A list of common terms you may encounter when researching and obtaining financing for your business

Accounts Payable

Business debts you owe that must be paid off within a relatively short period of time, as opposed to long term debt such as mortgage loans and equipment loans. They are reported as current liabilities (debts) on a business balance sheet.

Accounts Receivable (A/R)

Money owed to you by customers for goods or services that have been delivered or used. This is money that is already earned and so it is considered an asset by lenders and can be used as collateral. Accounts receivables are recorded as current assets on a company’s balance sheet. For healthcare businesses A/R is typically the money that patients and/or their insurance companies owe.


Accrued Assets

These are assets on a company’s balance sheet, other than cash and fixed assets (real estate, machinery & equipment, inventory) and include such items as accounts receivable, goodwill, and prepaid expenses

Accrued Liabilities

These are items on your balance sheet that you are liable for. Examples are accounts payable, and interest and taxes that are owed but not yet paid or required to be paid.


Amortization is the process by which the principal on a loan you took from a lender decreases with each payment. The amount of principal reduction (repayment) on a loan or debt. Amortization payments are generally regular payments (usually monthly), made to reduce the debt along with the interest payments over the term of the loan.

Amortization Schedule

A table that shows how much of each payment you make on a long-term loan goes towards reducing the loan’s principal and how much of your payment goes toward interest.

Annual Interest Rate

A simple interest rate you pay on a loan, as opposed to the Annual Percentage Rate or APR. It may not reflect the true cost of the loan, as it may not include other costs, such as upfront fees and interest charged on accrued interest – See APR

Annual Percentage Rate (APR)

The percentage of the loan amount you are charged annually and is often referred to as the effective rate of interest since it includes the effects of the compounding of interest (see Compound Interest) and may include the cost of upfront fees. It differs from the loan’s stated or simple interest rate, which does not reflect added fees and costs. The APR reflects the true cost of the loan over its full term. 


Any real or personal property you own or have interest in, which can, if necessary, be appropriated for the repayment of a debt

Asset-based Financing/Lending

Loans or lines of credit extended to you by a lender that are secured by assets associated with your business (collateral) such as accounts receivable, real estate, equipment or inventory that are on your company’s balance sheet.  In asset-based financing, the loan or line of credit is based entirely on the assets you pledge as collateral. The lender does not look at cash flow or your credit score. The terms and conditions of the loan depend on the value and type of assets you put up as collateral. Typically, the lender will limit the loan amount to a certain percentage of the market value of the collateral.

Attorney Fees

These are the fees you pay to legal counsel representing both you and the lender for legal documentation and preparation for the closing of a business loan.

Bad Debt

Money owed to you that you couldn’t collect. This could be due to a variety of reasons, e.g. the debtor can never pay or the company that owes you is out of business. A Bad Debt is of no value as an Accounts Receivable on your books (See also Write-Off).

Balance Sheet

A financial statement shows the assets and liabilities of your business, your equity or net worth at a specific point in time i.e. what the business owns and what it owes. Lenders will review your Balance Sheet to assess the overall value and financial strength of your business.

Balloon Payment

This is a large principal payment you must make at the conclusion of the term of a loan. If you have a 10-year term and your payments won’t pay off the loan in 10 years, then the final payment is a balloon payment that is considerably larger than the monthly payments.

Bridge Financing

A short-term loan that you use to finance your business until a longer-term loan can be arranged or a scheduled event occurs which provides the funds to repay the loan. Bridge loans may be used to acquire real estate, make improvements, put tenants in place, etc. Bridge Loans may also be referred to as Interim Loans and generally carry higher interest rates and fees than Conventional Loans or Permanent Loans (Permanent Mortgage Loan).

Business Credit Report

A business credit report is a profile of your business that contains critical information such as payment history that lenders examine when evaluating your loan application. The company, Dun & Bradstreet (D&B) is well known for issuing such reports.

