Glossary

$1 Buyout Lease A $1 buyout lease is an equipment lease structured so the lessee can purchase the asset at the end of the term for a nominal…

Accounts Receivable Accounts receivable represents money owed to a business by its customers for goods or services already delivered. It is a current asset on the balance… Accounts Receivable Aging Report An AR aging report categorizes outstanding receivables by how long each invoice has been unpaid, giving lenders and business owners a snapshot of receivables quality… Adjusted EBITDA Adjusted EBITDA modifies standard EBITDA by adding back or removing non-recurring, non-operating, or non-cash items to present a normalized view of a company's recurring earnings… Advance Rate The advance rate is the percentage of an asset's value that a lender will extend as credit, determining how much borrowing capacity a business can… Alternative Lender A non-bank financing provider, including online platforms, fintech companies, CDFIs, and specialty finance firms, that offers business loans outside the traditional banking system. Amortization Amortization is the scheduled repayment of a loan's principal balance over time through regular installments, where each payment covers both principal reduction and interest charges. Appraisal An appraisal is an independent professional assessment of an asset's market value, used by lenders to determine collateral worth and set maximum loan amounts. APR (Annual Percentage Rate) APR is the annualized cost of borrowing expressed as a percentage, including both interest and fees, providing a standardized measure for comparing loan costs across… Asset-Based Lending (ABL) Asset-based lending (ABL) is a commercial financing method where loan amounts and borrowing capacity are determined primarily by the value of a company's assets, such… Availability Availability is the amount a borrower can currently draw from a revolving credit facility or asset-based loan, calculated as the borrowing base minus outstanding advances…

Balloon Payment A balloon payment is a large lump-sum payment due at the end of a loan term, typically after a period of smaller scheduled payments that… Basis Point (bps) A basis point (bps) is one one-hundredth of a percentage point (0.01%), used to express small changes in interest rates, loan spreads, and financial benchmarks. Basis Points A basis point (bps) is 1/100th of one percentage point (0.01%), used in commercial finance to express precise differences in interest rates, spreads, and fees. Blanket Lien A blanket lien gives a lender a security interest in all of a borrower's business assets, both current and future, rather than limiting the claim… Borrowing Base A borrowing base is the maximum amount a lender will advance against a borrower's eligible collateral, recalculated periodically based on asset quality and concentration limits. Bridge-to-Permanent Financing A two-phase financing strategy where a short-term bridge loan funds acquisition or construction, then converts to or is replaced by a long-term permanent loan once… Business Credit Report A business credit report compiles a company's credit history, payment patterns, public filings, and risk scores used by lenders and vendors to evaluate creditworthiness and… Buy Rate vs. Sell Rate The buy rate is the wholesale price a funder charges an ISO or broker for a financing product; the sell rate is the marked-up price…

Cap Rate Cap rate (capitalization rate) is a Commercial Real Estate metric that expresses a property's net operating income as a percentage of its current market value,… Capital Expenditure (CapEx) Funds a business spends to acquire, upgrade, or maintain long-term physical assets such as property, equipment, or technology. CapEx is capitalized on the balance sheet… Cash Reserves Cash reserves are liquid funds a business maintains, or is required to maintain by a lender, as a financial cushion against unexpected expenses, debt service… Certified Development Company (CDC) A Certified Development Company (CDC) is an SBA-certified nonprofit organization that partners with commercial lenders to provide SBA 504 loans for major fixed-asset purchases like… Closing Costs Closing costs are the fees and expenses paid at loan closing beyond the principal loan amount, including origination fees, appraisal charges, legal fees, title insurance,… CMBS Loan A CMBS loan is a Commercial Real Estate loan originated by a lender, then pooled with similar loans and securitized into bonds sold to capital… Collateral Collateral is any asset a borrower pledges to a lender as security for a commercial loan, giving the lender the right to seize and sell… Commercial and Industrial Loan (C&I) A C&I loan is a bank loan to a business for purposes other than real estate, covering working capital, equipment, expansion, and operating lines, typically… Commercial Real Estate Loan (CRE) A commercial real estate loan finances the purchase, refinancing, or renovation of non-residential property such as office, retail, industrial, or multifamily buildings, secured by the… Confession of Judgment (COJ) A confession of judgment is a pre-signed legal clause that allows a lender to obtain a court judgment against a borrower without prior notice, trial,… Construction Draw Schedule A construction draw schedule is a structured disbursement plan that releases loan funds in increments tied to verified completion of specific construction milestones, ensuring capital… Consumer Financial Protection Bureau (CFPB) The Consumer Financial Protection Bureau is the federal agency that regulates consumer financial products and oversees small-business lending disclosure requirements under Section 1071. Corporate Guarantee A corporate guarantee is a legally binding commitment by a business entity to repay a loan or fulfill an obligation if the primary borrower defaults,… Covenant A covenant is a binding condition in a loan agreement that requires or restricts specific borrower actions, giving lenders ongoing control over credit risk throughout… Covenant Default A covenant default occurs when a borrower violates a financial or operational covenant in a loan agreement, triggering lender remedies that can include acceleration of… Credit Facility A credit facility is a formal lending arrangement between a financial institution and a borrower that establishes pre-approved borrowing terms, including the maximum amount available,… Cross-Collateralization Cross-collateralization is a lending arrangement where a single asset or group of assets secures multiple loans, or multiple assets secure a single loan, creating interconnected… Cure Period A cure period is the contractual window of time a borrower has to remedy a loan default or covenant violation before the lender can exercise…

