Walking into a lender meeting without knowing the vocabulary puts you at a disadvantage. Here are the terms that come up most often — explained the way a borrower needs to understand them.
A
Accounts Receivable (A/R) Money owed to your business by customers for goods or services already delivered. Lenders often look at A/R aging to assess the quality of your revenue — older receivables (90+ days) are a red flag.
Amortization The process of paying off a loan over time through regular payments that include both principal and interest. A fully amortizing loan has a $0 balance at the end of the term.
Annual Percentage Rate (APR) The total yearly cost of borrowing including fees and interest, expressed as a percentage. More useful than interest rate alone when comparing loan offers.
Asset-Based Lending (ABL) A type of financing where the loan is secured by collateral — typically accounts receivable, inventory, or equipment — rather than primarily by cash flow. Common for businesses in turnaround or with lumpy revenue.
B
Balloon Payment A large lump-sum payment due at the end of a loan term. Common in commercial real estate loans where the amortization period (say, 25 years) is longer than the actual loan term (say, 10 years). At year 10, the remaining principal balance comes due all at once.
Basis Point (bps) One-hundredth of one percentage point. "25 basis points" = 0.25%. Used constantly in rate discussions. "The Fed raised rates 25 bps" means rates went up 0.25%.
Bridge Loan Short-term financing (typically 6–24 months) used to bridge a gap — usually while permanent financing is being arranged. Higher rates than permanent loans; meant to be paid off or refinanced quickly.
Business Credit Score A score assigned to your business entity (separate from your personal credit) by Dun & Bradstreet (PAYDEX), Experian Business (Intelliscore), or Equifax Business. Ranges and scoring criteria vary by bureau.
C
Cap Rate (Capitalization Rate) Used in commercial real estate: Net Operating Income divided by the property's current market value. Lenders use this to assess the income-producing potential of real estate collateral.
Cash Flow The actual movement of money in and out of a business. Revenue minus expenses minus debt service = free cash flow. Lenders care most about operating cash flow — not accounting profit.
CDFI (Community Development Financial Institution) A specialized lender certified by the U.S. Treasury to serve underserved markets. CDFIs often have more flexible underwriting than banks and competitive rates. Good option for businesses that don't yet meet conventional bank standards.
Collateral An asset pledged to secure a loan. If you default, the lender can seize and sell the collateral to recover the loan balance. Common collateral: real estate, equipment, vehicles, A/R, inventory.
Covenant A condition built into a loan agreement that the borrower must maintain. Financial covenants typically require maintaining minimum DSCR, maximum leverage ratios, or minimum liquidity levels. Violating a covenant can trigger default even if you're current on payments.
Credit Memorandum (Credit Memo) The internal document a bank loan officer writes to present your deal to the credit committee. Summarizes your financials, the loan structure, the risk assessment, and the recommendation. You never see this document, but it determines your approval.
D
Debt Schedule A complete list of all existing business debt: creditor name, original balance, current balance, monthly payment, interest rate, maturity date, and collateral. Almost every commercial lender requires one.
Debt Service The total required cash outflow to cover loan principal and interest payments over a period — usually stated annually. A $10,000/month payment = $120,000/year debt service.
Debt Service Coverage Ratio (DSCR) Net Operating Income divided by Annual Debt Service. Measures whether your business generates enough cash to cover its loan payments. Most lenders require 1.20x minimum; SBA often requires 1.25x.
DSCR = Net Operating Income ÷ Annual Debt Service
Default Failure to fulfill the terms of a loan agreement. Typically triggered by missed payments, but can also be triggered by covenant violations, material adverse change, or fraud.
Draw Period For a line of credit, the period during which you can borrow funds. After the draw period ends, the line enters repayment phase.
Due Diligence The lender's process of verifying everything in your application — reviewing tax returns, bank statements, legal documents, appraisals, and business records. More thorough for larger or more complex loans.
E
EBITDA Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow. Lenders often start here before adjusting for non-recurring items, owner compensation normalization, and other factors.
Equity Injection The down payment or cash contribution you bring to a deal. On SBA loans, equity injection is typically 10–30% of the total project cost. Higher equity reduces lender risk and often leads to better terms.
F
Fixed Charge Coverage Ratio (FCCR) Similar to DSCR but includes all fixed obligations — lease payments, insurance, and other fixed costs in addition to debt service. More comprehensive measure of your ability to cover obligations.
FCCR = EBITDA ÷ (Debt Service + Lease/Rent Payments)
Floating Rate An interest rate tied to a benchmark (like Prime or SOFR) that changes over time. As the benchmark moves, your rate and payment adjust. Opposite of a fixed rate.
