Glossary
Business finance terms, in plain English.
$
$1 Buyout Lease
A $1 buyout lease is an equipment lease that lets you purchase the equipment for one dollar at the end of the term. Because the payments cover essentially the full cost of the equipment plus the financing charge, monthly payments are usually higher than with a fair market value lease. Economically, it works much like an equipment loan, and it is often treated as a purchase for tax purposes. It suits businesses that know they want to keep the equipment long term.
Example: A landscaping company leases a mower on a $1 buyout lease, makes 36 payments, and then owns the mower for a dollar.
A
Accounts Payable
Accounts payable is the money your business owes to suppliers and vendors for goods or services you have received but not yet paid for. It appears as a liability on your balance sheet. Lenders review accounts payable to understand your short-term obligations and how promptly you pay bills. A rising payable balance or many past-due bills can signal cash flow strain, while consistent on-time payment can support your business credit profile.
Example: A restaurant receives a food delivery on net 30 terms; the unpaid invoice sits in accounts payable until it is paid.
Accounts Receivable
Accounts receivable is the money customers owe your business for goods or services you have already delivered and invoiced. It is recorded as an asset on your balance sheet. Receivables are central to several financing products: lenders may use them as collateral for a line of credit, and factoring companies purchase them outright. An accounts receivable aging report, which groups invoices by how long they have been outstanding, is a common document request.
Example: A staffing firm has $80,000 in invoices outstanding to client companies, payable within 45 days.
Advance Rate
The advance rate is the percentage of an invoice or asset's value that a lender or factoring company provides up front. In invoice factoring, the factor advances a portion of the invoice amount right away and holds back the rest as a reserve until the customer pays. Advance rates vary by industry, customer credit quality and the provider's policies. In asset-based lending, the term also describes how much a lender will lend against receivables or inventory.
Example: On a $10,000 invoice with an 85% advance rate, the business receives $8,500 now and the remaining balance, minus fees, after the customer pays.
Amortization
Amortization is the process of repaying a loan through regular payments that cover both interest and principal over a set period. Early payments are weighted more toward interest, and later payments go more toward principal as the balance declines. An amortization schedule shows each payment's breakdown and the remaining balance. The amortization period can be longer than the loan's actual term, which creates a balloon payment at maturity.
Example: A $100,000 loan amortized over 10 years has payments calculated so the balance reaches zero after 120 monthly payments.
Annual Revenue
Annual revenue is the total income your business brings in from sales over a 12-month period, before expenses are subtracted. Many lenders set a minimum annual revenue requirement, and the amount you can borrow is often tied to it. Lenders typically verify revenue with tax returns or bank statements, so the figure you report should match your records. Revenue is different from profit, and lenders also look at whether the business earns enough to repay.
Example: A business with $600,000 in sales last year reports annual revenue of $600,000, even if its profit was much lower.
Approval
Approval is the lender's decision to offer financing after reviewing your application and documents. An approval usually specifies the amount, rate or factor rate, term, payment schedule and conditions. Many approvals are conditional, meaning certain items such as additional documents, an appraisal, or verification of information must be satisfied before funds are released. Approval is not the same as funding, and terms can change if new information comes to light before closing.
Example: A lender approves a $75,000 term loan subject to receiving the most recent month's bank statement.
APR (Annual Percentage Rate)
APR is the yearly cost of financing expressed as a percentage, including interest and certain fees. Because it accounts for both cost and timing, APR is generally more useful than an interest rate alone for comparing loans with different structures and terms. Short-term products can carry high APRs even when the dollar cost seems modest. Several states require commercial financing providers to disclose an estimated APR for certain products.
Example: Two loans both quote 10% interest, but one charges a large origination fee, giving it a higher APR.
B
Balloon Payment
A balloon payment is a large lump-sum payment due at the end of a loan, covering the remaining balance that was not paid off through regular payments. Balloon structures are common in commercial real estate loans, where payments are calculated over a long amortization period but the loan matures sooner. Borrowers typically plan to pay the balloon by refinancing, selling the property or using cash reserves, so it is important to plan for it well in advance.
