Financing Terms: 75+ Must-Know Definitions

A

Accounts Payable: Money a company owes to vendors, suppliers, or lenders for goods and services received. It represents short-term liabilities on the balance sheet, essentially unpaid bills awaiting payment.

Accounts Receivable: Money owed to a company by its customers. These are outstanding invoices for products or services that the business has delivered but not yet been paid for.

Accounts Receivable Financing: A funding method where a business borrows against its receivables (outstanding invoices). Lenders advance a percentage (often up to 80%) of the invoice value, giving business owners quick cash flow to cover expenses like payroll while waiting for customers to pay.

Accruals: Expenses that have been incurred by a business but not yet recorded in the books, or revenue earned but not yet invoiced/received. In accrual accounting, these items are recognized when they are incurred, not when cash actually changes hands.

ACH Payments: Payments made through the Automated Clearing House network, which electronically transfers funds between bank accounts. Common examples include direct deposit payroll and automatic bill payments, where one party is authorized to pull or push funds from another’s bank account.

Amortization: The process of paying off a debt over time in regular installments of principal and interest. In an amortizing loan, the payment amount is usually the same each period, but the portion going to interest gradually decreases while the portion going to principal increases.

Angel Investor: An individual who invests their own money into a startup or early-stage business, often in exchange for equity (ownership shares) or convertible debt. Angel investors typically provide capital and mentorship/advice to help new businesses grow.

Annual Fees: Yearly charges a lender might require for keeping a loan or credit line open. These fees, common with some business credit cards or lines of credit, cover administrative costs and are charged regardless of whether you actively use the credit.

APR (Annual Percentage Rate): The yearly interest rate charged on a loan or credit line, expressed as a percentage of the principal. APR includes not just interest but also other fees or costs (like origination fees), giving a more complete view of the loan’s total cost on an annual basis.

Articles of Incorporation: Legal documents filed with the state government to formally establish a corporation. These articles contain key information about the new company (name, address, purpose, stock information) and, once approved, act like the “birth certificate” of the business.

Asset: Anything of value that a business owns. Assets can be tangible (physical items like cash, equipment, inventory, or real estate) or intangible (non-physical items like patents, trademarks, or goodwill).

Asset-Based Lending: A type of financing where a loan or line of credit is secured by a business’s assets as collateral. If the borrower cannot repay, the lender can claim the assets. Common assets used include accounts receivable, equipment, inventory, or real estate.

B

Balance Sheet: A financial statement that provides a snapshot of a company’s financial position at a given moment. It lists the business’s assets, liabilities, and equity, following the formula Assets = Liabilities + Owner’s Equity, showing what the company owns and owes.

Balloon Payment: A large, one-time payment due at the end of a loan’s term after a series of smaller periodic payments. Loans with a balloon payment have lower monthly payments leading up to the final due date, when the significantly bigger balloon amount must be paid (common in some mortgages and commercial loans).

Bank Loan: A traditional loan obtained from a bank, often with competitive interest rates but strict qualification requirements. Banks typically have longer application processes and may require strong credit, collateral, and detailed financials, making them less accessible to some small businesses compared to alternative lenders.

Bank Statements: Monthly or periodic records from your bank listing all transactions (deposits, withdrawals, fees) and the current balance. Lenders often ask for recent bank statements when evaluating a loan application to verify the business’s cash flow and financial health.

Bankruptcy: A legal process where a person or business declares inability to repay outstanding debts. Depending on the type (e.g., Chapter 7 or Chapter 11 for businesses), bankruptcy can eliminate or restructure debts but will severely impact credit and may involve liquidating assets to pay creditors.

Blanket Lien: A lien that gives a lender a legal claim to all of a borrower’s business assets as collateral for a loan. If the borrower defaults (fails to repay), the lender with a blanket lien can seize any or all business assets to recover the debt.

Bookkeeping: The act of recording all financial transactions of a business in an organized manner. Good bookkeeping tracks money coming in and going out (sales, expenses, payroll, etc.) and forms the basis for financial statements and tax returns.

Bootstrapping: Funding a business using personal finances or the company’s own revenue rather than seeking outside loans or investment. In the startup context, this means growing your business through reinvesting profits and keeping costs low, essentially “pulling yourself up by your bootstraps” without external help.

