Business Financing Glossary: 60+ Terms in Plain English

What Do Business Financing Terms Actually Mean?

Business financing terms are the working vocabulary funders use to describe how capital is priced, repaid, and secured. Almost every term on an offer sheet describes one of three things: what the money costs you, how the payments leave your account, or what the funder can claim if the deal goes wrong.

That framing makes the jargon much less intimidating. A factor rate is a price. A holdback is a payment mechanism. A UCC lien is a claim. Once you can sort any unfamiliar word into one of those three buckets, you can read an offer the way an underwriter does, and negotiate it the way an advisor would.

Every entry below is a defined term with its own anchor link, so you can jump straight to it, share a link to a single definition, or work through a contract with this page open beside it. Definitions are deliberately short and conceptual. Where a deeper guide or a free tool exists, such as the business calculators hub, the entry links to it.

What Does Holdback Mean in Business Funding?

A holdback is the fixed percentage of daily card sales or bank deposits that a merchant cash advance funder collects until the purchased amount is fully remitted. The percentage never changes, but the dollars do: a 10 percent holdback takes $200 from a $2,000 day and $100 from a $1,000 day.

The holdback is the reason a merchant cash advance can fit a business with genuinely variable revenue: collections shrink automatically on slow days. Many modern advances collect a fixed daily or weekly ACH amount instead, calculated from your average revenue, and pair it with a reconciliation clause that adjusts the payment if sales slow. Which mechanism you have, and whether the true-up is automatic or by request, is written in the agreement, so find that clause before you sign. You can model how a holdback or fixed remittance interacts with your deposits in the free MCA calculator.

Which Business Financing Terms Get Confused Most Often?

Six pairs cause most of the confusion: factor rate vs. APR, holdback vs. fixed payment, term loan vs. line of credit, merchant cash advance vs. invoice factoring, prepayment discount vs. prepayment penalty, and soft vs. hard credit pulls. Each pair sounds interchangeable and behaves completely differently on your bank account.

The Glossary: 60+ Business Financing Terms, A to Z

Use the letters below to jump around. Each definition stays around 40 to 60 words on purpose: long enough to be accurate, short enough to read mid-negotiation. Letters with no common financing terms are grayed out, and cross-references inside definitions link to the related entries and guides.

A

ACH (Automated Clearing House)

The electronic network U.S. banks use to move money between accounts. In business funding, ACH matters twice: funders deposit your advance or loan by ACH, and most collect repayment the same way, pulling a fixed amount from your business checking account each banking day or week.

Advance

The lump sum a funder deposits into your account in a merchant cash advance. It is a purchase of your future receivables rather than a loan, which is why the paperwork says advance and remittance where a loan agreement would say principal and payment.

Advance rate

The percentage of an asset’s value a funder will actually give you. In invoice factoring, the advance rate is the share of each invoice paid to you up front, with the remainder, minus fees, released after your customer pays. Higher advance rates mean more cash now.

Amortization

The schedule that spreads loan repayment across the term so each fixed payment covers both interest and principal. Early payments are mostly interest; later ones are mostly principal. Term loans amortize. Merchant cash advances do not, because their total payback is fixed at signing instead.

APR (annual percentage rate)

The yearly cost of borrowing expressed as one percentage, including interest and certain fees. APR compares loans of similar shape well, but it can mislead on short-term, fixed-payback products, where the honest comparison is total dollar cost against what the capital earns you in the same window.

Average daily balance

The average amount sitting in your business checking account across a month, one of the first numbers an underwriter reads in your last 4 months of bank statements. A healthy average balance signals that your account can absorb a daily or weekly payment without going negative.

B

Balloon payment

A large lump sum due at the end of a loan that was not fully amortized, so the small regular payments never quite retire the principal. Balloons keep monthly payments low but demand a plan: refinance, sell the asset, or have the cash ready for the final bill.

Blanket lien

A lien covering essentially all of a business’s assets rather than one specific item, typically perfected with a UCC-1 filing. It gives the funder a claim on equipment, inventory, receivables, and more if you default, so know who holds one before adding new financing.

Bridge loan

Short-term capital that carries you between two events: covering payroll until an insurance payout lands, or funding a project until permanent financing closes. Bridges are priced for speed and brevity. The point is not cheap money; it is money that arrives while the opportunity is still open.

Broker

A company that shops your file across multiple funders instead of lending its own money, then presents the competing offers side by side. Forwardfy works this way: one application produces multiple offers, rather than one lender deciding yes or no alone, and checking those options has no effect on your personal credit score, with any soft credit pull happening only if you choose to move forward.

Burn rate

How much cash your business loses in a typical month once revenue is subtracted from expenses. If you spend $60,000 and bring in $45,000, your burn rate is $15,000 a month. Burn rate and cash on hand together determine your runway.

