors.
Debt-to-Income Ratio (DTI)
A measure of a business’s ability to manage debt, calculated by dividing total monthly debt payments by monthly income. Lenders use DTI ratios to assess whether a business can afford additional financing.
Default
Failure to meet the terms of a loan agreement, such as missing payments or violating covenants. Default can trigger acceleration of the full loan balance and damage a business’s credit rating.
Delinquency
A late or missed loan payment that hasn’t yet triggered a default.
Example: Many loans are only considered to be in default after three months of missed payments. If a business misses one or two payments, it would be considered a delinquency rather than a default.
Disbursement
The release of loan funds to a borrower.
Draw Period
The timeframe during which a borrower can access funds from a line of credit or revolving loan. The draw period on most revolving loans is between 6 and 18 months.
Due Diligence
The lender’s review of a borrower’s financials, operations, and creditworthiness before approving a loan.
Down Payment
An upfront payment made by the borrower toward the total loan amount, often required for secured loans.
E
Equity Financing
Raising capital by selling ownership stakes in the company to investors. Unlike debt financing, equity doesn’t require repayment but dilutes ownership.
Example: A founder sells 10% equity to investors to raise $500,000 in growth capital, giving up partial ownership in exchange for funds without debt obligations.
Equipment Financing
Loans or leases used specifically to purchase business equipment, with the equipment itself typically serving as collateral for the loan.
Example: A manufacturer finances $200,000 in new machinery through equipment financing, using the machinery as collateral for favorable rates and terms.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization)
A metric that shows earnings before interest, taxes, depreciation, and amortization, and is a good measure of a business’s operating performance. Lenders use EBITDA to assess a company’s ability to repay debt.
Equity
The value of a business’s ownership, calculated as assets minus liabilities. Lenders consider equity when evaluating financial stability and default risk.
Equity Injection
Capital that the business owner contributes to the company. Equity injections are often required by lenders as a condition for financing.
Encumbrance
A claim, lien, or liability attached to a business asset that may affect its use as collateral for a loan.
Early Repayment / Prepayment
When a borrower pays off part or all of a loan before the scheduled due date. Some loans may include fees for prepayment.
Endorsement
A signed guarantee or approval on a financial document, such as a promissory note, often used to transfer rights or confirm obligations.
Excess Collateral
Assets pledged to secure a loan that exceed the minimum required by the lender, providing additional security for repayment.
Event of Default
A situation defined in a loan agreement that triggers a lender’s right to demand immediate repayment, such as missed payments or covenant breaches.
F
Factor Rate
A pricing method used in revenue-based financing that expresses the total repayment as a multiple of the amount borrowed, rather than as an annual percentage rate.
Example: A factor rate of 1.2 means borrowing $100,000 requires repaying $120,000 total, regardless of how quickly the loan is repaid.
Funding Speed
How quickly a lender can approve and disburse funds after receiving a complete application. Funding speed varies dramatically between different types of lenders.
Industry comparison: Traditional banks typically take 60–90 days to fund loans due to extensive documentation requirements. Revenue-based financing providers can often fund the same day because they focus primarily on revenue verification through bank statements.
Factoring
A financing arrangement where a business sells its accounts receivable to a lender or factoring company at a discount in exchange for immediate cash.
Fair Market Value (FMV)
The estimated value of an asset based on what a willing buyer would pay and a willing seller would accept in an open market. Lenders use FMV to assess collateral.
Finance Charge
The total cost of borrowing, including interest, fees, and other charges, expressed in dollars or as a percentage.
Fixed Interest Rate
An interest rate on a loan that remains the same throughout the term, providing predictable payments.
Floating Interest Rate / Variable Rate
An interest rate that can change over time based on a benchmark rate, which may affect the total cost of the loan.
Funding Fee
A one-time fee charged by a lender when a loan is issued, often used to cover processing and administrative costs.
Forgivable Loan
A loan that may be partially or fully forgiven if the borrower meets specific conditions. These conditions may include creating a certain number of jobs, serving an underprivileged community, or donating to certain non-profit organizations.