Business Line of Credit

A commercial loan that provides the working capital needs of your business. A working capital line (loan) is generally revolving, which means that you can draw down or use money from the loan up to the authorized amount. You may repay any amount borrowed and re-draw funds as needed during the time that the “Line” is in place. It may be secured by collateral or unsecured

Business Plan

A document, describing your company’s current status and projects your plans and expectations for several years into the future. It generally projects future opportunities and maps the financial, operational and marketing strategies that will enable you to achieve your goals.

Business Valuation or Practice Valuation

This is a process used to determine the fair value of your business or practice for a variety of purposes, including sale value, financing, establishing partner ownership and divorce proceedings. There are professional business valuation companies that provide objective estimates of the value of a business.


The money and other property you use in transacting your business.

Capitalization Rate or “Cap Rate”

The Cap Rate is utilized in commercial real estate financing and sales transactions. It is the percentage derived by dividing the income you generate from the use of the property by the value of the property. It is used to determine debt service coverage for a loan or potential return on your investment. It is also used for appraisal of properties; in which case the appraisers will use an assumed “Cap Rate” to determine the value of the property.

Cash Flow Financing

A short-term loan which provides you with additional cash to cover shortfalls in anticipation of future revenue, such as the payment of receivables.

Certificate of Good Standing

Certificate issued by the State to certify that your business actually exists, that you have paid all its statutory fees, have met all filing requirements and, therefore, you are authorized to transact business in the State. A Good Standing Certificate is generally required at the closing of any loan transaction.


Collateral is an asset of value that you pledge to a lender to secure repayment of a loan. When you buy a home, the property itself is the collateral that secures the loan. For business loans, almost any asset you own that the bank can liquidate to cover its losses can be used as collateral. Examples include your real estate, equipment, accounts receivable and inventory.

Commercial Real Estate Appraisal

An estimate of the “market” value of Commercial Real Estate prepared by a licensed appraiser. Appraisers may be licensed by the State and may also be designated as an MAI appraiser by the Appraisal Institute. Commercial lenders usually prefer appraisals from MAI designated appraisers.  

Common Area Maintenance

Charges you will have to pay as a commercial tenant, generally in shopping centers or other commercial buildings, as your pro rata share of expenses to maintain hallways, restrooms, parking lots, and other common areas.

Compound Interest

Interest is compounded when the interest you owe on a business loan for a given period is added to the principal amount of the loan and the total amount then accrues interest. 

Construction Loan Fees and Points

A fee the lender charges for the construction component of your loan. The fee is typically calculated as a percentage of the total construction costs. Points can also be charged by lenders on Permanent Loans as well as by mortgage brokers and loan brokers for services rendered in connection with obtaining a loan

Conventional Loan – Mixed Use-Commercial

A commercial mortgage loan for a commercial building that may have residential space, but also has retail and office space.

Conventional Loan – Mixed Use-Industrial

A commercial mortgage loan for a building leased to tenants in the manufacturing and trade industries.

Conventional Loan – Multi-Family

A commercial mortgage loan for a building leased as residences to two or more tenants.

Conventional Loan – Owner User

A commercial mortgage loan to a borrower who uses all or most of the property for their business.

Conventional Loan – Single-Tenant

A commercial mortgage loan for property that is fully leased to a single tenant.

Cost of Goods Sold (COGS)

The cost of goods sold by your business include material, labor, and overhead costs. Inventory costs of those goods a business has sold during a period. COGS therefore include all costs of raw material, cost of converting the raw material into the saleable product and cost incurred in bringing the inventories to their present location.

Credit Report

A report issued by a credit report company that contains detailed information on your credit history, including identifying information, credit accounts, loans, bankruptcies, late payments, and recent inquiries. Your Credit Report is obtained, with your permission, by prospective lenders, to determine if you meet their standards for the type and amount of loan you have requested.

Credit Score (FICO Score)

This is a numerical rating determined by an analysis of your Credit Reports. The FICO score was developed by the Fair Isaac Company (FICO), a company that specializes in what’s known as “predictive analytics,” which means they take information and analyze it to predict what is likely to happen.