C

Cash flow

The movement of money in and out of your business over a period, distinct from profit. A profitable company can still suffocate when expenses come due before receivables arrive. Nearly every funding decision, and nearly every underwriting decision, is at bottom a cash flow decision.

Collateral

An asset a borrower pledges so the lender can recover losses if the loan defaults: equipment, real estate, inventory, or receivables. Loans backed by collateral are secured; loans without it are unsecured and typically rely on cash flow, a personal guarantee, or both.

Confession of judgment (COJ)

A clause in which a borrower agrees in advance to let a funder obtain a court judgment without a lawsuit if the agreement defaults. Read for this before signing anything, and ask the funder to point to the clause and explain it; enforceability varies by state.

Consolidation

Replacing several existing advances or loans with one new facility, ideally with a smaller combined payment and a single remittance schedule. Consolidation is the structured alternative to stacking, and it is often the right conversation when payments from multiple positions are squeezing daily cash flow.

Cost of capital

The total dollars a funding arrangement costs: everything you pay back minus everything you received. A $50,000 advance with a $62,500 payback has a $12,500 cost of capital. Weighing that dollar cost against the profit the money enables is the cleanest way to judge any offer.

Current ratio

Current assets divided by current liabilities: a quick test of whether a business can cover obligations due within a year. A ratio above 1 means assets cover those liabilities. The working capital ratio guide explains how funders actually read this number in practice.

D

Debt schedule

A one-page list of everything your business owes: each lender, balance, payment amount, frequency, and payoff date. Underwriters request one to see your true obligations. Owners should keep one anyway, because a debt schedule turns a vague sense of money going out into a fixable picture.

DSCR (debt service coverage ratio)

Net operating income divided by total debt payments for the same period: the underwriting math for whether cash flow can carry a proposed loan. A DSCR above 1.0 means income exceeds payments. Run your own number with the free DSCR calculator before a lender does.

Default

Failure to meet the terms of a funding agreement: missed payments most obviously, but also breaches like blocking ACH pulls or switching bank accounts without notice. Default triggers the remedies written in the contract, such as fees, acceleration of the balance, or claims on collateral and guarantees.

Draw

Taking money out of an approved line of credit. You draw only what you need, pay interest or fees only on that amount, and can usually draw again as you repay. Depending on the funder’s fee structure, the untouched ceiling itself may cost little or nothing.

DUNS number

A nine-digit identifier issued by Dun & Bradstreet that anchors your business credit file, including your Paydex score. It identifies your company the way a Social Security number identifies a person, but it is business-only. Suppliers and some funders check it, so keep yours accurate and active.

E

EIN (Employer Identification Number)

The nine-digit tax ID the IRS issues to a business, used on returns, payroll filings, bank accounts, and nearly every funding application. It is the business equivalent of a Social Security number, and building business credit starts with using it consistently everywhere your company signs.

Equipment financing

A loan or lease used to buy specific equipment, with the equipment itself typically serving as the collateral. Because the asset secures the deal, equipment financing can be available when unsecured options are not. Model payments and total cost with the equipment financing calculator.

F

Factor rate

The multiplier that sets total payback on revenue-based funding like a merchant cash advance: advance times factor rate equals total remittance. A 1.25 factor on $50,000 means $62,500 total, fixed at signing, never compounding. The factor rate guide walks through the full math.

FICO SBSS

The small business credit score some lenders use to screen applications quickly. It blends the owner’s personal credit history with business credit data into a single number. Unlike your personal FICO score, you cannot easily pull it yourself, but every input that feeds it is improvable.

Funder

The company actually supplying the capital in a deal: a bank, an online lender, or a merchant cash advance provider. When you work through a broker, the broker arranges and negotiates, but the funder approves the file, wires the money, and collects the remittance.

G

Grace period

A contractual window after a missed or late payment during which no default is declared and, sometimes, no late fee applies. Never assume one exists: some daily-payment products have none, and a bounced ACH can carry a fee immediately. The agreement decides, not habit.

Guarantor

A person, usually the owner, who promises to repay a business obligation personally if the business cannot. Signing as guarantor is what a personal guarantee does. Co-owners are often each asked to guarantee, and the promise typically survives even if the business closes.

H

Hard credit pull

A full credit inquiry that appears on your report and can shave points from your score, typically run at final approval on some products. Contrast with a soft credit pull. Ask any funder which type they run and when; the answer should be immediate and specific.

Holdback

The fixed percentage of daily card sales or deposits a merchant cash advance funder collects until the purchased amount is fully remitted. A 10 percent holdback on a $2,000 day sends $200 that day. Slower day, smaller dollars: the percentage stays constant while the amount flexes.

I

Interest

The time-based price of borrowed money, charged as a percentage of the outstanding balance. Because interest accrues for as long as the balance exists, paying a loan early usually cuts total cost. Fixed-payback products price with a factor rate instead, so time works differently there.

