Business Lending Glossary

The yearly cost of a loan expressed as a percentage, including interest and fees. APR helps borrowers compare the true cost of different loan products.

Loans secured by business assets such as inventory, equipment, accounts receivable, or real estate. The loan amount is based on the value of pledged collateral.

A large, lump-sum payment due at the end of a loan term. Common in bridge loans and short-term financing where monthly payments are interest-only.

Short-term financing used to 'bridge' the gap between immediate need and long-term financing. Popular for real estate purchases before securing permanent financing or selling another property.

Financing used exclusively for business operations, expansion, equipment, inventory, or other commercial purposes. Cannot be used for personal expenses.

The total amount of money flowing in and out of a business. Positive cash flow means more money coming in than going out. Lenders assess cash flow to determine loan repayment ability.

An asset pledged as security for a loan. If the borrower defaults, the lender can seize the collateral. Common collateral includes real estate, equipment, inventory, and accounts receivable.

Property used exclusively for business purposes, such as office buildings, retail spaces, warehouses, or multifamily properties (5+ units).

A ratio that measures a property's cash flow relative to debt obligations. Calculated as Net Operating Income ÷ Total Debt Service. DSCR of 1.25+ is typically required.

Investment property loan where approval is based on the property's rental income and cash flow rather than borrower's personal income. No tax returns or W-2s required.

A structured payment plan for construction or renovation loans where funds are released in stages as work progresses, rather than in one lump sum.

Short-term financing for investors who purchase, renovate, and quickly resell properties for profit. Typically 6-18 month terms with higher rates.

Asset-based loans from private lenders secured by real estate. Faster approval than traditional loans but higher interest rates. Focus on property value over borrower credit.

Monthly payment covering only the interest portion of the loan. Principal balance remains unchanged until a balloon payment or refinance.

Using borrowed capital to increase investment returns. In real estate, it's the ratio of borrowed funds to equity. Higher leverage = higher risk and potential return.

Ratio comparing the loan amount to total project costs (purchase price + renovation). Formula: (Loan Amount ÷ Total Project Cost) × 100. Typical max is 80-90%.

Ratio of loan amount to property's appraised value. Formula: (Loan Amount ÷ Property Value) × 100. Lower LTV = less risk for lenders and better rates for borrowers.

Property's annual income after operating expenses but before debt service. Formula: Gross Income - Operating Expenses. Used to calculate DSCR and property value.

Upfront fee charged by lenders to process a new loan application. Typically 1-3% of loan amount. Also called points or processing fee.

Legal commitment where borrower personally guarantees loan repayment. If business defaults, lender can pursue personal assets. Common for business purpose loans.

Upfront fees paid to lender, where 1 point = 1% of loan amount. Can be origination points (lender fee) or discount points (prepaid interest to lower rate).

Single loan secured by multiple properties. Allows investors to leverage multiple assets for larger financing. More flexible than conforming loans.

Preliminary evaluation showing how much you can borrow based on financial information. More reliable than pre-qualification. NBP Funding offers FREE pre-approvals.

Fee charged if loan is paid off early. Compensates lender for lost interest. Some loans have no prepayment penalty for added flexibility.

Non-bank entities or individuals providing loans. More flexible terms and faster approval than traditional banks, but typically higher interest rates.

Recourse loans allow lenders to pursue personal assets beyond collateral if borrower defaults. Non-recourse loans limit lender to only seizing collateral.

Replacing existing loan with new one, typically to secure better terms, lower rates, or cash out equity. Can be used to consolidate debt or fund improvements.

Time period property must be owned before cash-out refinance. Typically 6-12 months. Prevents quick flipping for profit without proper equity building.

Small Business Administration-backed loans offering favorable terms for eligible businesses. Lower rates but longer approval process and strict requirements.

Document outlining preliminary loan terms including amount, rate, fees, and conditions. Non-binding proposal that becomes basis for final loan agreement.

Process of evaluating borrower's creditworthiness and loan risk. Lender analyzes credit, income, assets, collateral, and business financials before approval.

Funds available for day-to-day business operations. Formula: Current Assets - Current Liabilities. Essential for managing cash flow and covering expenses.