In the case of Credit Scores, FICO looks at a range of credit information and uses that to create scores that help lenders predict the likelihood of your paying bills on time, or whether you are able to handle the size of credit you have applied for. FICO scores range from 300 to 850, with the lower number allegedly representing a greater credit risk.

Current Assets: Cash (for Financial Reporting Purposes)

This is how much cash you have on hand and the value of assets such as Accounts receivable, marketable securities, inventory and other assets of a business that can be converted into cash within a year (cash equivalents).

Current Liabilities (for Financial Reporting Purposes)

Liabilities or debts owed by your business that must be paid within one year. 

Current Portion of Long-Term Debt (CPLTD)

The amount of a long-term debt, such as a mortgage loan, which must be paid within one year. 

Current Ratio

Current Ratio = Current Assets ÷ Current Liabilities. It is a measure of your company’s liquidity. Lenders use the ratio when evaluating your loan request, because it is an indication of your company’s ability to pay its short-term obligations.  A high ratio is considered a good indication that you can meet your current obligations.


An amount owed for funds borrowed. It may be owed to an organization’s own reserves, to private individuals, banks, or other institutions. Generally, the debt is secured by a note (see Promissory Note), bond, mortgage, or other instrument that states repayment and interest provisions. The note, in turn, may be secured by a lien against real or personal property or other assets. 

Debt Service

The amount of money required for periodic payments of principal and interest on your loan. For commercial loans, this is the total required to service the debt for one year.

Debt Service Coverage Ratio (DSCR or DSC)

Debt Service Coverage Ratio (DSCR) = Net Operating Income ÷ Debt Service. The net operating income is your company’s total revenue for one-year, minus operating expenses, but not including taxes and interest payments.

DSCR is used by lenders as a measure of cash flow available to meet annual principal and interest payments on business loans. A DSCR is a measure of risk, so a ration of less than 1.0 means that you have more debt than cash flow and would not be able to get additional financing. A ratio slightly above 1.0 means that a loss of cash flow could put the business in negative territory and therefore the company is a financing risk. The ratio needed will depend on the lender, the business history and the current state of the economy.

Debt to Equity Ratio or Debt to Worth Ratio

This is the ratio of your company’s debt to net worth. It is calculated by dividing liabilities by shareholders’ equity or the company’s net worth. A low ratio is an indication of good financial health, while a high ratio indicates potential risk. 


Default is the failure to repay a loan. It is a legal term used to describe the borrower’s failure to meet their obligation under the loan agreement, for example, the failure to make a monthly loan payment. If a business defaults on a loan, the lender could take possession of any property used to secure the loan, including collateral. Defaulting on a small business loan will typically hurt the credit scores of the owners of the business.

Default Interest and Late Charges

Default Interest is a higher rate of interest you may be charged if you default on a loan.  The default interest rate is typically written into the loan agreement. In addition to the higher interest, you may also have to pay late charges, which are penalties charged for late payment even when the loan is not in default.


This is a form of prepayment of a commercial mortgage loan. Instead of upfront cash prepayment, treasury bonds are purchased and used as substituted collateral with maturity dates geared to providing the same return to the lender as the original mortgage. If treasury returns are low, the cost to the borrower can be high, but if rates are high, the borrower could potentially get a discount on prepayment using this method.

Deferred Maintenance

Required maintenance of business property that has not been performed or has been put off to a later date.


A debt that has become due and payable but remains overdue and unpaid.


This is an accounting method that deducts the cost of your business asset, such as a piece of equipment, from your company’s income over the useful life of the asset. Because depreciation is a non-cash expense, it does not impact cash flow, but it decreases your reported earnings.


An easement is the right to use all or a portion of the real property owned by another for a specific purpose such as placement of utility lines, sewer lines and rights of entry and exit.


EBITDA is an abbreviation for Earnings Before Interest, Taxes, Depreciation and Amortization. It is calculated by taking the net earnings of your company (revenues minus expenses) and then adding back interest and taxes, as well as depreciation and amortization It is one of the measures that lenders use to evaluate your business’s creditworthiness and its ability to repay a loan.. 