Business Acquisition Loan: A loan used specifically to buy an existing business or franchise. This financing provides the capital to purchase another company’s assets or ownership equity and often considers the value and cash flow of the business being acquired when approving the loan.

Business Credit Card: A credit card intended for business expenses. It provides a revolving line of credit for purchases, often with rewards or cashback tailored to businesses. Importantly, it should be used for business-related costs (separate from personal expenses), and it can help build the company’s credit profile.

Business Credit Report: A report detailing a company’s credit history and current credit profile. It includes information on outstanding loans, payment history to creditors, and public records (like liens or judgments). Lenders and suppliers review a business credit report to gauge creditworthiness before extending financing or trade credit.

Business Credit Score: A numerical score (often ranging from 0 to 100) that represents a business’s creditworthiness, similar to a personal credit score. It’s calculated based on factors such as payment history, length of credit history, debt levels, and company size. A higher score indicates to lenders that the business is a lower-risk borrower.

Business Line of Credit: A flexible funding option that lets a business borrow up to an approved credit limit and only pay interest on the amount used. Much like a credit card, a line of credit allows you to draw funds as needed (for unexpected expenses, inventory, payroll, etc.), and when you repay those funds, they become available to borrow again.

Business Loan Application: The process or form through which a business provides information to a lender when seeking financing. A typical application includes details about the business (financial statements, revenue, time in business) and the owner (credit score, personal financial info), allowing the lender to evaluate the loan request.

Business Plan: A written document outlining a company’s goals and the strategy to achieve them. It often includes market analysis, organizational structure, product/service descriptions, marketing and sales plans, and detailed financial projections. A solid business plan is not only a roadmap for the business but also crucial when seeking loans or investment, as it shows lenders how the business will succeed and repay debt.

Business Term Loan: Another name for a term loan – a lump sum of capital that a business borrows and repays on a fixed schedule (with interest) over a set period. (See “Term Loan” under T for more details.)

C

Capital: The wealth of a business, measured in money or assets, available to fund operations and growth. Capital can include cash, equipment, inventory, or any other assets that have value. It’s essentially the resources a business can use to generate income.

Cash Flow: The net amount of cash moving in and out of a business. Positive cash flow means more money is coming in (from sales, investments, etc.) than going out (for expenses, loan payments, etc.), which is critical for sustaining day-to-day operations. Lenders look at cash flow to ensure a business can handle new debt payments.

Cash Flow Projections: Estimates of a business’s incoming and outgoing cash over future periods (weeks, months, or years). By forecasting cash flow based on past trends and upcoming plans, small business owners can anticipate shortages or surpluses and make informed decisions (like when to save, invest, or seek financing).

Collateral: An asset pledged to a lender to secure a loan or credit. If the borrower cannot repay the debt, the lender has the right to seize the collateral to recoup losses. Common examples include real estate, equipment, inventory, or vehicles. Collateralized loans (secured loans) often have lower interest rates than unsecured ones because the lender’s risk is reduced.

Commercial Mortgage: A loan used to purchase, refinance, or improve commercial property (like an office building, retail center, or warehouse). The property itself serves as collateral. Commercial mortgages allow businesses to spread the cost of expensive real estate over many years, with repayment terms that can range anywhere from 5 to 25 years or more.

Commercial Real Estate Loan: See Commercial Mortgage above. (This is simply another term for a commercial property loan, where real estate is the collateral.)

Convertible Debt: A loan or debt instrument that can be converted into equity (ownership shares) in the company at a later date. Often used in startup financing, convertible debt starts as a loan (sometimes with deferred interest) but may turn into stock for the lender/investor under agreed conditions (for example, when a startup raises a larger round of funding).

Credit Limit: The maximum amount of credit a lender extends to a borrower on a revolving credit account. For example, a business credit card or line of credit might have a $50,000 credit limit, meaning the company can only borrow up to that amount at any given time. Staying under the credit limit and making timely payments is important for maintaining good credit standing.

