Annual Percentage Rate (APR)
The total yearly cost of a loan as a percentage, including interest and fees. Provides standardized comparison across lenders.
Collateral
An asset pledged to secure a loan. If borrower defaults, lender can seize it. Common forms: real estate, equipment, inventory, receivables.
Debt-to-Income Ratio (DTI)
Total monthly debt payments divided by gross monthly income. Lenders prefer below 43%.
Debt Service Coverage Ratio (DSCR)
Net operating income divided by total debt service. 1.25 means 25% more income than debt payments. SBA requires 1.15-1.25 minimum.
Factor Rate
A decimal multiplier (1.1-1.5) for total repayment on short-term funding. Unlike APR, doesn't decrease with early repayment.
Personal Guarantee
Legal commitment by owner to personally repay if business cannot. Required for most small business loans.
SBA 7(a) Loan
The SBA's primary program. Up to $5M, rates from Prime + 2.25%, terms up to 25 years. SBA guarantees 50-85%.
Term Loan
Lump-sum loan repaid in fixed installments over a set period. Predictable payments for planned investments.
Underwriting
Lender's process to evaluate creditworthiness, financial health, collateral, and repayment ability.
Working Capital
Current assets minus current liabilities. Cash available for day-to-day operations.
UCC Filing
Uniform Commercial Code filing giving lender legal claim on business assets used as collateral.
Revenue-Based Financing
Repayment as a fixed percentage of monthly revenue. Payments adjust to sales volume automatically.