Daily ACH Withdrawal A daily ACH withdrawal is a fixed daily debit from a borrower's business bank account, used primarily by merchant cash advance providers and short-term lenders… Debenture A debenture is a debt instrument backed by the issuer's creditworthiness rather than specific collateral. In SBA 504 lending, the debenture rate sets the borrower's… Debt Service Coverage Ratio (DSCR) Debt Service Coverage Ratio (DSCR) measures whether a business generates enough income to cover its debt payments. A DSCR of 1.0 means income exactly equals… Debt Yield Debt yield measures a commercial property's net operating income as a percentage of total loan amount, giving lenders a property-value-independent indicator of loan risk used… Debt-to-EBITDA Ratio The debt-to-EBITDA ratio measures a company's total debt relative to its earnings before interest, taxes, depreciation, and amortization, indicating how many years of current earnings… Defeasance Defeasance is a Commercial Real Estate prepayment mechanism where the borrower substitutes a portfolio of U.S. Treasury securities for the loan collateral, releasing the property… Depreciation The systematic allocation of a tangible asset's cost over its useful life. A non-cash expense that reduces taxable income without reducing actual cash flow, making… Dilution (Accounts Receivable) AR dilution measures the percentage of gross receivables reduced by credits, returns, allowances, disputes, and write-offs rather than by customer non-payment. Down Payment The upfront cash payment a borrower makes at closing to reduce the total loan amount and demonstrate financial commitment to the transaction. Due Diligence Due diligence is the comprehensive investigation and analysis process conducted by lenders, borrowers, or investors before finalizing a commercial financing transaction.

Earnout A contractual provision in a business acquisition where a portion of the purchase price depends on the acquired business meeting specified performance targets after closing,… EBITDA EBITDA measures a company's core operating profitability before financing costs, taxes, and non-cash charges. Lenders use it as the primary metric to evaluate borrowing capacity… Equipment Finance Agreement (EFA) An Equipment Finance Agreement (EFA) is a financing structure where the borrower takes ownership of equipment from day one while making fixed payments over a… Equity Injection An equity injection is the borrower's own capital contributed to a financing transaction, reducing lender risk and demonstrating the borrower's commitment to the project's success.

Factor Rate A factor rate is a decimal multiplier used to calculate the total repayment amount on a merchant cash advance or similar financing product. Unlike interest… Fair Market Value (FMV) Lease A fair market value (FMV) lease is an equipment lease structure where the lessee can purchase the asset at its appraised market value when the… Federal Open Market Committee (FOMC) The Federal Open Market Committee is the Federal Reserve body that sets the federal funds rate, directly influencing the Prime Rate, SOFR, and virtually every… Field Exam A field exam is an on-site audit conducted by a lender's examiner to verify the quality, existence, and value of a borrower's collateral, most commonly… Financial Covenants Financial covenants are contractual requirements in loan agreements that obligate borrowers to maintain specific financial metrics, ratios, or conditions throughout the life of the loan. Fixed Charge Coverage Ratio (FCCR) The Fixed Charge Coverage Ratio (FCCR) measures whether a business earns enough to cover all fixed financial obligations, not just debt service. Lenders use it…

Global Cash Flow Analysis Global cash flow analysis aggregates income from all sources controlled by a borrower, including affiliated businesses and personal income, to assess total repayment capacity for…

Holdback Percentage The holdback percentage is the portion of daily credit card sales or revenue withheld by a merchant cash advance or revenue-based financing provider to repay…

Intercreditor Agreement An intercreditor agreement establishes the rights, priorities, and remedies between two or more lenders sharing the same borrower, governing how competing claims are resolved in… Interest Rate The cost of borrowing expressed as a percentage, structured in commercial lending as base rate plus lender spread, with total cost varying by product type,… Interest-Only Period An interest-only period is a phase of a loan term during which the borrower pays only accrued interest, with no portion of the payment applied… ISO (Independent Sales Organization) An Independent Sales Organization (ISO) is a third-party intermediary that connects businesses with merchant cash advance providers and alternative lenders, earning commissions on funded deals…

