Knowledge Base
Commercial Lending Glossary
Master the language of private equity and institutional investing. From IRR to carried interest, understand the terms that drive investment decisions.
Working Capital
Business Finance
The difference between a company’s current assets and current liabilities. Represents the capital available for day-to-day operations.
- Related Terms:
- Line of Credit, Term Loan
Underwriting
Underwriting
The process lenders use to evaluate the risk of lending to a borrower. Involves analyzing credit history, financials, collateral value, and ability to repay.
- Related Terms:
- Credit Score, Due Diligence
UCC Filing
Loan Terms
A Uniform Commercial Code filing is a legal notice that a lender has a security interest in a borrower’s assets. It’s filed with the state and alerts other creditors of the existing lien.
- Related Terms:
- Collateral, Secured Loan
Term Loan
Loan Types
A loan from a bank or lender for a specific amount with a specified repayment schedule and either a fixed or floating interest rate. Terms typically range from 1-10 years.
- Related Terms:
- Amortization, APR
SBA Loan
Loan Types
Loans partially guaranteed by the U.S. Small Business Administration, offering favorable terms for small businesses. Common programs include 7(a), 504, and microloans.
- Related Terms:
- Term Loan, Working Capital
Revenue-Based Financing
Business Finance
A type of funding where investors provide capital in exchange for a percentage of ongoing gross revenues. Payments fluctuate with business revenue.
- Related Terms:
- MCA, Working Capital
Refinance
Real Estate
The process of replacing an existing loan with a new one, typically to obtain better terms, lower interest rates, or access equity in the property.
- Related Terms:
- Cash-Out Refinance, Prepayment Penalty
Pre-Approval
Underwriting
A preliminary evaluation by a lender indicating the loan amount and terms a borrower may qualify for. More thorough than pre-qualification but not a final commitment.
- Related Terms:
- Underwriting, Credit Score
Prepayment Penalty
Loan Terms
A fee charged by some lenders if you pay off your loan before the end of the term. Designed to compensate the lender for lost interest income.
- Related Terms:
- Refinance, Term Loan
Personal Guarantee
Loan Terms
A promise by an individual to repay a business loan if the business cannot. This makes the guarantor personally liable for the debt, putting personal assets at risk.
- Related Terms:
- Collateral, Secured Loan
Origination Fee
Underwriting
A fee charged by a lender for processing a new loan application. Typically expressed as a percentage of the loan amount (1-3% for commercial loans).
- Related Terms:
- Closing Costs, APR
NOI (Net Operating Income)
Financial Metrics
A calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property minus all reasonably necessary operating expenses.
- Related Terms:
- Cap Rate, DSCR
Merchant Cash Advance (MCA)
Loan Types
A lump sum of capital provided to a business in exchange for a percentage of future credit card sales or daily bank deposits. Not technically a loan, but a purchase of future receivables.
- Related Terms:
- Factor Rate, Holdback
Line of Credit
Business Finance
A flexible loan from a bank or financial institution that allows borrowing up to a certain limit. Interest is only paid on the amount borrowed, not the full credit line.
- Related Terms:
- Working Capital, Revolving Credit
LTV (Loan-to-Value Ratio)
Financial Metrics
A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. Higher LTV means more risk for the lender. Most commercial loans require 65-80% LTV.
- Related Terms:
- Down Payment, Equity
Holdback
Loan Terms
In merchant cash advances, the percentage of daily credit card sales or bank deposits that is withheld to repay the advance. Typically ranges from 10-20%.
- Related Terms:
- MCA, Factor Rate
Hard Money Loan
Loan Types
A type of asset-based loan financing where the borrower receives funds secured by real property. These loans are typically issued by private investors or companies with higher interest rates and shorter terms.
- Related Terms:
- Bridge Loan, LTV
Factor Rate
Financial Metrics
A multiplier used in merchant cash advances to determine total repayment amount. Unlike interest rates, factor rates are expressed as a decimal (e.g., 1.2 means you repay $1.20 for every $1 borrowed).
- Related Terms:
- MCA, APR
Equity
Real Estate
The difference between the market value of a property and the amount owed on any mortgages. Represents the owner’s stake in the property.