Example: A commercial mortgage amortized over 25 years with a 10-year term leaves a large balance due at year 10.
Bank Statements
Bank statements are the monthly records from your business bank account showing deposits, withdrawals and balances. They are among the most commonly requested documents in business lending, especially by alternative lenders who rely on them to evaluate cash flow. Lenders look at total deposits, average daily balance, overdrafts and negative-balance days, and existing loan payments. Lenders generally want complete statements with all pages, obtained directly from your bank.
Example: A lender requests the four most recent months of business bank statements to verify revenue and cash flow.
Bonus Depreciation
Bonus depreciation is a federal tax provision that allows businesses to deduct a percentage of the cost of qualifying property in the year it is placed in service, rather than spreading the deduction over many years. The allowable percentage has changed through legislation over time. Unlike Section 179, it is not limited by business taxable income. Because the rules and percentages change, confirm current treatment with a tax professional before making purchase decisions.
Example: A manufacturer buys a new machine and, with its accountant, applies bonus depreciation to deduct a large share of the cost in the first year.
Broker
A loan broker is a company or individual that helps businesses find financing by connecting them with lenders, rather than lending its own money. Brokers typically gather your information, identify lenders whose criteria fit your profile, and help you compare offers. They are often compensated by the lender, the borrower, or both, and you should ask how compensation works. A broker can save time and widen your options, but the lender makes the final credit decision.
Example: A contractor works with a broker who submits one application to several equipment lenders and presents the resulting offers.
Business Credit Score
A business credit score is a rating that reflects your company's creditworthiness, based on information such as payment history with suppliers and lenders, credit utilization, public records and company size. Several business credit bureaus produce their own scores using different scales. Business scores are separate from personal credit scores, though lenders often review both. Paying vendors on time and working with suppliers that report payment history can help build a business credit profile.
Example: A lender reviews both the owner's personal score and the company's business credit score when evaluating an application.
C
Cash Flow
Cash flow is the movement of money into and out of your business over a period of time. Positive cash flow means more cash is coming in than going out; negative cash flow means the opposite. A business can be profitable on paper and still have cash flow problems if customers pay slowly or expenses come due before revenue arrives. Lenders focus heavily on cash flow because it determines whether a business can make loan payments.
Example: A seasonal retailer has strong cash flow in the fourth quarter but negative cash flow in the early months of the year.
CDC (Certified Development Company)
A Certified Development Company is a nonprofit organization certified by the SBA to provide financing through the SBA 504 loan program. In a typical 504 project, a bank provides the first-position loan, the CDC provides a second-position loan funded by an SBA-guaranteed debenture, and the business contributes a down payment. CDCs generally serve specific geographic areas and promote economic development in their communities. They help package the 504 portion and work alongside the borrower's bank.
Example: A dental practice buying its office building works with a local CDC and a bank to structure a 504 loan.
Collateral
Collateral is an asset pledged to secure a loan, giving the lender a way to recover money if the borrower does not repay. Common business collateral includes real estate, equipment, vehicles, inventory, accounts receivable and cash. Some loans are secured by a specific asset, while others are secured by a general lien on all business assets. Offering collateral can improve approval odds or terms, but it also means you could lose that asset if the loan goes into default.
Example: An equipment loan uses the financed excavator as collateral; if payments stop, the lender can repossess it.
Commercial Mortgage
A commercial mortgage is a loan secured by commercial real estate, such as an office, retail space, warehouse or mixed-use property. It can be used to purchase, refinance or improve property used for business or investment. Commercial mortgages often have shorter terms than residential mortgages and may include a balloon payment. Lenders consider the property's value, the loan-to-value ratio, the borrower's financial strength, and for owner-occupied properties, the business's cash flow.
Example: A manufacturing company takes out a commercial mortgage to buy the building it has been renting.