Funder
An individual or organization that provides capital to a business through loans or other financing arrangements.
G
Gross Revenue
Total earnings before any expenses, taxes, or any deductions, often used by revenue-based lenders to gauge eligibility for financing products. Consistent gross revenue demonstrates business stability.
Grace Period
A set period after a loan payment is due during which the borrower can pay without being considered in default or charged a late fee.
Guarantee
A legal commitment by an individual (often a business owner) to repay a loan if the business cannot, providing additional security for the lender. This may allow the lender to pursue personal assets if the business defaults.
Guarantor
The person or entity that agrees to repay a loan if the primary borrower defaults, often used in small business or startup financing.
Government-Backed Loan
A loan partially or fully guaranteed by a government agency, which reduces risk for lenders and can offer better terms for borrowers. The most common type of government-backed loan in the U.S. is a Small Business Administration (SBA) loan.
Gross Profit
The profit a business earns after subtracting the direct costs of producing goods or services from total revenue.
Growth Capital
Financing provided to a business to fund expansion, new projects, or scaling operations, often used by growing companies with proven revenue.
H
High-Pressure Tactics
Aggressive sales techniques used by some lenders to rush borrowers into accepting offers, often involving constant calls, artificial deadlines, and claims that rates will increase if not accepted immediately.
Red flags to watch for: Lenders who call repeatedly after you apply, claim offers will expire by end of day, or pressure you to accept before you can review terms or shop around.
Professional approach: Quality lenders present offers and give you time to make informed decisions without pressure or artificial urgency.
Hybrid Loan
A loan that combines elements of different financing structures, such as fixed and variable interest periods or multiple repayment phases.
Hard Money Loan
Short-term, high-interest financing secured by real estate or other assets, typically offered by private lenders rather than banks, often used when traditional loans are not available.
Home Equity Loan (for business use)
A loan in which a business owner borrows against the equity in their personal home to fund business expenses or expansion.
I
Interest Rate
The percentage charged by lenders on the money borrowed, typically expressed as an annual rate. Interest rate doesn’t include fees, making APR a more comprehensive cost measure.
Example: A 10% annual interest rate on a $100,000 term loan costs $10,000 per year in interest, before considering origination fees or other charges.
Invoice Factoring
A financing method where businesses sell their unpaid invoices to a factoring company for immediate cash, typically receiving 70–90% of invoice value upfront.
How it works: The factoring company collects payment directly from your customers and remits the remaining balance minus their fee once invoices are paid.
Inventory Financing
A loan or line of credit provided by a lender that businesses can use to purchase inventory. Inventory financing is typically used by retailers to stock up on in-demand products or prepare for busy periods.
Interest-Only Loan
A loan in which the borrower pays only the interest for a set period, with the principal balance remaining unchanged. After the interest-only period ends, regular principal and interest payments begin.
L
Last-Minute Rejections
When lenders decline loan applications after weeks or months of underwriting, often discovering issues late in the approval process that could have been identified earlier.
Why this happens: Lenders with extensive requirements often uncover problems 60–90 days into underwriting, forcing applicants to start over with new lenders.
How to avoid: Choose lenders with straightforward requirements who can provide definitive answers quickly, reducing the risk of wasting time on applications that won’t close.
Loan-to-Value Ratio (LTV)
The ratio of the loan amount to an asset’s appraised value, commonly used in asset-backed financing to determine lending limits.
Example: A $400,000 loan secured by a $500,000 commercial property yields an 80% LTV ratio.
Letter of Credit (LC)
A document issued by a bank guaranteeing that a borrower’s payment to a seller will be received on time and for the correct amount, often used in trade financing.
Lien
A legal claim or right a lender has on a borrower’s asset, which can be used to secure repayment of a loan.
Loan Agreement / Promissory Note
A formal contract between a lender and borrower outlining the terms of a loan, including repayment schedule, interest rate, and obligations. These documents are legally binding.
Leverage
The use of borrowed funds to increase a business’s potential return on investment, often measured by debt-to-equity or debt ratios.
Limited Liability Company (LLC)
A business structure that limits owners’ personal liability; lenders may consider LLC status when evaluating loan risk and personal guarantees.