Effective Gross Income (EGI)

EGI is used to analyze investment properties. It is determined by taking the Gross and miscellaneous income of the property and subtracting losses due to vacancy and credit.

Environmental Indemnity

This is an agreement you may have to make to pay a lender to protect them from or reimburse them for any losses incurred as a result of an environmental problem.

Environmental Site Assessment Phase I

This is a study of real estate to determine any unique environmental attributes, encompassing everything from endangered species to existing, or potential, hazardous waste to historical significance. Generally, it involves visual inspection, interviews, and checking local records.

Environmental Site Assessment Phase II

A Phase II report will normally be issued when a potential environmental condition is indicated after a Phase I assessment. Phase II will include further detailed studies, such as sampling and evaluation of suspect materials or areas on the site.

Environmental Site Assessment Phase III

A Phase III report outlines plans for the mitigation or remediation of environmental issues identified in Phase I and confirmed in Phase II.

Equity Injection

These are cash and property contributed to the business by the borrower or shareholders.

Equity, Net Equity or Net Worth Equity

Net Equity or Net Worth is the assets of the business minus its liabilities.


This is a form of asset-based financing that is based entirely on accounts receivable. The lender advances cash to you for the outstanding value of goods and services delivered to a customer. Typically, the lender will limit the loan amount to a certain percentage of the invoiced and outstanding amount. Your customer pays the lender directly. For this reason, the lender does not look at your cash flow or credit, but rather the credit of your customer.

Factor Rate

This applies to short-term loans and cash advances. It is a way of quantifying short-term financing, as use of annual interest rate or APR may not be appropriate. The factor rate is calculated from the total amount you will have to pay back on the loan and includes the financing fee and interest. For example, if you borrow $1,000 and must pay back $1,200, your factor rate is 1.2

Fico Score

See Credit Score 

Filing & Recording Fees

Charges associated with official documents such as deeds, that are filed and become public record in connection with a business loan. 

Fixed (Physical) Assets or Tangible Property

Physical assets that your business owns. Buildings, real estate, machinery and equipment, computers and furniture are examples of your fixed or tangible assets

Flood Certification

This is issued by FEMA for properties that are located on government-designated flood plains.  If such properties are being used as collateral for a loan the lender may require that the borrower purchases flood insurance.

GAAP Generally Accepted Accounting Principles

The accounting rules for financial presentation of a business’s income, expenses, assets and liabilities. The standards are set by the Financial Accounting Standards Board (FASB) a non-profit organization. The rules are modified from time to time.


Goodwill is an Intangible Asset on a business’s balance sheet, for which reason a buyer pays more than the value of its assets minus its liabilities. This is intangible value such as reputation, name recognition etc. attained by the company and valued by the buyer.

Gross Potential Rent

This is used primarily for income producing or investment real estate to gauge the potential future revenue stream. It is the rent which would be collected if all units were leased at market rents.

Gross Profit

Gross Profit is calculated by deducting your cost of doing business from the revenue generated by your business. It does not include indirect labor cost, taxes, rent, utilities and interest.

Gross Profit Margin Ratio

This is calculated by dividing the Gross Profit by the revenues. It provides some guidance as to whether the pricing for the products or services are adequate or too low and whether the costs associated are adequate or too high. The margin should be large enough to cover operating and other expenses and provide a reserve for growth.

Gross Revenue

Gross Revenue is the income your business generates before deducting expenses.

Guarantee or Guaranty

This is the by a third party (Guarantor) to pay or assume your obligations if you were to default on your loan. A guarantee may be an Unlimited Guarantee, or it may be a Limited Guarantee. A Limited Guarantee may provide that the Guarantor is only responsible for certain obligations or amounts.