Covenant
A covenant is a condition in a loan agreement that the borrower agrees to follow for the life of the loan. Affirmative covenants require certain actions, such as providing annual financial statements or maintaining insurance. Negative covenants restrict actions, such as taking on additional debt or selling major assets without permission. Financial covenants require meeting measures like a minimum debt service coverage ratio. Breaking a covenant can be treated as a default even if payments are current.
Example: A bank loan requires the borrower to maintain a debt service coverage ratio above a set level, tested annually.
D
Daily and Weekly Payments
Some short-term business loans and merchant cash advances collect payments every business day or every week instead of monthly, typically by automatic debit from your bank account. Frequent payments let the lender collect as the business earns, but they reduce cash on hand immediately and can strain cash flow during slow periods. When comparing offers, convert daily or weekly payments into a monthly equivalent to see the true impact on your budget.
Example: A $250 daily payment over roughly 21 business days adds up to about $5,250 per month.
DBA (Doing Business As)
A DBA, also called a trade name, fictitious name or assumed name, is a name a business operates under that differs from its legal registered name. Registering a DBA is typically done at the state or county level, depending on where you operate. A DBA does not create a separate legal entity or provide liability protection. Lenders often ask for DBA filings so they can match your bank accounts, invoices and records to your legal business.
Example: Smith Holdings LLC registers the DBA "Main Street Bakery" and uses that name on its storefront and invoices.
Debt Consolidation
Business debt consolidation means combining multiple existing debts into a single new loan, ideally with a lower overall cost, a longer term or a simpler payment schedule. It is often used to replace several short-term advances or high-interest balances with one more manageable payment. Consolidation can improve cash flow, but extending the term may increase total interest paid. Check for prepayment penalties on existing debts before consolidating.
Example: A business with three short-term loans consolidates them into one term loan with a single monthly payment.
Debt Service Coverage Ratio (DSCR)
The debt service coverage ratio measures whether a business generates enough cash to cover its debt payments. It is calculated by dividing cash available for debt service, often net operating income or a similar cash flow figure, by total annual principal and interest payments. A ratio above 1.0 means the business earns more than it needs to pay its debts. Lenders, especially banks and SBA lenders, commonly set a minimum DSCR, and the target varies by lender.
Example: A business with $150,000 in available cash flow and $100,000 in annual debt payments has a DSCR of 1.5.
Direct Lender
A direct lender is a bank, credit union or finance company that funds loans with its own capital and makes the credit decision itself. Working directly with a lender means dealing with one set of criteria and products. By contrast, a broker or marketplace connects you with multiple lenders. Some direct lenders also accept applications through brokers. Neither path is inherently better; the right choice depends on how many options you want to compare and how much time you have.
Example: A business applies for a line of credit at its own bank, which reviews and funds the line directly.
Draw Period
The draw period is the time during which you can borrow funds from a line of credit or home equity line of credit. During this period you can draw, repay and draw again up to your limit, and payments are often based on the outstanding balance. When the draw period ends, the line may renew, convert to a repayment period during which you pay down the balance, or require full repayment, depending on the agreement.
Example: A HELOC with a 10-year draw period lets the owner borrow as needed for a decade before repayment begins.
E
EIN (Employer Identification Number)
An Employer Identification Number is a nine-digit number the IRS assigns to identify a business for tax purposes, similar to a Social Security number for an individual. Corporations, partnerships, multi-member LLCs and businesses with employees generally need one, and sole proprietors can obtain one as well. EINs are free from the IRS. Lenders use your EIN to verify your business, pull business credit reports and match tax records.
Example: A new LLC applies for an EIN online with the IRS before opening a business bank account.
Equipment Lease
An equipment lease is an agreement that lets your business use equipment owned by a leasing company in exchange for regular payments over a set term. At the end of the lease, depending on the structure, you may return the equipment, renew the lease, or buy it at a fixed or fair market value price. Leasing often requires less money up front than buying and can make upgrading easier. Read lease terms carefully for maintenance, insurance and renewal provisions.
Example: A medical clinic leases imaging equipment for four years, planning to upgrade at the end of the term.