Letter of Intent (LOI) A letter of intent (LOI) is a preliminary document outlining the proposed terms of a business transaction, financing arrangement, or acquisition before formal agreements are… Leveraged Buyout (LBO) A leveraged buyout (LBO) is an acquisition strategy where a buyer uses a significant proportion of borrowed capital, secured primarily by the target company's assets… Limited (Bad Boy) Guarantee A limited guarantee restricts a guarantor's personal liability to specific triggering events, commonly called "bad boy" carve-outs, rather than full repayment of the loan balance. Loan-to-Cost (LTC) Loan-to-cost (LTC) is a Commercial Real Estate lending ratio that compares the loan amount to the total project cost, including acquisition, construction, and soft costs. Loan-to-Value Ratio (LTV) Loan-to-value ratio (LTV) measures the percentage of an asset's appraised value that a lender is willing to finance, serving as a primary risk indicator in… Lockbox A lockbox is a lender-controlled bank account where borrower customer payments are deposited, giving the lender first access to cash collections to reduce outstanding loan…

Management Buyout (MBO) A management buyout (MBO) is a transaction where the existing management team acquires ownership of the company they operate, typically funded through a combination of… MCA Renewal An MCA renewal replaces an existing merchant cash advance with a new, larger advance that pays off the remaining balance and provides additional capital, but… MCA Stacking MCA stacking is the practice of taking multiple merchant cash advances from different providers at the same time, creating layered daily payment obligations that can… Mezzanine Financing Mezzanine financing is a hybrid layer of capital that sits between senior debt and equity in a company's capital stack, combining characteristics of both debt…

National Federation of Independent Business (NFIB) The National Federation of Independent Business is the largest U.S. small business advocacy organization, known for its monthly Small Business Optimism Index used as a… Net Operating Income (NOI) Net operating income (NOI) is a property's total revenue minus operating expenses, excluding debt service, taxes, and capital expenditures. It is the single most important… Non-Recourse Factoring Non-recourse factoring is a form of invoice factoring where the factor assumes the credit risk of customer non-payment due to insolvency, rather than requiring the… North American Industry Classification System (NAICS) The North American Industry Classification System is the standard framework used by federal agencies, lenders, and the SBA to classify businesses by industry for eligibility,… Notice of Assignment A formal written notification sent to an account debtor informing them that their receivable has been assigned or sold to a third party, redirecting payment…

Origination Fee An origination fee is a one-time charge by a lender at closing to cover the cost of processing, underwriting, and funding a commercial loan, typically…

Personal Financial Statement A personal financial statement is a document summarizing an individual's assets, liabilities, and net worth, required by most commercial lenders as part of the loan… Personal Guarantee A personal guarantee is a legally binding commitment where a business owner pledges personal assets to secure repayment of a business loan if the company… Position (First vs Second) Position refers to the priority order in which funders collect repayment from a business when multiple funding agreements are active simultaneously. Prepayment Penalty A prepayment penalty is a fee lenders charge when a borrower pays off a loan before the scheduled maturity date, designed to protect the lender's… Prime Rate The Prime Rate is the benchmark interest rate set by U.S. commercial banks for their most creditworthy customers, typically calculated as the federal funds rate… Pro Forma EBITDA Pro forma EBITDA is a forward-looking earnings metric that adjusts historical EBITDA with projected changes, used by lenders and investors to evaluate a business's anticipated…

Recourse Factoring Recourse factoring is invoice factoring where the selling business retains liability if the account debtor fails to pay, allowing the factor to require buyback or… Recourse vs Non-Recourse Loan Recourse loans allow lenders to pursue a borrower's personal or business assets beyond the pledged collateral if the loan defaults. Non-recourse loans limit the lender's… Reverse Consolidation Reverse consolidation is a merchant cash advance industry practice where a provider pays off one or more existing advances and replaces them with a single… Roll-Up Strategy A roll-up strategy involves acquiring multiple smaller companies in the same industry to build a larger, more valuable platform through consolidation and multiple arbitrage.

