In the world of small business financing, it is all too easy to stumble over unfamiliar jargon. Whether you are applying for your first business line of credit or navigating the ins and outs of SBA loans, one thing is for sure: the proper knowledge puts you in control.

At Cornerstone Capital Advisors, we have helped countless Texas business owners cut through the noise. We know that when you understand the language of lending, you are better equipped to make strategic decisions that fuel your growth. That is why we built this Loan and Financing Glossary to put the most essential terms right at your fingertips.  

Have questions or ready to get started? Contact us today to speak with our team of experts, get personalized guidance, and discover the financing solutions that can help your business grow with confidence.

What is Inside This Glossary

Below is a curated list of key loan and financing terms, explained in clear, everyday language. Use it as your go-to guide whenever you encounter finance jargon. And if you still have questions, we are just a call away.

A

Accounts Receivable Financing (AR Financing)

A type of short-term funding where your business sells its outstanding invoices (accounts receivable) to a lender at a discount in exchange for immediate cash.

Amortization

The process of paying off a loan through scheduled payments over time. These payments cover both principal (the original amount borrowed) and interest.

APR (Annual Percentage Rate)

The total yearly cost of borrowing, expressed as a percentage. This includes the loan’s interest rate plus any additional fees, offering a clearer view of what you are really paying.

Asset-Based Lending

A financing method in which the loan amount is secured by assets such as inventory, receivables, or equipment. Ideal for businesses with valuable collateral but inconsistent cash flow.

B

Balloon Payment

A large lump sum payment is due at the end of a loan term. Balloon loans often have lower monthly payments but require a final payoff that is significantly larger.

Bridge Loan

A short-term loan is meant to bridge the gap between urgent financial needs and long-term financing, commonly used in real estate or time-sensitive business opportunities.

Business Line of Credit

A flexible loan option that gives you access to a set amount of funds. You only pay interest on what you actually use. It is like a credit card but for your business.

C

Collateral

An asset a borrower offers to secure a loan. If you do not repay, the lender can claim the collateral. Examples include vehicles, real estate, or business equipment.

Cash Flow Loan

A loan based mainly on a business’s past and projected cash flow, not its assets. Lenders examine your revenue streams to assess repayment ability.

A loan based mainly on a business’s past and projected cash flow, not its assets. Lenders examine your revenue streams to assess repayment ability.

Commercial Loan

A loan provided to a business for general operations, equipment purchases, expansion, or other business needs and offered by banks, credit unions, and private lenders.

D

Debt Service Coverage Ratio (DSCR)

A financial metric lenders use to determine if a business can cover its debt obligations. It compares net operating income to total debt payments.

Draw Period

In a business line of credit or construction loan, this is the period during which the borrower can withdraw funds.

E

Equipment Finance Loan

A loan used specifically for purchasing business equipment, machinery, computers, vehicles, or tools. Often, the equipment itself serves as collateral.

Equity Financing

Money raised by selling shares of ownership in your business. Unlike loans, this does not require repayment, but it does give investors partial ownership.

F

Factoring

A financing similar to AR financing, where a company sells its invoices to a third party (a factor) for immediate cash, usually at a discount.

Fixed Interest Rate

An interest rate that stays the same throughout the loan’s term. This makes payments predictable and easier to manage.

G

Grace Period

A set period after a payment due date during which no late fees or penalties are charged. Not all loans include a grace period.

Guarantor

A person or entity that promises to repay a loan if the primary borrower defaults. Lenders may require a personal guarantee for small businesses.

H

Hard Money Loan

A short-term loan is typically based on the value of real estate and commonly used by property investors or businesses that need funds quickly but do not qualify for traditional loans.

Hybrid Loan

A loan that combines elements of fixed and variable interest rates. For example, the rate might be fixed for a specific period and then change to a variable rate.

I

Interest-Only Loan

A loan in which the borrower pays only interest for a specific period. Afterward, payments increase to cover the principal and interest.

Invoice Financing

A short-term loan collateralized by unpaid invoices. Similar to factoring, but allows the business to maintain control of its sales ledger.

L

Loan To Value Ratio (LTV)

A ratio that compares the loan amount to the value of the asset being financed (like real estate or equipment). A lower LTV often means better loan terms.

Line of Credit (LOC)

A revolving loan that allows businesses to borrow up to a preset limit. Once paid back, funds can be borrowed again.

M

Merchant Cash Advance (MCA)

A financing option where a business receives a lump sum upfront in exchange for a percentage of its future credit card sales. It is fast but can come with high fees.

Microloan

A small loan (typically under 50000) designed for startups or small businesses. Popular with nonprofits and alternative lenders.

P

Personal Guarantee

A legal promise that the business owner will repay a loan if the business cannot. Common in small business loans, where collateral is limited.

Principal

The original amount of money borrowed, not including interest or fees.

R

Refinancing

Replacing an existing loan with a new one, usually at a lower interest rate, longer term, or better overall terms.

Revolving Credit

A type of credit that automatically renews as debts are paid off, such as a business line of credit or a credit card.

S

SBA 7a Loan

The most common loan backed by the U.S. Small Business Administration (SBA). It offers funding up to $5 million, often used for working capital, real estate, or equipment. Known for favorable rates but lengthy processes.

SBA Express Loan

A faster version of the SBA 7a loan program with a quicker turnaround and lower funding amounts (up to $500000).

Secured Loan

A loan that requires collateral, like equipment or property, to back the lender’s risk.

T

Term Loan

A loan with a fixed repayment schedule and interest rate, often used for larger, one-time investments like equipment or expansion.

Trade Credit

An agreement in which a supplier allows a business to purchase goods or services with payment due later is effectively a short-term loan between businesses.

U

Unsecured Loan

A loan that does not require collateral. Approval is based on the creditworthiness of the borrower or business. Often comes with higher interest rates.

W

Working Capital

The amount of money available to cover day-to-day operations. Calculated as current assets minus current liabilities.

Working Capital Line of Credit

A revolving line of credit is used to cover short-term expenses like payroll, rent, or inventory. Flexible and often essential for seasonal businesses.