F
Factor Rate
A factor rate is a decimal multiplier used to price some short-term financing, such as merchant cash advances. You multiply the amount financed by the factor rate to find the total repayment. Unlike interest, the charge is fixed up front and usually does not decrease if you repay early, unless the agreement offers an early payoff discount. A factor rate is not the same as an interest rate, and its annualized cost can be much higher, especially on short terms.
Example: A $40,000 advance with a 1.25 factor rate requires repaying $50,000.
Fair Market Value Lease
A fair market value lease, sometimes called a true or operating lease, gives you use of equipment for a set term with the option at the end to return it, renew the lease, or buy it at its then-current market value. Because you are not paying off the full cost, monthly payments are generally lower than with a $1 buyout lease. This structure often suits equipment that becomes outdated quickly. Lease payments are generally deductible as a business expense; confirm with a tax professional.
Example: A design firm leases computers on a fair market value lease and returns them for newer models after three years.
Funding
Funding is the point at which the lender actually sends the loan proceeds to you or, in some cases, directly to a vendor or seller. It follows approval and the signing of final loan documents, and any remaining conditions must be satisfied first. The amount you receive may be less than the approved amount if fees are deducted at funding. Timelines from approval to funding range from a day for some online products to weeks for SBA and real estate loans.
Example: After signing the loan agreement, the business receives the funds by wire transfer the next business day.
G
Guarantor
A guarantor is a person or company that agrees to repay a loan if the borrower cannot. In small business lending, owners are commonly required to act as guarantors, and in some cases other parties such as a spouse or an affiliated business may be asked to guarantee as well. A guarantor takes on real legal liability, and the lender can pursue the guarantor's assets if the business defaults. Anyone asked to guarantee a loan should understand the agreement fully before signing.
Example: Two partners who each own 50% of a company both sign as guarantors on its equipment loan.
H
Hard Pull
A hard pull, or hard inquiry, happens when a lender checks your credit report as part of a formal credit decision. Hard pulls are recorded on your credit report and may lower your personal credit score slightly for a period of time. Several hard inquiries in a short span can raise concerns for lenders. Some lenders use a soft pull for pre-qualification and only perform a hard pull once you choose to move forward.
Example: An SBA lender performs a hard pull on each guarantor when the full application is submitted.
HELOC (Home Equity Line of Credit)
A home equity line of credit is a revolving line secured by the equity in your home. Some business owners use a HELOC to fund business needs, particularly startups that do not yet qualify for business financing. HELOCs typically have a draw period followed by a repayment period, and rates are often variable. The major risk is that your home secures the debt, so if you cannot repay, you could lose it. Weigh that risk carefully before using personal real estate for business purposes.
Example: A founder draws on a HELOC to buy initial inventory before the business has a track record.
I
Invoice Factoring
Invoice factoring is a financing arrangement in which a business sells its unpaid invoices to a factoring company at a discount. The factor advances a large share of the invoice value right away, collects payment from the customer, and then releases the remainder minus its fee. Approval depends heavily on the creditworthiness of your customers. Factoring is mainly used by businesses that invoice other businesses or government agencies on payment terms.
Example: A trucking company factors its load invoices to get paid within days instead of waiting 45 days for brokers to pay.
L
Lien Position
Lien position is the order in which lenders are entitled to be repaid from collateral if a borrower defaults. The lender in first position is paid first from the proceeds of the collateral, followed by second position and so on. Lenders in junior positions take on more risk, which can affect pricing and approval. Lien position usually follows the order in which liens were properly filed or recorded, though lenders can agree to change it through a subordination agreement.
Example: In an SBA 504 loan, the bank holds the first lien on the property and the CDC holds the second.
LLC (Limited Liability Company)
A limited liability company is a business structure formed under state law that generally shields owners, called members, from personal liability for the company's debts. LLCs offer flexible management and tax options. Owners should understand that limited liability does not protect them from obligations they personally guarantee, which is common in small business lending. Lenders typically request the articles of organization and operating agreement to confirm ownership and signing authority.