Hard Money Loan

This type of high risk loan is issued for pressing and emergency situations, such as the quick purchase of a piece of commercial real estate, an opportunity to acquire property or business at a bargain price or a distressed financial situation that could put a company out of business. Such financial needs may not qualify for traditional bank financing. Hard money loans are short term Bridge Loans that carry very high rates of interest and points. 


A contract (policy) between your business and an insurance company, that provides for financial reimbursement against losses.

Intangible Assets

Intangible Assets are business assets (other than cash or cash equivalents) that have value and generally are not physical assets. Examples of intangible assets are trade secrets, patents, trademarks, copyrights and Goodwill.

Interest Expense

The interest paid to banks and creditors on existing business debt.


The raw materials, in-process goods and finished goods that are ready or will be ready for sale. If you are a manufacturer, inventory represents one of the most important assets that your business has because the turnover of inventory represents the primary source of revenue generation and earnings.

Joint-and-Several Liability

This is a legal clause used when multiple parties own a business. It is a clause contained in loan agreements that all partners are responsible for repaying the debt. Their share of the debt is typically equal to their share of the business. Furthermore, if a partner sells out or becomes insolvent, the other partners become responsible for repaying the insolvent partner’s share of the debt.


The London Inter-Bank Offered (LIBOR) rate is an index rate used by some lenders. It is a benchmark rate used by the world’s leading banks to charge each other for short-term loans. The index is based on five currencies: the U.S. dollar, the euro, the pound sterling, the Japanese yen and the Swiss franc.

Lien, Mechanics Lien, Judgment Lien and Tax Lien

A lien is a legal term meaning to guarantee an obligation. When you put up collateral for a loan, the creditor places a lien on the property that is securing the loan. Once the loan is repaid in full, the lien is released. If you do not repay the loan, the lender may execute the lien, seize the property and sell it to repay the loan. Here are some examples: a Mortgage is a lien on real estate to secure repayment of the mortgage loan, a Tax Lien is a lien secures payment of real estate taxes, a Mechanic’s Lien secures payment for work done on real estate, and a judgment lien secures payment of a judgment.

Loan Packaging Fee

Any fee charged to the borrower for packaging or assembling of their business loan application and supporting documentation.


Amount you owed to creditors.

Line of Credit (See also Standby Line of Credit)

A line of credit is like having a credit card. A lender will give you a maximum amount of financing. Once that is established, you can borrow against the credit line at any time for most business purposes. You only pay interest on the amount you borrow from the credit line and not the full credit line. Repayment terms are also established just as they are for term loans.


This is an estimate of how readily your company’s assets can be converted into cash.

Loan to Value (LTV) Ratio

This is the amount being loaned compared to the overall and final value of the asset you are acquiring. It is the amount of the loan divided by the value of the collateral taken as security for the loan. For example, if you borrowed $80,000 to acquire and improve a property that is eventually valued at $100,000, the LTV ratio would be 80 percent. LTV ratios are a way for lenders to measure the overall risk of a business loan.

Long Term Debt (LTD)

Debt obligations that you must settle after more than one year.

Machinery & Equipment Loan

A business loan that is secured by the machinery and equipment of your business.

Management Fee

The cost of professional property management. The fee is typically set at a fixed percentage of total rental income generated by the property managed.

Market Value or Fair Market Value

Fair Market Value is defined as the estimated price for property that a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller.

Net Cash Flow

Net Cash Flow is cash generated from operations, investments and financing minus expenses over a specified period of time. The amount can be positive or negative and reflects changes in your company’s cash balance over a given period hence Net Cash Flow can be estimated monthly, quarterly or annually.

Net Income

Net Income is your company’s Gross Revenues minus its expenses including cost of goods sold, taxes, interest, depreciation, rent, overhead etc. Your net Income is your business’s profit.

Net Lease

A lease which requires the Tenant to pay some, or all, of the costs associated with the leased premises. A Triple Net Lease (NNN) requires the tenant to pay their share of the real estate taxes, insurance and maintenance. A Double Net Lease (NN) requires the tenant to pay for their share of taxes and insurance and a Single Net Lease requires the tenant to pay their share of the real estate taxes.