Credit Repair: The process of improving a poor credit score or cleaning up errors on a credit report. This can involve disputing inaccuracies on your credit report, paying down outstanding debts, and adopting better financial habits. The goal is to boost the credit profile of the business or owner so that it’s easier and cheaper to borrow money in the future.

Credit Report: A detailed record of an individual’s or business’s borrowing history prepared by credit bureaus. It shows current and past credit accounts, balances, payment timeliness, and public records like bankruptcies. Lenders review credit reports to decide if a borrower meets their approval criteria and to set interest rates or terms.

Credit Score: A numerical representation of creditworthiness derived from the information in a credit report. Personal credit scores for individuals range from 300 to 850 (with higher being better), while business credit scores often range from 0 to 100. The score is influenced by payment history, credit utilization, length of credit history, new credit inquiries, and overall debt levels.

Current Assets: Assets that are expected to be used, sold, or converted to cash within one business year (or one operating cycle). These typically include cash, accounts receivable, inventory, and other assets that are liquid or will be used up quickly. Current assets are important for measuring a company’s short-term financial health and liquidity.

Credit Card Stacking: Using multiple credit cards (often personal cards with promotional 0% APR offers) to collectively fund a business’s capital needs. Essentially, a business owner opens or uses several credit cards at once to access more funding than a single card’s limit would allow. This strategy can provide short-term, interest-free financing if managed well, but it is risky: juggling many cards can hurt credit scores and lead to high interest costs if balances aren’t paid off before the promo periods end. (Use with caution and a clear repayment plan.)

D

Debt: Money that is borrowed by one party from another under the condition it will be paid back, usually with interest. In a business context, debt can take many forms (loans, credit lines, bonds), and managing debt wisely is crucial to avoid cash flow problems.

Debt Consolidation: A form of refinancing where a business takes out one new loan to pay off multiple older debts. The goal is often to secure a lower overall interest rate or a more convenient single monthly payment. For example, consolidating several merchant cash advances or high-interest loans into one loan can simplify finances and potentially reduce total monthly payments.

Debt Service Coverage Ratio (DSCR): A financial metric that measures a business’s ability to cover its debt payments with its operating income. It’s calculated as Net Operating Income / Debt Payments. A DSCR of 1 or above means the company generates enough earnings to meet its current debt obligations (a higher ratio is better, indicating more cushion). Not sure what your DSCR ratio is? Use our online DSCR calculator to crunch your numbers

Dedicated Funding Manager: A representative or account manager assigned to guide a borrower through the financing process (typically offered by lending marketplaces or brokers). This person helps the business owner compare loan options, gather required documents, communicate with lenders, and generally make the borrowing experience smoother from application to funding.

Default: The failure to meet the legal obligations of a loan, usually by not making payments as agreed. If a loan goes into default, the lender can take action such as charging late fees, increasing interest rates, seizing collateral, or pursuing legal judgments to recover the owed money. Defaulting on a business loan severely hurts credit and can limit future financing opportunities.

Depreciation: The decrease in value of an asset over time due to wear and tear, age, or obsolescence. In accounting, businesses spread out the cost of a long-lived asset (like machinery, vehicles, computers) over its useful life through depreciation expenses. This also reflects that the asset’s economic value is being “used up” over time.

Derogatory Mark: A negative record on a credit report indicating serious late payments or failures to pay. Examples include loan defaults, accounts sent to collections, bankruptcies, or tax liens. Derogatory marks significantly lower credit scores and can remain on a credit report for several years, making it harder or more expensive to obtain new financing until they age off.

E

Employer Identification Number (EIN): A unique 9-digit number assigned by the IRS to identify a business entity (like a Social Security number for a business). An EIN is used for tax filings, opening business bank accounts, and applying for business credit. Nearly all businesses (except sole proprietors with no employees) need an EIN to legally operate and report taxes.

Equipment Financing: A loan or lease used to purchase business equipment, machinery, or vehicles. The equipment itself often serves as collateral for the financing. Equipment financing allows companies to acquire needed tools or technology without paying the full cost upfront, and because the loan is secured by the equipment, it can be easier to qualify for than an unsecured loan.

