Meeting a loan officer can be quite intimidating. Not only does this person hold the key to your business loan approval, in the back of your mind, maybe to your financial security as well. You need to make sure that you appear to know what you’re doing. You need to know basic bank business loan terminology
Part of the problem is the jargon or technical vocabulary that professionals in the field use. Don’t fret, as we have your back. Here are some of the most common business loan terms and what they mean. There will be a quiz at the end. (only kidding)
Educate yourself before applying for a business loan. You need to know these basic business loan terms.
Automatic Clearing House
The Automatic Clearing House, or the ACH, is a network that processes all the debit and credit payments performed in the United States. When taking out a loan, you may encounter the “ACH payment” option. This is where you can allow a third party to automatically withdraw funds from your account as agreed upon.
Balloon payment
A Balloon Payment refers to the balance that is yet to be paid after your loan term is finished and all other scheduled payments have been made. This final payment is usually a large amount and is required to be paid in full.
Any type of amortized loan, such as a commercial loan or a mortgage, etc. can use this payment format. However, it is less common than other types of loans It is somewhat like what is known as a bullet repayment plan.
The bank loan terminology includes a balloon to represent a large payment at the end of the term.
Woman educating herself on business loan terminology
Cent on the dollar
This idiom is quite common, and we’re pretty sure you’ve heard of it before. If your lending officer mentions this and you don’t know what it means, no need to panic. This term represents the total interest that is added to every dollar of the loan. Take note that this excludes other fees for the transactions performed.
Interest-only payments
This refers to the payment scheme where the borrower is only making payments for the interest on the loan and none for the principal amount. At the end of the payment term, the borrower will then have the option to either refinance or pay the principal amount in full.
Business Loan Terminology And What They Mean For Quick Review. Can You Define These Terms?
- Automatic Clearing House
- Balloon payment
- Cent on the dollar
- Interest-only payments
Here is more information.
Photos courtesy of Pixabay