G
Global Cash Flow An underwriting approach that looks at total cash flow across all entities and individuals — your business, your personal finances, and any other businesses you own. SBA and many conventional lenders use global cash flow to ensure your total obligations can be covered.
Gross Margin Revenue minus cost of goods sold, divided by revenue. Expressed as a percentage. High-margin businesses (professional services, software) look different to lenders than low-margin businesses (grocery, distribution).
Guaranty A commitment to repay a loan if the primary borrower defaults. SBA loans require a personal guaranty from all owners with 20%+ ownership. Some loans also require a spousal guaranty.
H–L
Hard Pull A credit inquiry that appears on your credit report. Multiple hard pulls in a short period can lower your score. Each loan application typically triggers one.
LTV (Loan-to-Value Ratio) The loan amount as a percentage of the appraised value of collateral. A $700,000 loan on a $1,000,000 property = 70% LTV. Lower LTV = less risk for the lender.
Lien A legal claim against an asset. When you pledge collateral, the lender files a lien (often a UCC filing) that gives them a legal right to that asset. Liens must be resolved when selling assets.
M–N
Maturity Date The date a loan must be fully repaid.
Non-Recourse Loan A loan where the lender's only recourse in default is to seize the collateral — they cannot pursue the borrower personally for any deficiency. Rare in small business lending; more common in large commercial real estate.
Non-Recurring Items Income or expenses that are one-time in nature and not expected to repeat. Gain on asset sale, lawsuit settlements, PPP forgiveness. Lenders typically "kick out" these items when calculating adjusted cash flow, since they don't reflect the business's ongoing earning power.
Net Operating Income (NOI) Revenue minus operating expenses, before debt service, depreciation, and taxes. The numerator in DSCR. In real estate, NOI = gross rental income minus vacancy and operating expenses.
P–R
Personal Financial Statement A snapshot of your personal assets, liabilities, and net worth. Required on almost every business loan application. SBA uses Form 413.
Pre-Qualification An informal assessment of whether you might qualify, usually without a hard credit pull. Not a commitment to lend.
Prime Rate The interest rate that commercial banks charge their most creditworthy customers, typically 3% above the federal funds rate. Many business loans are priced as "Prime + X%."
Principal The original loan amount, or the remaining unpaid balance. Principal payments reduce what you owe; interest payments are the cost of borrowing.
Recourse The lender's right to pursue the borrower personally if the collateral doesn't cover the loan balance. Most small business loans are full-recourse — meaning the lender can come after personal assets if the business assets aren't enough.
Refinancing Replacing an existing loan with a new one — usually to get better terms, lower payments, or access equity. Cash-out refinancing means the new loan is larger than the old one; the difference is paid to the borrower.
S–U
Section 179 Deduction A tax provision that allows businesses to deduct the full purchase price of qualifying equipment or software in the year it's placed in service, rather than depreciating it over several years. The 2024 limit is $1,160,000. See the Lease vs. Buy Calculator to model the impact.
Seasoning How long an asset or account has existed. Lenders want to see "seasoned" assets — a bank account that's been open 6+ months, a property that was purchased more than 6 months ago. Unseasoned assets raise questions.
Soft Pull A credit inquiry that does not affect your credit score. Pre-qualification often uses a soft pull.
Subordinated Debt Debt that has a lower priority claim than senior debt if you default. Subordinated lenders get paid only after senior lenders are made whole.
Term Sheet A non-binding document outlining the proposed terms of a loan — amount, rate, term, fees, collateral, and conditions. Precedes the full loan commitment letter.
UCC Filing (Uniform Commercial Code) A legal notice filed with the state that records a lender's security interest in collateral. When you look up a business in the UCC database, you can see all liens on their assets.
Underwriting The process of evaluating a loan application — analyzing financials, verifying documents, assessing risk, and making a credit decision. An underwriter is the analyst who does this work.
W–Z
Working Capital Current assets minus current liabilities. The cash and near-cash resources available to run day-to-day operations. Positive working capital = more current assets than current liabilities. Negative working capital can signal cash flow problems.
Working Capital Loan A loan specifically for day-to-day operating expenses — inventory, payroll, receivables gaps — rather than long-term assets. Typically shorter term (1–5 years) and higher rate than equipment or real estate loans.
Didn't find what you're looking for? Most loan officers are happy to explain any term you don't understand — asking shows you're an engaged borrower, not a naive one.