- Related Terms:
- LTV, Cash-Out Refinance
Equipment Financing
Loan Types
A loan or lease used to purchase business equipment. The equipment itself typically serves as collateral for the loan.
- Related Terms:
- Collateral, Depreciation
Due Diligence
Underwriting
The comprehensive appraisal of a business or property undertaken by a prospective buyer or lender. Includes reviewing financials, legal documents, and property condition.
- Related Terms:
- Underwriting, Appraisal
Default
Loan Terms
Failure to repay a loan according to the terms agreed upon in the loan contract. Can trigger penalties, increased interest rates, or seizure of collateral.
- Related Terms:
- Covenant, Collateral
DTI (Debt-to-Income Ratio)
Financial Metrics
A personal finance measure that compares an individual’s monthly debt payment to their monthly gross income. Lenders use DTI to measure a borrower’s ability to manage monthly payments.
- Related Terms:
- Credit Score, Underwriting
DSCR (Debt Service Coverage Ratio)
Financial Metrics
A measure of cash flow available to pay current debt obligations. Calculated by dividing Net Operating Income by Total Debt Service. A DSCR of 1.25 or higher is typically required.
- Related Terms:
- NOI, DSCR Loan
DSCR Loan
Loan Types
Debt Service Coverage Ratio loan is a type of mortgage where qualification is based on the property’s cash flow rather than the borrower’s personal income. The DSCR measures whether rental income covers the mortgage payment.
- Related Terms:
- NOI, Cap Rate
Credit Score
Underwriting
A numerical expression based on credit history that represents creditworthiness. FICO scores range from 300-850. Business credit scores (like Dun & Bradstreet) use different scales.
- Related Terms:
- DTI, Underwriting
Commercial Real Estate (CRE)
Real Estate
Property used exclusively for business purposes, including office buildings, retail spaces, warehouses, and multifamily properties with 5+ units.
- Related Terms:
- Cap Rate. NOI
Cash-Out Refinance
Real Estate
A refinancing option where the new mortgage is for a larger amount than the existing loan, allowing the borrower to take out the difference in cash.
- Related Terms:
- Refinance, Equity
Collateral
Loan Terms
A real estate valuation measure used to compare different investments. Calculated by dividing Net Operating Income (NOI) by the property’s current market value.
- Related Terms:
- Secured Loan, UCC Filing
Cap Rate (Capitalization Rate)
Financial Metrics
A real estate valuation measure used to compare different investments. Calculated by dividing Net Operating Income (NOI) by the property’s current market value.
- Related Terms:
- NOI, DSCR
Construction Loan
Loan Types
A short-term loan used to finance the building of a home or other real estate project. The lender pays out the money in stages as work progresses.
- Related Terms:
- Bridge Loan, Draw Schedule
Balloon Payment
Loan Terms
A large, lump-sum payment scheduled at the end of a series of smaller periodic payments. Common in commercial loans where the amortization period is longer than the loan term.
- Related Terms:
- Amortization, Refinance
Bridge Loan
Loan Types
A short-term loan used to bridge the gap between the purchase of a new property and the sale of an existing one, or until permanent financing is secured. Typically 6-24 months with higher interest rates.
- Related Terms:
- Hard Money Loan, Construction Loan
Accounts Receivable Financing
Business Finance
A type of financing where a company uses its outstanding invoices as collateral to get cash. Also known as invoice factoring or invoice financing.
- Related Terms:
- Working Capital, Factoring
Appraisal
Real Estate
A professional assessment of a property’s market value, typically required by lenders before approving a mortgage. Conducted by a licensed appraiser.
- Related Terms:
- LTV, Underwriting
Amortization
Loan Terms
The process of spreading out a loan into a series of fixed payments over time. Each payment covers both principal and interest, with the interest portion decreasing over the loan term.
- Related Terms:
- Principal, Interest Rate
APR (Annual Percentage Rate)
Financial Metrics
The annual rate charged for borrowing, expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. Includes fees and additional costs.
