Business Loan OTC glossary of key terms commonly used in small business loans and funding:

• Amortization: The process of gradually repaying a loan over time through scheduled payments that cover both principal and interest.
• Balloon Payment: A large payment due at the end of a loan term, often used in loans with smaller monthly payments during the loan term.
• Business Credit Score: A numerical representation of a business’s creditworthiness, similar to a personal credit score, based on the business’s financial history.
• Collateral: Assets pledged by a borrower to secure a loan, which can be seized by the lender if the loan is not repaid.
• Creditworthiness: A lender’s assessment of a borrower’s ability to repay a loan, based on credit history and financial status.
• Credit Line (Line of Credit): A flexible loan option that allows a business to borrow up to a certain limit as needed, with interest charged only on the amount borrowed.
• Debt-to-Income Ratio (DTI): A ratio that compares a business’s monthly debt payments to its gross monthly income, used to assess the ability to manage additional debt.
• Default: The failure to repay a loan according to the agreed-upon terms, which can result in legal action or seizure of collateral.
• Equity Financing: Raising capital by selling shares of the business to investors, who then own a portion of the business.
• Fixed Interest Rate: An interest rate that remains constant for the entire term of the loan, resulting in predictable monthly payments.
• Forgivable Loan: A loan that may not need to be repaid if certain conditions, such as job creation or maintaining employment levels, are met.
• Guarantor: An individual or entity that agrees to repay a loan if the primary borrower defaults.
• Interest Rate: The cost of borrowing money, expressed as a percentage of the loan amount, typically charged annually.
• Invoice Financing: A type of loan where a business sells its accounts receivable (invoices) to a lender at a discount in exchange for immediate cash.
• Loan Term: The length of time a borrower has to repay a loan, typically expressed in months or years.
• Loan-to-Value Ratio (LTV): A ratio that compares the amount of a loan to the value of the collateral securing the loan.
• Merchant Cash Advance (MCA): A type of financing where a business receives a lump sum in exchange for a percentage of future sales or revenue.
• Non-Recourse Loan: A loan where the lender’s only recourse in the event of default is to seize the collateral; the borrower is not personally liable for any remaining debt.
• Operating Capital: Funds used to manage the day-to-day operations of a business, such as paying employees and covering overhead costs.
• Personal Guarantee: A commitment by an individual, typically the business owner, to repay a business loan if the business is unable to do so.
• Prepayment Penalty: A fee charged to a borrower if the loan is paid off before the end of the term.
• Revolving Credit: A type of credit that allows a business to borrow, repay, and borrow again up to a specified credit limit.
• Secured Loan: A loan backed by collateral, such as property or equipment, which the lender can seize if the loan is not repaid.
• Subordinated Debt: Debt that ranks lower in priority for repayment than other debts in the event of bankruptcy or liquidation.
• Term Loan: A loan that is repaid over a fixed period with regular payments, often used for large purchases or capital improvements.
• Trade Credit: A type of financing where a supplier allows a business to purchase goods or services on credit, with payment due at a later date.
• Unsecured Loan: A loan that is not backed by collateral, typically carrying a higher interest rate due to the increased risk for the lender.
• Venture Capital: Investment funding provided by investors to start-up companies with high growth potential in exchange for equity ownership.
• Working Capital: The difference between a business’s current assets and current liabilities, used to measure its short-term financial health and ability to meet operational needs.