Equity: Ownership interest in a company, typically in the form of stock or shares. In a balance sheet context, equity (also called owner’s equity or shareholders’ equity) is what’s left over for the owners after all liabilities are subtracted from assets. Selling equity in a business (bringing in an investor) means giving up some ownership in exchange for capital, unlike taking on debt which must be repaid.

Expenditure: Money spent by a business. This includes all types of expenses, whether it’s buying inventory, paying salaries, purchasing equipment, or covering rent and utilities. Businesses track expenditures to manage budgets and calculate profit (Revenue minus Expenditures = Profit).

F

Factor Rate: A fee structure often used in merchant cash advances and some short-term loans, expressed as a decimal figure rather than an interest percentage. For example, a factor rate of 1.3 on a $10,000 advance means you will repay $13,000 in total. Unlike APR, a factor rate does not compound over time; it’s applied once to the initial funding amount to determine the total payback amount.

Factoring: See Invoice Factoring under I. (Factoring generally refers to the practice of selling accounts receivable/invoices to a third party for quick cash.)

G

Gross Profit: Total revenue from sales minus the cost of goods sold (COGS). Gross profit shows how much money is left from sales to cover operating expenses. For example, if a retailer sells $1000 worth of goods that cost $600 to produce or purchase, the gross profit is $400. (Note: gross profit does not account for other expenses like rent, salaries, or taxes.)

H

Hard Pull (Hard Inquiry): A check on a person’s or business’s credit report by a lender or creditor as part of a loan application. A hard pull becomes visible on your credit history and may temporarily lower your credit score slightly, as it signals you’re seeking new credit. (Multiple hard inquiries in a short time can add up and affect your score, so it’s wise to time applications carefully.)

Holdback: In a merchant cash advance (MCA) context, the percentage of daily sales that is taken by the MCA provider as repayment. For example, a 10% holdback means 10% of your daily credit card sales are automatically applied toward paying down the advance. This continues until the advance (plus fees) is fully repaid. The holdback system allows payments to scale with sales – on slower days you pay less, on busy days you pay more.

I

Income Statement: A financial report (also called a Profit and Loss Statement, or P&L) that summarizes a business’s revenues, costs, and expenses over a specific period (month, quarter, year). It shows whether the company made a profit or a loss by listing all income and subtracting all expenses. The bottom line of the income statement is net income, which indicates the company’s profitability for that period.

Intangible Asset: A valuable non-physical asset owned by a business. Examples include intellectual property like patents, trademarks, copyrights, franchises, brand recognition, and goodwill. Intangible assets can add significant value to a company (think of the value of a famous brand name), even though they can’t be seen or touched.

Interest-Only Payments: A period or loan structure where the borrower is required to pay only the interest accruing on the loan, not the principal amount. During an interest-only period, the loan balance doesn’t decrease because payments aren’t going toward the principal. This can make monthly payments temporarily lower; however, once the interest-only phase ends, the borrower must begin paying down the principal (which will increase the payment if the remaining term is shorter).

Interest Rate: The cost of borrowing money, expressed as a percentage of the principal loan amount, usually on an annual basis. For example, an 8% annual interest rate means you pay 8% of the loan amount per year in interest. The interest rate does not include fees – contrast with APR, which accounts for both interest and certain fees to show the loan’s true yearly cost.

Investor: An individual or organization that provides capital to a business with the expectation of getting a return on that investment. Investors might receive equity (shares of the company’s ownership) or debt instruments (like bonds or notes). Unlike lenders who expect fixed repayments, equity investors profit through dividends or by the increase in the value of their ownership stake.

Invoice Factoring: A financing method where a business sells its unpaid invoices to a factoring company for immediate cash. The factor (the financing company) typically pays the business a significant portion of the invoice value upfront (say 80-90%) and holds the remainder until the invoice is paid by the customer, minus a factoring fee. Invoice factoring helps businesses improve cash flow without waiting 30, 60, or 90 days for customers to pay their bills – essentially turning receivables into ready working capital.

L

Lender: The entity that provides funds to a borrower with the agreement that the money will be paid back (usually with interest). Lenders can be traditional banks, credit unions, online fintech companies, or even individuals. In business financing, the lender sets terms for repayment and can require collateral depending on the type of loan and perceived risk.