Sale-Leaseback A sale-leaseback is a transaction where a business sells an owned asset to a buyer and immediately leases it back, unlocking trapped equity while retaining… SBA CAPLines SBA CAPLines are four specialized SBA-guaranteed revolving and non-revolving credit lines designed to finance short-term and cyclical working capital needs for small businesses. SBA Debt Refinance Rules SBA debt refinance rules define the eligibility requirements, substantial benefit tests, and program-specific conditions that govern when existing business debt can be refinanced through SBA… SBA Equity Injection Requirement The SBA equity injection requirement mandates that borrowers contribute a minimum percentage of their own funds to a project financed through SBA loan programs, typically… SBA Franchise Directory The SBA Franchise Directory is a searchable database of franchise brands that have been reviewed and approved for SBA-backed lending, serving as a mandatory eligibility… SBA Guarantee Fee The SBA guarantee fee is an upfront cost charged by the Small Business Administration to offset the risk of guaranteeing a portion of an SBA… SBA Preferred Lender Program (PLP) The SBA Preferred Lender Program (PLP) grants experienced lenders delegated authority to approve, close, and service SBA-guaranteed loans without prior SBA review, resulting in faster… SBA Standard Operating Procedure (SOP) The SBA Standard Operating Procedure is the master policy document governing how lenders originate, process, and close SBA loans. SBA Use of Proceeds Rules SBA use of proceeds rules define exactly how borrowers can spend funds from 7(a) and 504 loans, with strict eligibility categories and prohibited uses that… Search Fund An investment vehicle where an entrepreneur raises capital to search for, acquire, and operate an existing private business. Section 179 Deduction Section 179 is an IRS tax code provision that allows businesses to deduct the full purchase price of qualifying equipment, software, and certain property in… Secured Overnight Financing Rate (SOFR) The Secured Overnight Financing Rate is a benchmark interest rate based on overnight Treasury repurchase agreements, replacing LIBOR as the primary reference rate for adjustable-rate… Seller Note A seller note is a loan provided by the seller of a business or property to the buyer, covering a portion of the purchase price.… Senior Debt Senior debt is the highest-priority class of borrowing in a company's capital stack, carrying first claim on assets and cash flows in the event of… Soft Costs Financing Soft costs financing covers non-physical project expenses like installation, training, permits, and software that lenders may fund alongside hard asset costs. Split Funding Split funding is a payment collection method where a credit card processor automatically divides daily card receipts between the merchant and the MCA provider at… Spot Factoring Spot factoring is the sale of one or a small number of specific invoices to a factoring company on a transaction-by-transaction basis, without committing to… Spread (Lending) The margin added above a benchmark interest rate (such as SOFR, Prime, or Treasury yields) that determines a borrower's actual loan rate, reflecting credit risk,… Stabilized Property A stabilized property is a Commercial Real Estate asset that has achieved consistent occupancy and income levels, typically 90% or higher, enabling conventional permanent financing… Standby Creditor Agreement A standby creditor agreement is a contract requiring a junior lender to defer collection efforts and subordinate its claims while a senior loan remains outstanding,… Subordinated Debt Subordinated debt ranks below senior lenders in repayment priority, carrying higher interest rates in exchange for accepting greater default risk in the capital stack. Subordination Agreement A subordination agreement is a legal contract in which one creditor agrees to rank behind another in priority of claims against a borrower's assets or…

Tangible Net Worth Tangible net worth measures a business's net assets after excluding intangible items like goodwill, patents, and trademarks, providing lenders with a conservative view of borrower… Tenant Improvement (TI) Allowance A tenant improvement allowance is a landlord-provided cash contribution or rent credit that covers the cost of customizing a commercial lease space to meet the… Total Cost of Capital The total cost of capital is the all-in expense of a financing arrangement, combining interest charges, origination fees, guarantee fees, closing costs, and any other… TRAC Lease A TRAC lease (Terminal Rental Adjustment Clause lease) is a vehicle and transportation equipment lease that adjusts the final payment based on the asset's actual…

UCC Lien A UCC lien is a legal filing that gives a lender a public claim on a borrower's business assets, recorded with the Secretary of State… UCC-1 Filing A UCC-1 filing is a public notice document filed by a lender with the Secretary of State to establish a legal claim (security interest) on… Underwriting Standards Underwriting standards are the criteria lenders apply when evaluating loan applications, determining who qualifies, at what terms, and under what conditions. They shift with economic… Unitranche Financing A hybrid debt facility that combines senior and subordinated debt into a single loan with one set of documents, one lender relationship, and a blended…

Variable Rate A variable rate (also called a floating rate) is an interest rate on a loan or credit facility that adjusts periodically based on changes in…

Working Capital Working capital is the difference between a company's current assets and current liabilities, representing the short-term liquidity available to fund daily operations, cover obligations, and… Working Capital Cycle The working capital cycle measures how many days a business takes to convert its net current assets and liabilities into cash, calculated as Days Inventory… Working Capital Peg A working capital peg is a contractual baseline in an acquisition agreement that sets the target level of net working capital the seller must deliver…

Yield Maintenance A prepayment penalty in Commercial Real Estate loans that requires the borrower to compensate the lender for lost interest income by paying the present value…