Reference · Glossary
Business Loan Glossary: 44 Financing Terms Explained in Plain English
Business financing has its own vocabulary, and the words that matter most (factor rate, holdback, DSCR, UCC, stacking, true-up) are the ones that decide what a deal actually costs. This glossary defines the 44 terms that come up in offers, agreements and underwriting conversations in October 2026, each with the number or the rule that makes it useful, and links to the full guide where there is one.
What Are the Most Important Business Loan Terms to Know?
The five that change what you pay are factor rate (the multiplier on an advance; 1.25 means repaying $1.25 per dollar), APR (the only figure that compares a factor-rate product with a loan), holdback (the share of daily sales an advance takes), origination fee (1% to 5% deducted from proceeds) and prepayment terms (whether paying early saves anything). The five that decide whether you are approved are time in business, monthly deposits, NSFs (returned payments), personal credit score and existing positions (UCC filings and open advances). The rest of the glossary below is organized alphabetically; each entry links to the detailed guide where RAN Funding has one.
Business Financing Terms, A to Z
Advance rate
The share of an invoice, purchase order or asset value a lender funds up front: 70% to 90% on invoice factoring, up to 100% on equipment for strong files.
Amortization
Repaying a loan in scheduled payments that cover interest and principal so the balance reaches zero at the end of the term. Bank term loans and SBA loans amortize; many online products repay a fixed total instead.
Annual percentage rate (APR)
The yearly cost of financing including interest and most fees, expressed as a percentage. The only figure that puts a factor-rate product, a draw-fee line and a term loan on the same scale; see the factor rate calculator.
Asset-based lending (ABL)
A line of credit secured by receivables, inventory or equipment, sized on a borrowing base. Cheaper than unsecured money for businesses with $1 million or more in collateral.
Balloon payment
A large final payment at the end of a loan whose regular payments did not fully amortize it. Common in commercial real estate and some equipment loans.
Blanket lien
A UCC filing that gives the lender a security interest in all the business’s assets, not one specific item. Standard on SBA loans and most online term loans.
Borrowing base
The collateral value (eligible receivables and inventory, discounted) that caps how much an asset-based line can be drawn.
Bridge loan
Short-term financing that covers a gap until a longer-term source funds, such as a term loan used while an SBA loan closes.
Business credit score
Scores from Dun & Bradstreet (PAYDEX), Experian (Intelliscore) and Equifax Business based on trade payment history. Matters at banks and for larger loans; most online lenders weight the owner’s personal score more.
Cash-flow lender
A lender that underwrites on bank deposits and revenue rather than collateral or tax returns. Most online term, line and revenue-based funders are cash-flow lenders.
CDFI (Community Development Financial Institution)
A Treasury-certified mission lender that serves underserved communities with small loans at near-bank rates and more flexible credit standards; slower than online lenders.
Confession of judgment (COJ)
A clause allowing a lender to obtain a judgment without a trial on default. Banned for out-of-state borrowers in New York since 2019 and restricted in several states; still used by some advance funders elsewhere.
Consolidation
Replacing several financing positions with one, usually to lower the total payment; see merchant cash advance consolidation.
Debt service coverage ratio (DSCR)
Operating cash flow divided by total debt payments. Banks and SBA lenders generally want 1.15 to 1.25 or higher; online lenders use a payment-to-deposits ratio instead.
Draw
Taking funds from a line of credit. Online lines usually charge a fee per draw; bank lines charge interest on the drawn balance.
Early payoff discount
A reduction in the total payback when a fixed-cost product (advance or short-term loan) is repaid early. Not automatic; it must be in the agreement.
Equipment financing
A loan or lease secured by the equipment purchased; the most-approved product in the Federal Reserve’s 2026 survey.
Factor rate
The multiplier on a revenue-based advance or short-term loan: borrow $50,000 at 1.25 and repay $62,500. Not an interest rate; the equivalent APR depends on the term.
Factoring (invoice factoring)
Selling B2B invoices to a factor that advances 70% to 90% now and the remainder, less a fee of 1% to 4% per 30 days, when the customer pays.
Guarantee fee (SBA)
The upfront fee the SBA charges on the guaranteed portion of a 7(a) loan, set each fiscal year; reduced or waived on some small and veteran-owned loans. See SBA loan fees.
Hard credit pull
A credit inquiry recorded on your report that can lower the score a few points. Most online lenders prequalify with a soft pull and hard-pull only at closing.
Holdback
The percentage of daily card sales a merchant cash advance takes until the purchased amount is repaid.
Interest-only period
Months in which payments cover only interest; common on bank lines and construction loans.
Line of credit
A revolving limit you draw from, repay and draw again; costs money only on the drawn balance. See business line of credit.
Merchant cash advance (MCA)
A purchase of future receivables repaid as a percentage of card sales or fixed daily or weekly debits; not technically a loan. See merchant cash advance.
NSF (non-sufficient funds)
A returned payment because the account lacked funds. More than three in 90 days ends most online applications.