Large Business Loans
Financing provided to businesses with significant revenue or assets, typically exceeding standard small-business loan amounts, often with stricter underwriting requirements.
M
Merchant Cash Advance (MCA)
A financing product where businesses receive a lump sum in exchange for a percentage of future credit card sales or daily bank deposits. They tend to be pricier than regular bank loans, but they typically fund within 24 to 48 hours.
Repayment structure: Payments are typically collected daily or weekly as a percentage of sales, meaning you pay less when business is slow and more during busy periods.
Minimum Documentation
An underwriting approach that requires only essential paperwork to approve financing, typically focusing on bank statements and basic business information rather than extensive financial documentation.
Benefits: Reduces approval time, eliminates need to prepare complex financial statements, and allows businesses to access funding quickly for time-sensitive opportunities.
Maturity Date
The date on which a loan must be in full, including any remaining principal and interest.
Monthly Payment
The fixed or variable amount a borrower is required to pay each month toward a loan, including principal and interest.
Minimum Payment
The smallest amount a borrower is required to pay by the due date to keep the loan in good standing.
N
Net Operating Income (NOI)
Revenue minus operating expenses. This figure is used by lenders to evaluate a business’s ability to service debt and maintain operations while making loan payments.
Non-Aggressive Sales Approach
A professional lending practice focused on education and finding appropriate financing solutions rather than pressuring borrowers to accept offers quickly.
What this looks like: Lenders who present multiple options, encourage you to shop around, provide transparent terms, and give you time to make informed decisions without pressure calls or artificial deadlines.
Net Profit
The amount of money a business retains after all expenses, taxes, and interest have been deducted from total revenue.
Net Revenue
Total revenue after subtracting returns, allowances, and discounts, showing the actual income a business earns from sales.
Negative Cash Flow
A situation where a business’s cash outflows exceed its inflows during a given period, which can impact loan approval and repayment ability.
O
Origination
The process by which a lender evaluates, approves, and issues a loan, including underwriting, documentation, and funding.
Origination Fee
A one-time charge for processing and funding a new loan, typically calculated as a percentage of the loan amount and added to the total cost.
Example: A 3% origination fee on a $100,000 loan equals $3,000, which may be deducted from the funded amount or added to the total repayment.
Outstanding Balance
The remaining amount of principal and interest owed on a loan at a given point in time.
Open-Ended Loan
A type of loan that allows the borrower to draw, repay, and reborrow funds up to a set limit, such as a business line of credit.
P
Predatory Lending
Unfair or deceptive lending practices that take advantage of borrowers, often involving hidden fees, excessive rates, or terms designed to trap borrowers in debt cycles.
Warning signs: Offers with unclear total repayment amounts, lenders who won’t explain terms clearly, excessive fees, or pressure to accept without reviewing documentation.
Pre-Qualification
An initial assessment of a business’s likely funding eligibility based on basic information, providing estimates before full application and underwriting.
Example: Pre-qualifying helps businesses understand potential loan amounts and terms before investing time in complete applications or gathering extensive documentation.
Principal
The original amount borrowed, excluding interest and fees. Principal reduction occurs with each payment on amortizing loans.
Private Lenders
Non-bank individuals or organizations that provide business financing, often offering faster approvals and more flexible criteria than traditional banks.
Payroll Loans
Short-term financing used by businesses to cover employee payroll expenses, typically repaid quickly once cash flow improves or revenue is received.
Q
Qualified Lender
A lender authorized to issue specific types of funding based on proper licensing, regulatory compliance, and proven underwriting standards.
Quick Funding
The ability to approve and disburse loans rapidly, typically within 24–48 hours, made possible by streamlined underwriting processes and minimal documentation requirements.
Industry standard: Revenue-based financing providers often fund faster than traditional lenders because they focus on revenue verification rather than extensive financial analysis.
R
Revenue-Based Financing (RBF)
Funding where approval and terms are based primarily on a business’s monthly revenue rather than credit scores, collateral, or extensive financial documentation.