Example: Two owners form an LLC for their landscaping business and list their ownership percentages in the operating agreement.
Loan-to-Value Ratio (LTV)
Loan-to-value ratio compares the amount of a loan to the appraised value of the asset securing it, expressed as a percentage. It is widely used in real estate and equipment lending. A lower LTV means the borrower has more equity and the lender has more protection, which can lead to better terms. Lenders set maximum LTVs that vary by property type, loan program and borrower profile, and the difference between the purchase price and the loan amount is usually covered by a down payment.
Example: A $750,000 loan on a property appraised at $1,000,000 has an LTV of 75%.
M
Maturity Date
The maturity date is the date on which a loan's final payment is due and the debt must be fully repaid. For a fully amortizing loan, the last regular payment pays off the balance at maturity. For loans with a balloon structure, a large remaining balance is due on the maturity date. Lines of credit also have maturity or renewal dates, after which the lender may renew, adjust or close the line. Track maturity dates so you can plan refinancing early.
Example: A five-year term loan funded in October has a maturity date five years later, when the final payment is due.
Merchant Cash Advance
A merchant cash advance, or MCA, provides a lump sum in exchange for a portion of the business's future sales. Repayment is collected through a fixed daily or weekly debit or a percentage of card sales until the agreed total is repaid. MCAs are typically priced with a factor rate, can fund quickly, and may accept weaker credit. They are often among the most expensive forms of business financing on an annualized basis, so compare total cost carefully.
Example: A restaurant receives an advance and repays it through daily debits from its bank account over several months.
N
NAICS Code
The North American Industry Classification System assigns codes to classify businesses by industry. Your NAICS code tells lenders what your business does, which affects how they assess risk, whether you are eligible for certain programs, and which SBA size standard applies to you. Some lenders restrict or avoid certain industries based on these codes. Make sure the code you use on applications accurately reflects your primary business activity.
Example: A full-service restaurant and a commercial cleaning company have different NAICS codes and may face different lender criteria.
Net Terms
Net terms are payment terms that give a customer a set number of days after the invoice date to pay, such as net 30 or net 60. They are common in business-to-business sales. Offering net terms can help win customers, but it also delays cash coming into your business, which can create cash flow gaps. Businesses sometimes use invoice factoring or a line of credit to bridge the period between delivering work and getting paid.
Example: A supplier invoices a retailer on net 45 terms, so payment is due 45 days after the invoice date.
Non-Recourse Factoring
Non-recourse factoring is an invoice factoring arrangement in which the factoring company absorbs the loss if a customer fails to pay for specified reasons, most commonly the customer's insolvency or bankruptcy. Because the factor takes on more risk, non-recourse factoring usually costs more than recourse factoring. Protection is often narrower than the name suggests and typically does not cover disputes, short payments or a customer that refuses to pay. Read the contract definitions closely.
Example: A factor absorbs the loss on an invoice when the customer files for bankruptcy, as defined in the non-recourse agreement.
O
Origination Fee
An origination fee is a charge for processing and funding a loan, usually expressed as a percentage of the loan amount. It is often deducted from the proceeds at funding, which means you receive less than the approved amount while repaying the full amount. Origination fees increase the true cost of a loan and are reflected in its APR. When comparing offers, look at the net amount you will actually receive as well as the stated rate.
Example: A $100,000 loan with a 3% origination fee deducted at funding delivers $97,000 to the borrower.
P
Personal Guarantee
A personal guarantee is a legal promise by an individual, usually a business owner, to repay a business debt personally if the business cannot. Most small business lenders require one from owners above a certain ownership threshold; for SBA loans, owners of 20% or more generally must guarantee. An unlimited guarantee covers the full debt, while a limited guarantee caps the amount. A guarantee means your personal assets could be at risk if the business defaults.
Example: The majority owner of a retail store signs a personal guarantee on the company's line of credit.