Origination fee
A fee charged at funding, usually 1% to 5% of the loan, deducted from proceeds. Included in APR.
Personal guarantee (PG)
The owner’s promise to repay personally if the business cannot. Required on nearly all small business financing, including SBA loans for anyone owning 20% or more.
Prepayment penalty
A charge for paying a loan off early; standard on SBA loans over 15 years in the first three years and on some bank loans; rare on online term loans, which instead may not discount remaining interest.
Prime rate
The base rate banks charge their best customers, 7.00% in October 2026; bank lines and SBA loans are priced as Prime plus a margin.
Purchase order (PO) financing
Funding that pays a supplier to produce goods for a confirmed customer order; repaid when the customer pays. Used by distributors and government contractors.
Renewal
A new advance or loan from the same funder once a portion (often 50%) of the current one is repaid; frequently the beginning of stacking.
Revenue-based financing
Funding repaid as a fixed percentage of revenue or in fixed debits sized to revenue, priced with a factor rate. See revenue-based financing.
SBA 7(a)
The SBA’s main guaranteed loan program, up to $5 million, 5 to 25 year terms, rates capped at Prime plus a margin. See SBA loans.
SBA 504
Long-term fixed-rate financing for real estate and heavy equipment through a Certified Development Company paired with a bank loan.
Section 179
The tax deduction that lets a business expense the full cost of qualifying equipment in the year it is placed in service, including financed equipment. See Section 179 and equipment financing.
Soft credit pull
A credit check that does not affect your score; used for prequalification.
Stacking
Taking a second or third advance on top of an existing one. Cuts offers, raises cost and violates most funding agreements. See how to get out of a merchant cash advance.
Term loan
A lump sum repaid in fixed payments over a set term, from 6 months (online) to 10 years (bank, SBA). See business term loans.
Time in business (TIB)
Months since the business began operating or opened its business bank account, whichever the lender uses. Minimums run 6 months (online, revenue-based) to 2 years (bank, SBA).
True-up
A reconciliation on a revenue-based advance where the funder adjusts debits to the agreed percentage of actual revenue; the contract must provide for it.
UCC filing
A public notice (UCC-1) that a lender has a security interest in business assets. Other lenders see it and treat the position accordingly; it should be terminated when the loan is repaid.
Underwriting
The lender’s review of the application, bank statements, credit and (for larger loans) tax returns and financials to decide approval, amount and terms.
Working capital
Current assets minus current liabilities, and in financing, money used for day-to-day operations: payroll, inventory, rent. See working capital loans.
Reading an Offer With These Terms
- Find the total payback first. Principal times factor rate on an advance; principal plus total interest and fees on a loan. That number, divided by the months, is what the money costs per month.
- Convert to APR with the factor rate calculator before comparing an advance with a line or term loan.
- Check the payment frequency. Daily and weekly debits are sized to deposits; make sure the total monthly outflow across all positions stays under about 15% of revenue.
- Look for the UCC and the personal guarantee. Both are standard; the questions are whether the UCC is terminated at payoff and whether the guarantee is limited.
- Confirm early-payoff and renewal terms in writing. A discount for early payoff and a true-up clause are the two protections worth asking for on any revenue-based product.
Share of applicants fully approved, by product (Federal Reserve, 2026)
81% of applicants were approved for at least part of the request. Source: Federal Reserve Banks, 2026 Report on Employer Firms.
Common Questions
What is the difference between a factor rate and an interest rate?
A factor rate is a fixed multiplier on the amount funded (1.25 on $50,000 means $62,500 repaid) regardless of how fast you repay; an interest rate accrues over time, so repaying early saves money. A 1.25 factor over 8 months is roughly 65% APR.
What does UCC mean on a business loan?
A UCC-1 financing statement is the public filing a lender makes to claim a security interest in business assets. It is normal; what matters is that it is released when the loan is repaid, and that you know how many are open before applying for new financing.
What is stacking in business financing?
Taking additional advances on top of an existing one. Funders check for open positions, cut offers for each one, and most agreements prohibit it; consolidation or a reverse consolidation is the way out.
What is DSCR and what number do lenders want?
Debt service coverage ratio: cash available for debt payments divided by the payments. Banks and SBA lenders want about 1.15 to 1.25 or more; online lenders look at the payment as a share of monthly deposits instead.
Is RAN Funding a lender?
No. RAN Funding is a business financing broker. We present your application to the funders in our network that fit your profile and show you the approvals that come back; the funding partner sets the approval, amount, rate, fees and terms. RAN Funding is paid by the lender, not by you.
Sources
- 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey — Federal Reserve Banks
- H.15 Selected Interest Rates (bank prime loan rate 7.00%) — Board of Governors of the Federal Reserve System
- Loans — U.S. Small Business Administration
See What You Qualify For
One application, about five minutes, soft pull only. A funding specialist tells you up front which products fit your file, what they cost and how fast each one funds.
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