manu // resources // glossary
Business Finance Glossary:
Terms Every Owner Should Know
Understanding business financing starts with understanding the language. This glossary defines the key terms you will encounter when applying for loans, comparing offers, and managing debt, in plain English.
A - D
| Term | Definition |
|---|---|
| ACH (Automated Clearing House) | Electronic bank transfer system used for loan repayments. Some lenders deduct daily or weekly ACH payments directly from your business account. |
| APR (Annual Percentage Rate) | The yearly cost of borrowing, including interest and certain fees, expressed as a percentage. The standard metric for comparing loan offers. |
| Asset-Based Lending (ABL) | Revolving credit secured by business assets (receivables, inventory, equipment). Credit availability scales as your assets grow. |
| Balloon Payment | A large lump-sum payment due at the end of a loan term. Some equipment loans and commercial mortgages include balloon structures. |
| Blanket Lien | A lender's claim on all of a business's assets, not just one specific piece of equipment or property. Common with SBA and working capital loans. |
| Borrower Information Form (SBA Form 1919) | Required SBA form collecting business and owner information for 7(a) loan applications. |
| Collateral | An asset the lender can seize if you default. Common collateral: equipment, vehicles, real estate, inventory, receivables. |
| Credit Utilization | The percentage of available credit you are currently using. High utilization can lower your credit score. |
| DSCR (Debt Service Coverage Ratio) | Net Operating Income / Total Debt Service. Measures whether your business can cover its debt payments. SBA minimum: 1.10x. |
E - H
| Term | Definition |
|---|---|
| Effective APR | The true annual cost of a loan after accounting for fees, compounding, and repayment frequency. May differ from the stated APR. |
| Equipment Financing | A loan or lease where the equipment being purchased serves as collateral. Fast funding, flexible credit, 2-7 year terms. |
| Equity Injection | Cash or assets the borrower contributes to a project. SBA acquisitions typically require 10% equity, with at least 5% in cash. |
| Factor Rate | Decimal multiplier used by MCA providers instead of APR. 1.3 factor rate on $50K = $65K total repayment. Does not reflect declining balance. |
| FICO Score | Credit score ranging from 300-850, used by lenders to assess creditworthiness. Most business loan minimums range from 550 to 680+. |
| Fixed Rate | An interest rate that stays the same for the entire loan term. Provides predictable payments but may start higher than a variable rate. |
I - L
| Term | Definition |
|---|---|
| Invoice Factoring | Selling outstanding B2B invoices to a factor for immediate cash. The factor advances 85-90% and collects from your customer. |
| Invoice Financing | Using outstanding invoices as collateral for a loan or line of credit. You retain collection responsibility (unlike factoring). |
| Leasehold Improvements | Rennovations or build-outs to a leased commercial space. Eligible for SBA 7(a) financing with up to 10-year terms. |
| Line of Credit | Revolving credit you can draw from and repay repeatedly. You pay interest only on the drawn balance. Ideal for ongoing or variable needs. |
| Lien | A legal claim on an asset used as collateral. The lender holds the lien until the loan is fully repaid. |
| LTV (Loan-to-Value) | Loan amount divided by appraised asset value. An $80K loan on $100K equipment = 80% LTV. Lower LTV generally means better rates. |
M - P
| Term | Definition |
|---|---|
| Merchant Cash Advance (MCA) | A lump-sum advance repaid from future card sales or bank deposits. Not a loan but a purchase of receivables. Fast but expensive (30-120%+ effective APR). |
| Net Operating Income (NOI) | Revenue minus operating expenses, excluding interest and taxes. Used in DSCR calculations. |
| Origination Fee | A one-time fee charged by the lender to process a loan, typically 1-5% of the loan amount. Paid at closing or deducted from the disbursement. |
| Personal Guarantee | Legal commitment by a business owner to personally repay a loan if the business cannot. Required for most business loans, including SBA. |
| Prepayment Penalty | A fee for paying off a loan early. SBA 7(a) loans have no prepayment penalty for terms under 15 years; 15+ year terms have a declining penalty in years 1-3. |
| Prime Rate | The baseline interest rate banks charge their most creditworthy customers. SBA 7(a) rates are set as Prime + a spread. |
Q - S
| Term | Definition |
|---|---|
| SBA 7(a) Loan | The SBA's flagship loan program. Up to $5M, 75-85% government guarantee, terms up to 10 years (25 for real estate). Most flexible SBA product. |