Pre-Qualification
Pre-qualification is an early estimate of whether you are likely to qualify for financing and roughly how much, based on basic information such as time in business, revenue, credit and industry. It often uses a soft credit pull, which does not affect your credit score. Pre-qualification is not an approval or a commitment to lend. Final terms depend on full underwriting, document review and verification of the information you provided.
Example: A business owner answers a short questionnaire and learns which loan types fit their profile before submitting full documents.
Prepayment Penalty
A prepayment penalty is a fee a lender charges if you pay off a loan, or part of it, before the scheduled maturity. Lenders use these fees to recover interest they expected to earn. Penalties may be a percentage of the balance, decline over time, or apply only during early years. Some loans, particularly longer-term SBA loans, can carry prepayment fees in early years. Always ask about prepayment terms before signing, especially if you may refinance or sell.
Example: A real estate loan charges a declining prepayment fee if paid off within the first several years.
Prime Rate
The prime rate is a benchmark interest rate that banks use as a reference for pricing many variable-rate loans. The widely quoted U.S. prime rate generally moves with the federal funds rate set by the Federal Reserve. Variable-rate business loans, including many SBA loans and lines of credit, are often priced as prime plus a margin. When the prime rate changes, payments on those loans can change as well. Check the current prime rate when evaluating variable-rate offers.
Example: A line of credit priced at prime plus 2% adjusts when the prime rate rises or falls.
R
Recourse Factoring
Recourse factoring is an invoice factoring arrangement in which your business remains responsible if a customer does not pay a factored invoice. If the invoice goes unpaid past an agreed period, you typically must buy it back or replace it with another eligible invoice. Because the factor takes on less risk, recourse factoring is generally less expensive than non-recourse factoring and is the more common structure. It works best when your customers have reliable payment histories.
Example: When a customer fails to pay within 90 days, the business replaces the unpaid invoice with a new one under its recourse agreement.
Refinancing
Refinancing means replacing an existing loan with a new one, usually to get a lower rate, a longer term, a smaller payment, or better terms. Businesses often refinance after their credit, revenue or time in business improves enough to qualify for lower-cost options. Refinancing can also release equity from real estate. Consider prepayment penalties on the existing loan and fees on the new one, and compare the total cost over the remaining time you expect to carry the debt.
Example: After two years of steady growth, a business refinances a high-cost short-term loan into a lower-rate bank term loan.
Revolving Credit
Revolving credit is a type of financing that lets you borrow up to a set limit, repay, and borrow again without reapplying, as long as the account stays open and in good standing. Business lines of credit, credit cards and HELOCs are common examples. You generally pay interest only on the outstanding balance. Revolving credit suits recurring or unpredictable needs, such as covering timing gaps between expenses and customer payments.
Example: A business draws $20,000 from its $50,000 line, repays it a month later, and has the full $50,000 available again.
S
SBA 504 Loan
The SBA 504 loan program finances major fixed assets, such as owner-occupied commercial real estate, construction and long-life equipment. A typical 504 project combines a first-position loan from a conventional lender, a second-position loan from a Certified Development Company backed by the SBA, and a down payment from the borrower, often around 10%. The CDC portion carries a long-term fixed rate. Working capital and inventory are not eligible uses.
Example: A manufacturer uses a 504 loan to buy and renovate the building it will occupy.
SBA 7(a) Loan
The SBA 7(a) loan is the Small Business Administration's primary and most flexible loan program. Loans are made by approved lenders and partially guaranteed by the SBA, with a maximum loan amount of $5 million. Eligible uses include working capital, equipment, business acquisitions, refinancing certain debt and real estate. Terms are often longer than conventional business loans. Owners of 20% or more generally must provide a personal guarantee, and lenders set their own credit requirements.
Example: A buyer uses a 7(a) loan to purchase an existing landscaping company, including its equipment and customer contracts.
Section 179
Section 179 is a provision of the federal tax code that lets businesses elect to deduct the cost of qualifying equipment and certain other property in the year it is placed in service, rather than depreciating it over several years. It can apply to financed equipment. Section 179 has annual dollar limits and a spending threshold that change over time, and it is limited by business taxable income. Confirm current limits and eligibility with a tax professional.