Net Operating Income

Income from property or a business after operating expenses have been deducted, but before deducting income taxes and financing expenses. Operating Income is earnings before interest and taxes (EBIT).  

Non-Recourse Guarantee

This is used in real estate loans to guarantee that the borrower’s obligation is to the extent of the value of the real estate pledged as security for the loan. In other words, with this, were you to default on such a loan, the lender’s sole recourse is to liquidate the collateral. The lender has to be satisfied with the value of the liquidation and cannot ask for anything else from you.

Notes Payable – Long Term Debt (LTD)

Notes, debts and other financial obligations maturing later than one year.

Operation and Maintenance Plan (O & M Plan)

An O & M Plan is executed by a business when there are existing or potential environmental concerns such as asbestos, lead contamination, etc. It sets forth the guidelines for identifying, monitoring and dealing with such problems as well as complying with government regulations.

Origination Fee or Points

An up-front fee charged by a lender for processing and committing to make a loan. Origination fees are quoted as a percentage of the total loan (ex. 1% of $200,000 = $2,000).

Owner Draw

The amount of money you take out of the business to meet your personal living expenses. This figure is deducted when determining Debt Service Coverage for your business loan.

Payroll & Benefits

Total employee compensation including wages and related benefits such as social security, Medicare, unemployment insurance, workmen’s compensation insurance, disability insurance, retirement plans.

Percentage Rent

This is a type of commercial lease typical of retail businesses, that may be in addition to, or in lieu of fixed rent payments. As a tenant, you pay a percentage of your sales in excess of a pre-established base, to the property owner.

Permanent Mortgage Loan

A Loan secured by a mortgage on real estate generally with a term of at least 5 years. A permanent loan can is amortized which means it will be fully repaid by the required debt service payments during the term of the loan. 

Personal Property

Personal Property is any asset other than real estate.

Personal Guarantee

A personal guarantee is an agreement you sign to agree to pay back the loan personally if the business cannot pay. You, as the individual, becomes a co-signer of the loan with the business. This is the case even if the business is a separate entity like a corporation or limited liability company. A personal guarantee is required by many lenders and for most SBA guaranteed loans.

Prepayment Penalty

These are provisions of commercial mortgage loans that provide extra protection against loss of expected income to the lender if a loan is paid off before its maturity date. For example, if the loan repayment is 10 years and it is paid back in full in 9 years, a prepayment penalty will charge an extra fee to cover a portion of the expected interest for the tenth year.

Prime Rate

This is a short-term interest rate tied to the Federal Reserves’ Federal Funds Target Rate and used by lenders as an index or benchmark. Many business loans are tied to the Prime Rate. Lenders will add a margin to the Prime rate to set their loan rates. For example, if the Prime Rate is 5 percent and a lender wants to make a margin of 3 percent, then they will set their lending rate at prime plus three, which is 8 percent. 


This is the amount borrowed and on which interest is calculated. It is the amount that must be repaid with interest before the loan is satisfied.

Principal Balance

This is the amount remaining on the business loan. The payments include interest and other fees, so the balance will not decline at the same rate as the payments.

Profit and Loss (P&L) Statement

This is a financial statement that summarizes your company’s revenues and expenses during a given period. The period measured is typically a quarter or a year. If your business took in more money that it paid out, it turned a profit. Otherwise, a loss is reported for the period.

Promissory Note

Also known as a note is literally an official document in which you made a promise to pay your loan. This is a contract between you and a lender that provides evidence of your indebtedness to the lender.

Quick Ratio

Indicates the ability of your business to quickly generate cash to pay your current liabilities. It is determined by dividing the sum of cash on hand, marketable securities and accounts receivable by the current liabilities.

Real Estate (RE) Taxes or Real Property Taxes

A government levy based on the assessed value of your business real estate.

Real Property or Real Estate

Generally defined as land, together with the buildings and improvements permanently constructed on or affixed to the land.

