Business Loan Glossary: Plain-English SBA & Lending Terms

A

Amortization: The schedule that shows each payment split between interest and principal over time.

Appraisal: Third-party valuation of property or equipment used as collateral.

APR (Annual Percentage Rate): Rate that blends interest and certain fees to show total borrow cost.

Assignment of Rents: A lender’s right to collect rents from a property if the borrower defaults.

B

Bank Statements Underwriting: Review of 90–180 days of business accounts to assess cash-flow health. See our guide: what lenders look for.

Basis Points (bps): One hundredth of a percent (0.01%). 100 bps = 1.00%.

Borrower Equity (Injection): Cash or eligible value you contribute to the project (e.g., 10% on many 504 deals).

Business Plan: A document summarizing the business model, market, team, and financial projections.

C

CapEx: Capital expenditures for long-term assets like machinery or property.

CDC (Certified Development Company): SBA-regulated nonprofit that delivers the 504 debenture portion.

Collateral: Assets pledged to secure a loan; may include equipment, inventory, or real estate.

Covenants: Ongoing requirements in the loan agreement (e.g., insurance, reporting, minimum DSCR). See examples in our 7(a) vs 504 guide.

Credit Memo: Lender’s written analysis that supports the loan decision.

D

Debenture (504): The fixed-rate bond that funds the CDC’s 40% piece on SBA 504 projects.

Debt Schedule: List of current debts with balances, rates, and monthly payments.

Default: Failure to meet payment or covenant obligations; triggers lender remedies.

DSCR (Debt Service Coverage Ratio): Cash flow available for debt ÷ annual debt service. See our DSCR explainer.

E

ELDP/504 Bridge: Interim financing that covers the bank portion until the CDC debenture funds.

Environmental Report: Phase I/II assessments that identify contamination risk on real estate.

Equipment Financing: Debt used to purchase equipment; compare with leasing. See our comparison.

Equity: Borrower cash or eligible value invested in the project.

F

Fixed Rate: Interest that does not change over the term (e.g., 504 debenture).

Forbearance: A lender’s temporary pause or reduction of payments under agreed terms.

Funding Date: The date on which loan proceeds disburse.

G

Global Cash Flow: Combined cash flow of the business, affiliates, and guarantors used in underwriting.

Guarantor: Person or entity that promises to repay if the borrower cannot.

Good Faith Deposit: Up-front funds used to pay third-party reports or hold a rate.

H

Hard Costs: Direct, tangible project costs like construction and equipment.

Hedging: Strategy to reduce interest-rate risk, often via fixed-rate components.

I

Interest-Only Period: A period at the start when payments cover interest but not principal.

Interim Interest: Interest accrued between partial disbursements and final funding.

Invitation to Close (504): CDC/SBA milestone indicating the debenture is ready to fund.

J

Joinder: Legal document that adds a party to the loan or security agreement.

Judgment Lien: A lien resulting from a court judgment; may need to be satisfied before closing.

K

K-1: Tax form that reports each partner’s share of income from a pass-through entity.

Key Man Insurance: Life or disability policy on a principal to protect the business and lender.

L

Lien: Legal claim on property to secure a debt.

Loan-to-Value (LTV): Loan amount ÷ collateral value, used to size risk.

Look-Back Period: Time window lenders examine for financial trends (e.g., last 12 months).

M

Maturity: The date when the final payment is due and the loan ends.

Minimum DSCR Covenant: Agreed coverage level to maintain post-closing.

Merchant Cash Advance (MCA): Costly revenue-based advances; often refinanced by 7(a) if rules allow.

N

NAV (Net Asset Value): Assets minus liabilities; sometimes used in collateral analysis.

NSF (Non-Sufficient Funds): Returned item due to low balance; a red flag in statement reviews.

O

Owner-Occupied: Borrower uses 51%+ of space; required on many 504 real estate projects.

Operating Agreement: Legal document outlining ownership and manager powers for LLCs.

P

Prepayment Penalty: Fee charged for early payoff; common on 504 debentures and some 7(a) terms.

Projections: Forward-looking financials that support payback ability.

Personal Financial Statement (PFS): Snapshot of a guarantor’s assets, debts, and net worth.

Q

Quality of Earnings (QoE): Analysis that validates the sustainability of profits in acquisitions.

Qualified Management: Team experience and depth that supports approval confidence.

R

Rate Index: Market benchmark (e.g., Prime, SOFR) used to set variable interest.

Recourse: Lender’s right to pursue guarantors if the borrower defaults.

Refinance: Replacing existing debt under improved or consolidated terms.

S

SBA 7(a): Flexible SBA program for mixed uses like working capital, equipment, and refi; usually variable rate. Compare with SBA 504 here.

SBA 504: SBA/CDC structure for owner-occupied real estate and large equipment; fixed-rate debenture. See how it differs from 7(a) in our comparison.
Standby Debt: Subordinated debt with deferred payments; can count toward equity in some cases.

Stress Test: Scenario analysis that tests repayment if revenue falls or rates rise.

T

Term Sheet: Non-binding summary of proposed loan terms and conditions.

Title Policy: Insurance that protects lender and/or owner against title defects.

Trailing Twelve Months (TTM): Financial results for the latest 12 months.

U

UCC Lien: Public filing that secures a lender’s interest in assets. Learn to find and remove them.
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Underwriting: Lender’s analysis of risk, repayment, and collateral before approval.

V

Variable Rate: Rate that moves with an index plus a spread.

Vendor Financing: Seller-provided financing; may be on standby for SBA compliance.

W

Working Capital: Funds for day-to-day operations, payroll, and inventory.

Write-Up/Write-Down: Adjustment in asset value that can affect collateral analysis.

X

XBRL: Machine-readable financial data format; sometimes used in larger credit reviews.

Y

Yield Maintenance: A prepayment formula that protects the lender’s expected yield.

Z

Zero-Coupon (context): A bond with no periodic interest; conceptually useful when discussing present value of fees and penalties.