- Related Terms:
- Interest Rate, Factor Rate
Working Capital
Business Finance
The difference between a company’s current assets and current liabilities. Represents the capital available for day-to-day operations.
- Related Terms:
- Line of Credit, Term Loan
Revenue-Based Financing
Business Finance
A type of funding where investors provide capital in exchange for a percentage of ongoing gross revenues. Payments fluctuate with business revenue.
- Related Terms:
- MCA, Working Capital
Line of Credit
Business Finance
A flexible loan from a bank or financial institution that allows borrowing up to a certain limit. Interest is only paid on the amount borrowed, not the full credit line.
- Related Terms:
- Working Capital, Revolving Credit
Accounts Receivable Financing
Business Finance
A type of financing where a company uses its outstanding invoices as collateral to get cash. Also known as invoice factoring or invoice financing.
- Related Terms:
- Working Capital, Factoring
NOI (Net Operating Income)
Financial Metrics
A calculation used to analyze the profitability of income-generating real estate investments. NOI equals all revenue from the property minus all reasonably necessary operating expenses.
- Related Terms:
- Cap Rate, DSCR
LTV (Loan-to-Value Ratio)
Financial Metrics
A financial term used by lenders to express the ratio of a loan to the value of an asset purchased. Higher LTV means more risk for the lender. Most commercial loans require 65-80% LTV.
- Related Terms:
- Down Payment, Equity
Factor Rate
Financial Metrics
A multiplier used in merchant cash advances to determine total repayment amount. Unlike interest rates, factor rates are expressed as a decimal (e.g., 1.2 means you repay $1.20 for every $1 borrowed).
- Related Terms:
- MCA, APR
DTI (Debt-to-Income Ratio)
Financial Metrics
A personal finance measure that compares an individual’s monthly debt payment to their monthly gross income. Lenders use DTI to measure a borrower’s ability to manage monthly payments.
- Related Terms:
- Credit Score, Underwriting
DSCR (Debt Service Coverage Ratio)
Financial Metrics
A measure of cash flow available to pay current debt obligations. Calculated by dividing Net Operating Income by Total Debt Service. A DSCR of 1.25 or higher is typically required.
- Related Terms:
- NOI, DSCR Loan
Cap Rate (Capitalization Rate)
Financial Metrics
A real estate valuation measure used to compare different investments. Calculated by dividing Net Operating Income (NOI) by the property’s current market value.
- Related Terms:
- NOI, DSCR
APR (Annual Percentage Rate)
Financial Metrics
The annual rate charged for borrowing, expressed as a percentage that represents the actual yearly cost of funds over the term of a loan. Includes fees and additional costs.
- Related Terms:
- Interest Rate, Factor Rate
UCC Filing
Loan Terms
A Uniform Commercial Code filing is a legal notice that a lender has a security interest in a borrower’s assets. It’s filed with the state and alerts other creditors of the existing lien.
- Related Terms:
- Collateral, Secured Loan
Prepayment Penalty
Loan Terms
A fee charged by some lenders if you pay off your loan before the end of the term. Designed to compensate the lender for lost interest income.
- Related Terms:
- Refinance, Term Loan
Personal Guarantee
Loan Terms
A promise by an individual to repay a business loan if the business cannot. This makes the guarantor personally liable for the debt, putting personal assets at risk.
- Related Terms:
- Collateral, Secured Loan
Holdback
Loan Terms
In merchant cash advances, the percentage of daily credit card sales or bank deposits that is withheld to repay the advance. Typically ranges from 10-20%.
- Related Terms:
- MCA, Factor Rate
Default
Loan Terms
Failure to repay a loan according to the terms agreed upon in the loan contract. Can trigger penalties, increased interest rates, or seizure of collateral.
- Related Terms:
- Covenant, Collateral
Collateral
Loan Terms
A real estate valuation measure used to compare different investments. Calculated by dividing Net Operating Income (NOI) by the property’s current market value.
- Related Terms:
- Secured Loan, UCC Filing
Balloon Payment
Loan Terms
A large, lump-sum payment scheduled at the end of a series of smaller periodic payments. Common in commercial loans where the amortization period is longer than the loan term.