| SBA 504 Loan | Fixed-rate, long-term financing for real estate and heavy equipment. Three-party structure: bank 50%, CDC 40%, borrower 10%. Up to 25-year terms. |
| SBA Preferred Lender | A lender authorized by the SBA to approve loans in-house without sending to the SBA for review. Faster processing than standard lenders. |
| Section 179 Deduction | IRS provision allowing businesses to deduct the full purchase price of qualifying equipment in year one, up to $2.5M (2025 limit, doubled by OBBBA). |
| Secured Loan | A loan backed by collateral. If you default, the lender can seize the collateral. Generally offers lower rates than unsecured loans. |
| SBLC (Small Business Lending Company) | A non-bank, SBA-licensed lender authorized to make SBA-guaranteed loans. The SBA recently expanded SBLC licenses to improve access. |
T - Z
| Term | Definition |
|---|---|
| Term Loan | A lump-sum loan with fixed repayment over a set period (6 months to 10 years). Provides predictable payments for one-time expenses. |
| Underwriting | The lender's process of evaluating a loan application: credit, revenue, cash flow, collateral, and business history. Determines approval, rate, and terms. |
| Unsecured Loan | A loan that does not require specific collateral. Typically has higher rates and stricter credit requirements because the lender takes more risk. |
| Variable Rate | An interest rate that changes over time, typically tied to the prime rate or another index. SBA 7(a) loans use variable rates (Prime + spread). |
| Working Capital | Current assets minus current liabilities. Measures short-term liquidity. A working capital loan bridges gaps when timing creates a temporary deficit. |
One application. 75+ lenders. No hard credit pull to pre-qualify.
Get Pre-QualifiedFrequently Asked Questions
What is APR?
APR (Annual Percentage Rate) is the yearly cost of borrowing expressed as a percentage. It includes the interest rate plus certain fees, giving you the true annual cost of a loan. APR is the standard way to compare loan offers from different lenders.
What is DSCR?
DSCR (Debt Service Coverage Ratio) measures whether your business generates enough income to cover its debt payments. A DSCR of 1.10x means your net operating income is 10% higher than your total debt service. Most SBA lenders require a minimum DSCR of 1.10x.
What is the difference between secured and unsecured loans?
A secured loan requires collateral (equipment, real estate, receivables) that the lender can seize if you default. An unsecured loan does not require specific collateral but typically has higher rates and stricter credit requirements because the lender takes more risk.
What is a factor rate?
A factor rate is a decimal multiplier used by merchant cash advance providers instead of APR. A 1.3 factor rate on a $50,000 advance means total repayment of $65,000. Factor rates do not account for the time value of money, making them harder to compare to traditional APR.
What is a personal guarantee?
A personal guarantee is a legal commitment by a business owner to personally repay a business loan if the business cannot. Most business loans, including SBA loans, require personal guarantees from all owners with 20% or greater stake.
What is working capital?
Working capital is the difference between current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). Positive working capital means you can cover near-term obligations. A working capital loan bridges gaps when timing creates a temporary deficit.
What is collateral?
Collateral is an asset that a lender can seize and sell if you default on a loan. Common business collateral includes equipment, vehicles, real estate, inventory, and accounts receivable. Loans with collateral typically have lower rates than unsecured loans.
Sources
- U.S. Small Business Administration, Glossary: sba.gov/funding-programs/loans
- Consumer Financial Protection Bureau: consumerfinance.gov
- IRS, Section 179: irs.gov/pub/946
Verified Reviews
3,000+ verified five-star reviews through National Business Capital's Trustpilot and Google profiles. Verify reviews on NBC →
This article was last reviewed July 10, 2026 by Malik Samara, Managing Partner. Our editorial team reviews and updates content on a rolling basis. Learn about our editorial standards.
Manu Business Lending is a paid referral partner of National Business Capital. Financing is provided by NBC and its lender network, not by Manu, and all loans are subject to lender approval, terms, and conditions. The information on this page is for educational purposes and does not constitute financial advice. Consult a licensed financial advisor for guidance specific to your business.