The Complete Business Financing Glossary

Business financing has a language of its own, and lenders rarely slow down to translate. This glossary defines the terms you'll meet across an application and an offer — in plain English — so no quote can hide behind jargon.

Cost and pricing

• APR (Annual Percentage Rate). The annualized cost of borrowing, including fees. The standard for comparing term loans, lines of credit, SBA products, and equipment financing.
• Interest rate. The cost of the money itself, before fees. Lower than APR when fees exist.
• Factor rate. A flat multiplier on the amount funded (e.g., 1.30 — roughly a 51% effective APR over a 12-month term). Used by revenue-based financing. It sets what the financing costs over its full course — read it as total payback and cents on the dollar, and ask separately what an early payoff would settle for.
• Origination fee. An upfront fee, often a percentage of the loan, sometimes deducted from proceeds.
• Prepayment penalty. A charge for paying off early; term loans sometimes carry one. Factor-rate products do not amortize, so an early payoff there is a negotiated discount on the total rather than saved interest — ask for those terms in writing.

Structure and terms

• Term. The length of time to repay.
• Amortization. How payments are split between principal and interest over the term.
• Holdback. The share of sales remitted on revenue-based financing until the total is met. Schedules vary by funder — ours run monthly, bi-weekly or weekly; some funders in the market debit daily.
• Draw. Borrowing against a line of credit.
• Revolving credit. A facility you can borrow, repay, and re-borrow up to a limit (e.g., a line of credit).

Credit and underwriting

• Underwriting. The lender's process of assessing risk and repayment ability.
• DSCR (Debt Service Coverage Ratio). Cash flow available to cover debt payments. Above ~1.25 is strong.
• Personal guarantee. A promise to repay personally if the business can't.
• UCC filing. A public notice a lender files to claim an interest in business assets as collateral.
• Collateral. Assets pledged to secure a loan.
• Time in business. How long the business has operated — a core risk signal.

Products

• Term loan. A lump sum repaid in fixed installments over a set term.
• Line of credit. Revolving access to capital you draw and repay as needed.
• SBA loan. A bank loan partially guaranteed by the Small Business Administration, offering low rates and long terms.
• Revenue-based financing. Unsecured capital repaid as a percentage of revenue until a fixed total (factor rate × funded amount) is met. Same-day funding, bank-statement underwriting.
• Equipment financing. A loan or lease secured by the equipment it funds.
• Invoice factoring / financing. Turning unpaid invoices into cash now.

Documents

• P&L (Profit & Loss statement). Revenue minus expenses over a period.
• Balance sheet. Assets, liabilities, and equity at a point in time.
• Debt schedule. A list of every outstanding obligation, payment, and balance.

Keep this page bookmarked. The next time an offer lands, you'll be able to translate every line of it.