Repair & Maintenance Reserve or Repair and Maintenance Escrow

An amount set aside or escrowed with a lender to cover the anticipated costs of repairs and maintenance of the property you own and have pledged as collateral for the loan. 

Repairs & Maintenance

This is the work necessary to return or maintain your real estate asset in good operating condition.

Replacement Reserve or Replacement Reserve Escrow

An amount set aside or escrowed with a lender to cover the anticipated costs of replacing obsolete or damaged business property

Residential Appraisal

Residential Appraisal is a valuation of commercial residential real estate based on the professional opinion of an authorized person. In order to be a valid appraisal, the authorized person will have a designation from a regulatory body governing the jurisdiction the appraiser operates in. MAI designation is typically specified by lenders. 

Rollover Reserve or Tenant Rollover Reserve

An amount set aside from Net Operating Income to pay for anticipated costs of replacing commercial tenants such as brokerage commissions and tenant improvements.

SBA 504 Loan Program

This is a loan provided by a certified lender which is 100% guaranteed by the Small Business Administration (SBA). The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization.

504 loans are made available through Certified Development Companies (CDCs). A CDC is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses.

504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing 10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.   

SBA 7(a) Loan Program

This is a loan provided for start-up and existing small businesses for a variety of uses including real estate, machinery and equipment and working capital. The federal government, through the SBA, guarantees repayment of a portion of the loan to the lender although the borrower remains fully liable for the whole loan.

SBA Guarantee Fee

To offset the costs of its loan programs, SBA charges a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees is based on the guaranteed portion of the loans. The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to SBA and has made the first disbursement of the loan.

SBA Loan Equity Injection

An SBA loan equity injection is a down payment that certain applicants must provide to qualify for an SBA 7(a) loan or SBA 504 loan. The amount required is typically 10%.  Out of that 10%, at least 5% must come in the form of cash from the buyer, while the remaining 5% equity can come in the form of a seller note.

The SBA has only established minimum requirements for what is necessary to preserve the government guarantee. Ultimately, each lender will have its own rules regarding risk tolerance and may require a higher amount of buyer/seller equity injection and so the equity injection can be as high as 30%. The requirement applies to all SBA 504 loans and to some applicants for SBA 7(a) loans such as start-ups.

When you apply for a small business loan to start a new business, the lender’s main concern is whether you’ll be able to pay back the loan on time. Having some “skin in the game” can help convince the lender that you’re committed to your new business and can comfortably afford the loan payments. Basically, bringing some of your own resources to the table as a down payment indicates that you are confident in your business’s future.

SBA Seller Note

The SBA rules allow the SBA lender to accept seller standby financing for a portion of the buyer’s qualifying equity. A seller note is a loan given by the current owner of a business to a new buyer, often in order to bridge the gap between the amount of financing the buyer has and the purchasing price of the business. For example, if a business was being sold for $5 million, and the buyer had 90% ($4.5 million) in SBA financing and 5% ($250,000) in cash, the seller could provide a $250,000 seller note in order to cover the difference.

SBA Standby Creditor Agreement

When there is an equity injection through a seller note, the seller debt needs to “act like” equity. That means the seller will sign an SBA Standby Agreement agreeing to delay requiring payments until the SBA loan is satisfied first. It also means the SBA lender will have first lien rights on the business assets sold by the selling note holder who is permitted to file a second lien on these assets. The standby creditor earns and accrues interest on his loan, but he receives no cash payment until the SBA loan is paid off first. This means that if an SBA 7(a) borrower takes out a 10-year, $500,000 loan to purchase a business and gets a seller note worth $25,000, they will not have to pay that portion of the loan back until the 10 years are up. The borrower will still receive the remaining $475,000 in cash at closing.

Second Mortgage or Subordinate Loan

A second mortgage is a mortgage on property that is subordinate to the first mortgage. The holder of the prior mortgage (First Mortgage) has priority over the second mortgage lender with respect to proceeds from liquidation of the collateral property pledged for repayment of the loan.