Key advantages: Easier qualification (typically just need to meet monthly revenue minimums), faster funding (often same-day with just bank statements), and higher approval rates compared to traditional bank loans.
Example: A business generating $50,000 monthly can often qualify for revenue-based financing up to $100,000 without relying heavily on traditional credit scores or extensive paperwork.
Revolving Credit
A credit facility where funds become available again once repaid, allowing businesses to borrow, repay, and re-borrow up to their credit limit throughout the term.
Practical use: Unlike term loans that provide one-time funding, revolving credit adapts to fluctuating business needs without requiring new applications for each use.
Refinancing
Replacing an existing loan with a new loan, often to obtain better terms, lower interest rates, or extended repayment periods. For example, if a business owes $100,000 at 10% interest and another lender is willing to offer them $100,000 at 8%, they can use the new loan to pay off the old one, and pay less interest.
Repayment Term
The period over which a borrower is required to repay a loan, including both principal and interest.
Recourse Loan
A loan in which the lender can pursue the borrower’s personal or business assets if the loan is not repaid, in addition to any collateral.
Renewal
The process of extending or replacing an existing loan or credit line, often under similar or revised terms.
S
Same-Day Funding
The ability to receive approved loan funds on the same day as application submission, made possible by simplified underwriting and minimal documentation requirements.
SBA Loan
A U.S. Small Business Administration-backed loan offering favorable rates and long terms, but typically requiring extensive documentation and longer approval times.
Trade-offs: While SBA loans offer lower rates, they usually take 60–90 days to close and have strict eligibility requirements that many small businesses can’t meet.
Soft Credit Check
A credit inquiry that doesn’t impact your credit score, often used by lenders for initial qualification or pre-approval processes.
Benefit: Allows businesses to explore financing options and get initial approval without the credit score impact of hard inquiries.
Servicing Fee
A fee charged by a lender or loan servicer for managing a loan, including collecting payments, maintaining records, and handling administrative tasks.
Syndicated Loan
A large loan provided by a group of lenders (a syndicate) who share the risk and funding, often used by businesses requiring substantial financing.
T
Term Loan
A lump-sum loan repaid over a fixed schedule with regular payments of principal and interest until the loan is fully amortized.
Example: A $200,000 term loan with 24-month terms provides immediate capital for expansion, equipment, or working capital needs with predictable monthly payments.
Traditional Bank Financing
Conventional lending through banks that typically requires extensive documentation, strong credit, collateral, and longer approval processes.
Typical requirements: Credit scores above 700, multiple years of tax returns, financial statements, personal guarantees, and 60–90 day approval timelines.
U
Underwriting
The lender’s process of evaluating risk, creditworthiness, and financial data to determine loan approval and pricing.
Simplified underwriting: Revenue-based lenders often focus primarily on bank statements and revenue patterns, enabling faster decisions and same-day funding.
Traditional underwriting: Banks typically analyze credit scores, financial statements, tax returns, collateral, and business projections, requiring weeks or months to complete.
Unsecured Business Loans
Loans that do not require collateral. Approval is based on creditworthiness and revenue. Since the lender assumes more risk, interest rates are typically higher than secured loans.
V
Venture Debt
Debt funding typically provided to high-growth companies that already have venture capital backing, offering capital without additional equity dilution.
W
Working Capital Loans
Short-term funding used to cover daily business operations, manage cash flow gaps, or bridge the time between expenses and revenue collection.
Common uses: Payroll, inventory purchases, rent, utilities, and other operational expenses during cash flow shortages.
Example: A contractor uses working capital financing to purchase materials and pay workers while waiting for client payments on completed projects.
Y
Yield
The effective return a lender receives from a loan, including interest payments and fees over the loan term.
Z
Zero-Pressure Sales Process
A professional approach where lenders present financing options without using high-pressure tactics, artificial deadlines, or aggressive follow-up to force quick decisions.
What this includes: Transparent terms, time to review offers, encouragement to shop around, and respect for borrowers’ decision-making processes.
Example: Quality lenders like Redline Capital present multiple offers via email and allow businesses to take as much time as needed to evaluate options, with no pressure calls or countdown timers.