Lending Marketplace: A platform (often online) that connects borrowers to a network of lenders, offering a variety of loan products in one place. Small business owners can fill out a single application on a marketplace and potentially get matched with multiple loan offers. The idea is to simplify shopping for loans and increase approval chances by accessing many lenders at once.

Liability: Any financial debt or obligation a business owes. Liabilities are the opposite of assets and are recorded on the balance sheet. They include loans, credit card balances, accounts payable, mortgages, accrued expenses, or any other amounts that must be paid to outsiders. In simple terms, liabilities are the claims that creditors have on the company’s assets.

Lien: A legal claim against an asset that is used as collateral to satisfy a debt. If a lender has a lien on a piece of property (for example, a lien on a company vehicle for an auto loan), the business cannot sell that property without paying off the lien. If the debt isn’t repaid, the lien gives the lender the right to take or sell the asset to recover the money.

Line of Credit: See Business Line of Credit under B. (A “line of credit” generally refers to a revolving credit account that a business can draw from as needed, up to a limit. We’ve provided a detailed definition under Business Line of Credit.)

Liquidity: The ease with which assets can be converted to cash without significant loss of value. Cash is the most liquid asset; other assets like stocks, bonds, and inventory have varying degrees of liquidity. In a business context, having good liquidity means the company can readily meet short-term obligations — in other words, it has enough cash (or assets quickly convertible to cash) to pay bills and debts as they come due.

Loan Calculator: An online or digital tool that helps potential borrowers estimate their loan details. By inputting information like desired loan amount, interest rate, and term length, the calculator computes the expected monthly payment, total interest cost, and sometimes even qualification odds. It’s a handy way to preview what a loan might look like before formally applying.

Loan Stacking: Taking out multiple loans or advances from different lenders at the same time without them knowing about each other. This practice can be dangerous because it often means accumulating debt beyond what the business can realistically repay. Lenders frown on loan stacking — many loan contracts explicitly forbid it — because it increases the risk of default (the more obligations a borrower has, the harder it becomes to pay each one back).

Loan-to-Value Ratio (LTV): A ratio that compares the size of a loan to the value of the asset being purchased or used as collateral. It’s calculated by dividing the loan amount by the asset value. For instance, if you take a $80,000 loan to buy equipment worth $100,000, the LTV is 80%. Lenders use LTV to gauge risk: a lower LTV means more borrower equity in the asset (less risk to the lender), while a higher LTV indicates the loan is covering most of the asset’s cost (more risk if the asset value falls).

M

Maturity (Date): The end date of a loan or financial instrument by which all remaining principal and interest are due to be paid. For example, a five-year loan taken out on Jan 1, 2025, will have a maturity date of Jan 1, 2030. At maturity, any unpaid balance must be paid in full. (In the context of bonds or investments, maturity is when the principal is returned to the investor.)

Merchant Cash Advance: A funding option where a business receives an upfront sum of cash in exchange for a percentage of its future sales (often credit card sales) or daily bank deposits. MCAs are not loans but advances repaid by siphoning a bit off the business’s daily sales. They provide quick access to capital (sometimes in 24–48 hours) and usually have less stringent credit requirements, but the cost can be higher than traditional loans due to fees embedded in the factor rate and daily/weekly repayment structure.

N

Net Operating Income: The profit remaining after all expenses have been deducted from total revenue. It’s calculated as Revenue – Expenses = Net Operating Income. On an income statement, net income is the famous “bottom line” – if it’s positive, the company made money (profit); if it’s negative, the company lost money (loss). Net income accounts for all costs, including cost of goods, operating expenses, interest, and taxes.

O

Overdraft: A condition that occurs when more money is withdrawn from a bank account than the account currently holds, resulting in a negative balance. Many banks offer overdraft protection, which covers the shortfall (often for a fee) so that transactions aren’t declined. However, frequent or significant overdrafts can lead to high fees and signal poor cash management in a business.

P

Personal Guarantee: A promise made by a business owner or executive that they will personally repay a business loan if the business itself cannot. This agreement is often required for small business loans, especially if the business lacks a long credit history or sufficient assets. With a personal guarantee in place, the lender can pursue the individual’s personal assets (home, car, bank accounts) to satisfy the debt in case of default.