Second (Subordinated) Position

There may be times when a business needs two or more loans to finance a project. This is often done through a long-term loan from a traditional bank followed by short-term financing through alternative lenders. Second position refers to the second or alternative lender. Many lenders do not want to be in second position because of the chance of default. Typically, the first lender will have the first opportunity to collect, hence if the borrower defaults on both loans, the lender in second position may not recoup their funds. When seeking a large loan that requires more than one lender, you will need to seek an alternative lender willing to take second position on financing.

Secured Loan

A loan secured by collateral, whereas an Unsecured Loan has no collateral pledged as security for repayment.


A pledge made to secure the performance of a contract or the fulfillment of an obligation, such as the repayment of a loan. Examples of securities include real estate, equipment, stocks or a co-signer. 

Security Interest

A pledge of property to secure performance of a loan or other obligation. A mortgage or lien is a security interest.

Soft Costs or Soft Project Costs

The term is used in connection with construction projects to differentiate between the “hard” construction costs such as materials and labor associated with the physical construction from the other costs such as financing, legal, architectural and engineering drawing costs.

Standby Line of Credit/Line of Credit

A standby line of credit is a sum of money, not to exceed a predetermined amount, that can be borrowed in part or in full, from a credit-granting institution if the borrower needs it. In contrast, an outright loan would be a lump sum of money that the borrower intended to use for sure

Standby Loan

This can refer to either a commitment by a lender to make a loan if certain circumstances occur or subordinated financing which by its terms requires no payment on the loan while the primary loan is in place. 


The process by which a parcel of land is measured, and its area ascertained. The plan typically shows measurements, boundaries, area, contours and easements.

Tangible Debt to Worth

This ratio is calculated as: Accounts payable + Long-term debt + Other Loans ÷ Total net worth – intangible assets such as copyrights, patents and intellectual property. It measures your company’s ability to absorb losses, without reducing its ability to service existing debt. The lower the ratio, the more comfortable are lenders. 

Tax and Insurance Escrow

Often a lender will require a borrower to put in escrow an amount calculated to pay for the real taxes and insurance premiums, when due, on the real estate collateral pledged to secure its loan.

Tax Monitoring Fees

A closing cost used to ensure that you pay your property taxes. You pay this fee at closing. It is standard practice for the lender to then pass this sum on to a tax service agency. The role of a tax service agency is to look for delinquent property taxes and alert the lender to prevent tax liens.

Tenant Improvements (TI)

Tenant Improvements are alterations or changes made to a property to meet your needs or requirements as a tenant.


The maturity or length of time for final repayment of a loan.  Lenders’ loan terms may vary by loan uses, however as a guide the following terms may apply: Working Capital – 5 to 10 years, Machinery and Equipment is 7 to 15 years and Real Estate is 5 to 30 years

Title Insurance

Insurance policy that protects you and the lender from loss sustained by defects in the title, often including problems with the Survey.

UCC Filing Uniform Commercial Code

This is a code of laws governing commercial transactions that was designed to bring uniformity into various states. To properly file a lien and take a security interest in personal property owned by a business owner, a lender must file the UCC financing statement with the appropriate governmental authority.

USDA B & I Loan

United States Department of Agriculture loan programs are offered to improve, develop or finance businesses and industry and improve the economic and environmental climate in rural communities. There are several programs that provide partial loan guarantees to lenders.


Services such as water, sewer, gas, electricity, and telephones which are generally required to operate property.

Vacancy Allowance and Credit Loss Vacancy Allowance

Vacancy Allowance is an amount generally deducted when calculating Net Operating Income to account for actual or estimated vacancy in an investment property. Credit Loss Allowance is an amount deducted when calculating Net Operating Income to account for actual or estimated losses due to non-payment of rents or other accounts receivable.

Working Capital

This is the cash needed to keep the business operating. Working Capital is calculated by subtracting a company’s short term or current liabilities from its current assets. It is a measure of whether the company can meet its obligations as they become due