Business Funding Glossary

Plain-language definitions for the terms you'll run into while exploring funding options.

Business funding comes with its own vocabulary, and a lot of it doesn't mean what it sounds like at first glance - a "factor rate" isn't an interest rate, a "holdback" isn't a fee, and APR means something different for a merchant cash advance than it does for a term loan. Misreading one of these terms is an easy way to misjudge what an offer actually costs, so we've put together this glossary as a plain-language reference you can check while comparing funding options, reading through a product page, or looking at real terms from a funding specialist.

Browse alphabetically below, or jump straight to a letter using the strip above. Each entry links to related terms so you can follow a concept - like how underwriting connects to DSCR, or how a factor rate connects to invoice factoring - as far as you need to.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Amortization The process of paying off a loan through fixed, regular payments over time. APR (Annual Percentage Rate) The yearly cost of funding, expressed as a percentage, including interest and certain fees.

Cash Flow The movement of money in and out of a business over a given period. Collateral An asset pledged to secure funding, which a lender can claim if the loan isn't repaid.

Draw Period The window of time during which you can withdraw funds from a line of credit. DSCR (Debt Service Coverage Ratio) A ratio comparing a business's cash flow to its debt payments, used to assess ability to repay.

Factor Rate A decimal figure used to calculate the total repayment amount on certain funding types, like merchant cash advances.

Invoice Factoring Converting unpaid customer invoices into immediate cash by selling them to a funding company.

Line of Credit A flexible funding option that lets you draw funds as needed, up to an approved limit.

Merchant Cash Advance A form of financing where repayment is tied to a percentage of daily or weekly sales.

Personal Guarantee A commitment by a business owner to personally repay funding if the business can't. Prepayment Penalty A fee some lenders charge if you pay off a loan earlier than scheduled.

Revenue-Based Financing Funding where repayment is tied to a percentage of ongoing business revenue rather than a fixed amount.

SBA Loan A loan partially guaranteed by the U.S. Small Business Administration, often offering longer terms.

Term Loan A lump sum of funding repaid over a fixed period through regular, scheduled payments. Time in Business How long a business has been operating, a common factor in funding eligibility.

UCC Lien (UCC-1 Filing) A public filing that gives a lender a legal claim to specified business assets until a debt is repaid. Underwriting The process a lender uses to evaluate your business and decide what funding you qualify for.

Working Capital The funds a business uses to cover its day-to-day operating expenses.