Business Financing Glossary
Plain-language definitions of the terms you'll encounter when applying for business funding.
Business financing comes with its own vocabulary. This glossary explains the key terms in plain language so you always know exactly what you're agreeing to.
A
- APR (Annual Percentage Rate)
- The annualized cost of borrowing, expressed as a percentage. It includes interest and fees, making it a useful tool for comparing different financing products.
C
- Collateral
- An asset pledged by a borrower to secure a loan. If the borrower defaults, the lender can seize the collateral. Common examples include real estate, equipment, and inventory.
F
- Factor Rate
- A multiplier used to calculate the total repayment amount on a merchant cash advance or short-term loan. For example, a $50,000 advance with a 1.3 factor rate means you repay $65,000 in total.
H
- Hard Credit Pull
- A formal credit inquiry that appears on your credit report and may temporarily lower your credit score. Typically required for final loan approval.
I
- Invoice Factoring
- A financing arrangement where a business sells its outstanding invoices to a lender at a discount in exchange for immediate cash, rather than waiting 30–90 days for clients to pay.
L
- Line of Credit
- A flexible financing arrangement that allows a business to borrow up to a set limit, repay, and borrow again. Interest is only charged on the amount drawn.
M
- Merchant Cash Advance (MCA)
- A lump sum of capital provided to a business in exchange for a percentage of future credit card or debit card sales. Repayment is automatic and tied to daily revenue.
N
- NSF (Non-Sufficient Funds)
- A bank charge that occurs when a payment is attempted but the account does not have enough funds to cover it. Excessive NSFs can negatively impact a loan application.
S
- Soft Credit Pull
- A credit inquiry that does not affect your credit score. Used during pre-qualification to assess eligibility without impacting your credit history.
- Stacking
- Taking on multiple business loans from different lenders simultaneously. Most lenders discourage stacking as it increases default risk.
T
- Time in Business (TIB)
- The length of time a business has been operating. Most alternative lenders require a minimum of 6 months TIB to qualify for funding.
W
- Working Capital
- The funds a business uses to cover its day-to-day operating expenses, such as payroll, rent, and inventory. Working capital = current assets minus current liabilities.