Prime Rate: The base interest rate that banks use as a starting point to set rates on business and consumer loans. The prime rate is influenced by the Federal Reserve’s benchmark rates and is offered to a bank’s most creditworthy customers. Less qualified borrowers get rates above prime. For example, if the prime rate is 5% and a borrower is quoted “Prime + 2”, their interest rate is 7%. The prime rate can change over time with economic conditions.

Principal: The original amount of money borrowed on a loan, not including interest or fees. For instance, if you take a $50,000 loan, the principal is $50,000. As you make payments, the principal portion of your balance goes down. Interest is calculated on the remaining principal, so paying down principal faster can reduce total interest paid.

Profit and Loss Statement (P&L): Another term for the Income Statement – it summarizes the revenues, costs, and expenses during a specific period. The P&L shows whether the business made a profit (net income) or took a loss. It’s one of the key financial statements (along with the balance sheet and cash flow statement) and is used to assess business performance.

Q

(No common business financing terms start with Q in this glossary.)

R

Receivables: Short for Accounts Receivable – money owed to your business by customers for goods or services delivered. When you send an invoice and await payment, that invoice amount is recorded as a receivable (an asset) because it represents future cash coming into the business. Managing receivables is important; the faster you collect, the stronger your cash flow.

Revolving Line of Credit: A type of line of credit that remains available over time as you repay what you’ve borrowed. It’s “revolving” because the credit replenishes up to the limit as you pay down balances, much like a credit card. This setup is great for ongoing working capital needs since you don’t have to reapply each time you need funds — once approved, you can dip into the credit line repeatedly and pay interest only on the portion you use.

Revenue-Based Financing: A financing model where repayment is tied to the business’s revenue flow, rather than a fixed amount each month. In practice, the funder provides capital upfront and you repay by giving them a set percentage of your revenue (for example, 5% of monthly sales) until a target amount is repaid. Because payments flex with your revenue, this can be easier on cash flow during slow periods (you pay less when sales are down, more when sales are up). Merchant cash advances are a common form of revenue-based financing. This option is attractive for businesses with strong sales but perhaps weaker credit or limited collateral, though the total cost can be higher than a traditional loan.

S

SBA Loan: A small business loan partially guaranteed by the U.S. Small Business Administration (SBA). The SBA doesn’t lend directly to businesses; instead, an SBA loan is issued by a bank or approved lender, and the SBA backs a significant portion of it. This government guarantee reduces risk for lenders, enabling them to offer favorable terms like lower interest rates and longer repayment periods. SBA loans are known for being some of the most affordable loans, but they require thorough documentation and can take longer to get approved.

SBA 7(a) Loan: The SBA’s most popular loan program, known for its flexibility. SBA 7(a) loans can be used for a wide range of purposes – working capital, buying equipment, refinancing high-interest debt, purchasing a business or franchise, or even acquiring real estate. Loan amounts can go up to $5 million. These loans typically have repayment terms up to 10 years for general purposes and up to 25 years for real estate.

SBA 504 Loan: An SBA loan program designed for major fixed asset purchases, like buying commercial real estate or large equipment, often used for expansion. A 504 loan is actually a partnership between a lender and a local Certified Development Company (CDC): typically 50% of the project is financed by the lender, 40% by the CDC (backed by the SBA), and 10% is a down payment from the borrower. These loans offer long-term, fixed-rate financing, with loan amounts that can go quite high (potentially $5 million or more) specifically for big projects.

SBA Express Loan: An accelerated SBA 7(a) loan program that aims to provide a response to the application within 36 hours. The trade-off for speed is typically a lower maximum loan amount (capped at $500,000 as of this writing). It’s a way for borrowers to get SBA-backed funding faster than the standard process, making it useful for smaller, time-sensitive financing needs with more streamlined paperwork.

Secured Loan: A loan backed by collateral, which is an asset the lender can claim if the borrower doesn’t repay. Because the lender has something of value securing the loan, secured loans generally come with lower interest rates or higher borrowing limits than unsecured loans. Examples: a mortgage is secured by real estate; a car loan is secured by the vehicle; a business loan might be secured by equipment or receivables.