- Related Terms:
- Amortization, Refinance
Amortization
Loan Terms
The process of spreading out a loan into a series of fixed payments over time. Each payment covers both principal and interest, with the interest portion decreasing over the loan term.
- Related Terms:
- Principal, Interest Rate
Term Loan
Loan Types
A loan from a bank or lender for a specific amount with a specified repayment schedule and either a fixed or floating interest rate. Terms typically range from 1-10 years.
- Related Terms:
- Amortization, APR
SBA Loan
Loan Types
Loans partially guaranteed by the U.S. Small Business Administration, offering favorable terms for small businesses. Common programs include 7(a), 504, and microloans.
- Related Terms:
- Term Loan, Working Capital
Merchant Cash Advance (MCA)
Loan Types
A lump sum of capital provided to a business in exchange for a percentage of future credit card sales or daily bank deposits. Not technically a loan, but a purchase of future receivables.
- Related Terms:
- Factor Rate, Holdback
Hard Money Loan
Loan Types
A type of asset-based loan financing where the borrower receives funds secured by real property. These loans are typically issued by private investors or companies with higher interest rates and shorter terms.
- Related Terms:
- Bridge Loan, LTV
Equipment Financing
Loan Types
A loan or lease used to purchase business equipment. The equipment itself typically serves as collateral for the loan.
- Related Terms:
- Collateral, Depreciation
DSCR Loan
Loan Types
Debt Service Coverage Ratio loan is a type of mortgage where qualification is based on the property’s cash flow rather than the borrower’s personal income. The DSCR measures whether rental income covers the mortgage payment.
- Related Terms:
- NOI, Cap Rate
Construction Loan
Loan Types
A short-term loan used to finance the building of a home or other real estate project. The lender pays out the money in stages as work progresses.
- Related Terms:
- Bridge Loan, Draw Schedule
Bridge Loan
Loan Types
A short-term loan used to bridge the gap between the purchase of a new property and the sale of an existing one, or until permanent financing is secured. Typically 6-24 months with higher interest rates.
- Related Terms:
- Hard Money Loan, Construction Loan
Refinance
Real Estate
The process of replacing an existing loan with a new one, typically to obtain better terms, lower interest rates, or access equity in the property.
- Related Terms:
- Cash-Out Refinance, Prepayment Penalty
Equity
Real Estate
The difference between the market value of a property and the amount owed on any mortgages. Represents the owner’s stake in the property.
- Related Terms:
- LTV, Cash-Out Refinance
Commercial Real Estate (CRE)
Real Estate
Property used exclusively for business purposes, including office buildings, retail spaces, warehouses, and multifamily properties with 5+ units.
- Related Terms:
- Cap Rate. NOI
Cash-Out Refinance
Real Estate
A refinancing option where the new mortgage is for a larger amount than the existing loan, allowing the borrower to take out the difference in cash.
- Related Terms:
- Refinance, Equity
Appraisal
Real Estate
A professional assessment of a property’s market value, typically required by lenders before approving a mortgage. Conducted by a licensed appraiser.
- Related Terms:
- LTV, Underwriting
Underwriting
Underwriting
The process lenders use to evaluate the risk of lending to a borrower. Involves analyzing credit history, financials, collateral value, and ability to repay.
- Related Terms:
- Credit Score, Due Diligence
Pre-Approval
Underwriting
A preliminary evaluation by a lender indicating the loan amount and terms a borrower may qualify for. More thorough than pre-qualification but not a final commitment.
- Related Terms:
- Underwriting, Credit Score
Origination Fee
Underwriting
A fee charged by a lender for processing a new loan application. Typically expressed as a percentage of the loan amount (1-3% for commercial loans).
- Related Terms:
- Closing Costs, APR
Due Diligence
Underwriting
The comprehensive appraisal of a business or property undertaken by a prospective buyer or lender. Includes reviewing financials, legal documents, and property condition.
- Related Terms:
- Underwriting, Appraisal
Credit Score
Underwriting
A numerical expression based on credit history that represents creditworthiness. FICO scores range from 300-850. Business credit scores (like Dun & Bradstreet) use different scales.
- Related Terms:
- DTI, Underwriting