Example: A contractor finances a new truck and, after consulting a tax professional, elects Section 179 for the purchase.
Soft Pull
A soft pull, or soft inquiry, is a credit check that does not affect your credit score. Lenders and marketplaces often use soft pulls to pre-qualify applicants and estimate available options before a formal application. Soft inquiries may be visible to you on your own credit report but are not shown to other lenders as credit-seeking activity. A hard pull usually follows if you choose to proceed with a formal application.
Example: A business owner checks potential loan options through a soft pull without any impact on their personal score.
Sole Proprietor
A sole proprietorship is an unincorporated business owned by one person, with no legal separation between the owner and the business. The owner reports business income on their personal tax return and is personally responsible for all business debts. Sole proprietors can obtain business financing, but lenders rely heavily on personal credit and personal tax returns. Many owners eventually form an LLC or corporation for liability protection, though personal guarantees are still commonly required.
Example: A freelance photographer operating under their own name is a sole proprietor and reports income on Schedule C.
Stacking
Stacking means taking on multiple short-term loans or merchant cash advances at the same time, often from different providers. Each new advance adds another daily or weekly payment, and the combined payments can quickly exceed what the business's cash flow can support. Many short-term financing agreements prohibit additional financing without consent, so stacking can trigger a default. If you already have several advances, consider whether consolidation or refinancing would be more sustainable.
Example: A business takes a second advance to cover payments on the first, and soon is making two daily debits it cannot sustain.
T
Term
A loan's term is the length of time you have to repay it, from funding to the maturity date. Short-term financing may last a few months to a year or two, while SBA and real estate loans can extend for many years. A longer term usually means lower payments but more total interest paid. Lenders often match the term to the purpose of the loan, such as the useful life of equipment or the nature of a working capital need.
Example: An equipment loan with a 60-month term is repaid in monthly installments over five years.
Time in Business
Time in business is how long your company has been operating, usually measured from its formation date or the date it began generating revenue. Lenders use it as a measure of stability, and many set a minimum requirement. Newer businesses often have fewer options and may rely more on personal credit, collateral or startup-focused programs. Lenders may verify time in business through state filings, tax returns or the age of your business bank account.
Example: A lender requires at least one year in business, so a company formed eight months ago is not yet eligible for that product.
U
UCC Lien
A UCC lien is a legal claim a lender files on a borrower's business assets, documented through a UCC-1 financing statement filed with the state under the Uniform Commercial Code. It publicly records the lender's security interest in the collateral. A lien can cover specific assets, such as a piece of equipment, or be a blanket lien on all business assets. Existing UCC liens can affect your ability to get additional financing, so know what liens are on file before you apply.
Example: After funding a line of credit, the lender files a UCC-1 with the state covering the company's receivables and inventory.
Underwriting
Underwriting is the process a lender uses to evaluate a loan application and decide whether to approve it and on what terms. Underwriters review credit reports, bank statements, tax returns, financial statements, collateral, industry, and the purpose of the loan. They may request additional documents or explanations. Underwriting can take anywhere from a day for some short-term products to several weeks for SBA and commercial real estate loans. Responding quickly to requests helps keep it moving.
Example: During underwriting, the lender asks for an explanation of a large one-time deposit on the bank statements.
W
Working Capital
Working capital is the difference between a business's current assets, such as cash, receivables and inventory, and its current liabilities, such as accounts payable and short-term debt. It measures the resources available to run day-to-day operations. The term also describes financing used to cover operating expenses like payroll, rent and inventory. Positive working capital suggests a business can meet short-term obligations, while negative working capital can signal cash flow pressure.
Example: A business with $200,000 in current assets and $120,000 in current liabilities has $80,000 in working capital.
Ready to grow? See your options today.
- Decisions in as little as 24 hours*
- $10K–$5M+ across 10 products
- No hard credit pull to apply
- One dedicated funding advisor