Short-Term Loan: A loan that is typically repaid over a short period, often ranging from a few months up to two years. Short-term business loans provide quick cash infusions and are usually paid back in frequent installments (monthly, biweekly, or even weekly). They are easier to obtain than long-term loans and help with immediate needs or emergencies, but they tend to carry higher interest rates or fees due to the brief repayment window and lower dollar amounts.

Small Business Loan: A broad term for any loan specifically intended for business purposes (usually for companies with fewer than 500 employees). This can include bank loans, online term loans, lines of credit, microloans, and more. “Small business loan” often refers to financing used for general needs like expansion, cash flow, inventory, or hiring. Many specific products fall under this umbrella – for example, an equipment financing or an accounts receivable loan could both be considered types of small business loans.

Startup Loans: Loans geared toward new businesses (startups) that have little to no operating history. Startup loans can be used for launching operations, hiring initial staff, marketing, buying equipment, or covering early expenses. Because startups lack proven revenue and time in business, these loans might rely more on the founder’s personal credit and often come with stricter guarantees or higher rates. Some common forms of startup financing include personal loans used for business, credit card financing, or specialized SBA loans like the SBA microloan.

T

Tangible Asset: A physical asset that has a clear cash value and can be touched or seen. Tangible assets include things like buildings, machinery, vehicles, computers, inventory, and cash itself. They are opposed to intangible assets (like patents or brand value). Tangible assets often serve as collateral for loans since their value can be appraised and sold if needed.

Term Loan: A loan that provides a lump sum of cash upfront, which the borrower agrees to repay over a fixed term (time period) with regular payments. Term loans typically have a set interest rate and a predictable repayment schedule (e.g., monthly payments over 5 years). They are often used for specific one-time investments in a business, like purchasing equipment, renovating a space, or other long-term projects. (In short, a “business term loan” is a straightforward loan with a start and end date for repayment.)

TCC (Total Cost of Capital): The total dollar cost of financing, including the principal amount plus all interest and fees over the life of the loan or advance. This figure tells you, in sum, how much you will have paid once the debt is fully repaid. For instance, if you borrow $100,000 and end up paying back $130,000 in total, your total cost of capital is $30,000. Knowing the TCC helps business owners compare financing options beyond just interest rates by looking at the complete cost impact.

True Factoring: See Invoice Factoring under I. (In essence, true factoring refers to the practice of outright selling invoices to a factoring company for cash, rather than using invoices to just secure a loan. The term “true” emphasizes that it’s a sale of assets, not a loan.)

U

UCC Filing: A notice filed by a lender under the Uniform Commercial Code to publicly declare it has an interest in (i.e., lien on) certain assets of a borrower. If you pledge assets as collateral for a business loan, the lender may file a UCC-1 statement at the state level. This filing doesn’t mean you’ve done anything wrong – it simply protects the lender’s rights in the collateral. However, multiple UCC filings or specific collateral claims can affect your ability to get additional financing until they’re resolved.

Unsecured Business Loan: A loan that is not backed by specific collateral, granted based on the borrower’s creditworthiness and financials. Because the lender is taking more risk (there’s no asset to claim if the borrower defaults), unsecured loans often have higher interest rates or lower amounts than comparable secured loans. Examples of unsecured financing include many business lines of credit, credit cards, or term loans given solely on credit score and cash flow. A personal guarantee is often still required even if the loan is unsecured.

V

Variable Interest Rate: An interest rate on a loan or credit line that can change over time, typically in response to market rate movements or an index. For instance, a loan might be set at “Prime + 2%,” meaning if the prime rate is 5% now, the loan’s rate is 7%; if prime later goes up to 6%, the loan’s rate adjusts to 8%. Variable rates can cause loan payments to increase or decrease during the term, so borrowers should be prepared for some fluctuation in their payment amounts.

W

Working Capital: The funds available to run day-to-day operations, calculated as current assets minus current liabilities. In practical terms, working capital is what you have to work with to pay bills, cover payroll, and handle routine expenses. Positive working capital means the business can meet its short-term obligations and invest in its short-term growth; negative working capital signals potential liquidity problems. Managing working capital effectively (through cash flow timing, inventory management, etc.) is essential for a healthy business.