Invoice factoring

Selling unpaid invoices to a factoring company at a discount to get cash now instead of waiting out your customers’ payment terms. The factor advances most of each invoice up front and releases the rest, minus its fee, when the customer pays. Details: invoice factoring.

ISO (independent sales organization)

A third-party sales company that markets funding products on behalf of funders. Many of the funding offers that land in your inbox come from ISOs. The practical question for anyone offering capital: are you the funder, a broker shopping multiple funders, or an ISO selling for one?

L

Lien

A legal claim against property that secures a debt. In business funding, liens are usually perfected through a UCC-1 filing and can name specific assets or, with a blanket lien, nearly all of them. Liens are public record, which is how funders discover each other’s positions.

Line of credit

A pre-approved borrowing ceiling you can draw against as needed, repay, and draw again, paying only for what you use. It fits recurring gaps and surprises better than one known purchase. See the business line of credit page for how revolving credit works in practice.

Loan-to-value (LTV)

The loan amount divided by the value of the asset securing it, expressed as a percentage. An $80,000 loan against $100,000 of equipment is 80 percent LTV. Lower LTV means more cushion for the lender, which generally translates into easier approvals and better pricing for you.

M

Maturity date

The date a loan’s final payment is due and the agreement ends. On fixed-payback products the equivalent is the projected completion of remittance, which can shift with revenue when a reconciliation clause applies. Know the date; renewal conversations usually start well before it.

Merchant cash advance (MCA)

A purchase of a fixed amount of your future receivables in exchange for a lump sum today. Payback equals advance times factor rate, collected as a daily or weekly remittance or a holdback percentage. It is not a loan, which is why the vocabulary differs.

N

Net funding amount

What actually lands in your account after origination fees, wire fees, or payoffs of existing balances are subtracted from the approved amount. Always compare offers on net funding, not headline approval: a bigger approval with heavier deductions can put less usable cash in your hands.

Notice of assignment

In invoice factoring, the letter telling your customer that their invoice has been sold and payment now goes to the factor. It formalizes the transfer. Customers in industries where factoring is common see these routinely, but know going in that your customers will learn a factor is involved.

NSF (non-sufficient funds)

What happens when an ACH pull or a check hits an account that cannot cover it: the payment bounces. Underwriters count NSF incidents in your last 4 months of bank statements as a primary risk signal, and repeated NSFs on a live advance can trigger default provisions.

O

Offer sheet

The document laying out proposed terms: amount, payback or rate, term, payment size and frequency, and fees. Read it against the actual contract before signing, because the contract governs. Any funder unwilling to put every number on paper before you commit is telling you something.

Origination fee

A fee charged for setting up the funding, usually a percentage of the amount and typically deducted before disbursement, which is why net funding matters. Ask whether the fee repeats at renewal: on short-term products that recur, repeated origination fees add up quickly.

P

Paydex

Dun & Bradstreet’s business credit score, built almost entirely on whether your company pays vendors and suppliers on time. It runs on trade references reported to your DUNS file, and lenders or larger customers may check it before extending terms. Consistent on-time payment is essentially the whole game.

Personal guarantee

Your personal promise to repay a business obligation if the business cannot, which puts personal assets within reach of collection. Most small business funding includes one. Understand its scope before signing: what triggers it, whether it is limited or unlimited, and whether it survives the business closing.

Position (first, second, third)

Where a funder stands in line among a business’s obligations, set by lien priority or by the order of existing advances. A funder in second position collects behind the first if things go wrong, so later positions carry more risk and usually cost more. Stacking creates positions fast.

Prepayment discount

A contractual reduction of the total payback if you retire a fixed-payback advance early. Because factor pricing does not accrue with time, paying off early saves nothing unless a discount is written in. If early payoff is realistic for you, ask for the discount schedule before signing.

Prepayment penalty

A fee some term loans charge for paying off early, protecting the lender’s expected interest. It is the opposite problem from fixed-payback products: interest-based loans normally reward early payoff, unless this clause claws the savings back. Check for it whenever refinancing or consolidation could be in your future.

Principal

The original amount borrowed, as distinct from interest and fees. Every amortized payment splits between interest and principal, with the principal share growing across the life of the loan. Fixed-payback advances do not use the concept at all: the total remittance is simply set at signing.

R

Reconciliation (true-up)

A merchant cash advance provision that adjusts your fixed daily or weekly remittance to match what a holdback percentage of actual revenue would have collected. If sales slow, a reconciliation clause can lower the payment on request. Whether one exists, and how to invoke it, is contract-specific.

Recourse vs. non-recourse

In factoring, recourse means you must buy back invoices your customer never pays; non-recourse shifts defined nonpayment risk to the factor, usually for a higher fee and with conditions attached. Ask which one you are signing rather than assuming a bad invoice is the factor’s problem.

Refinance

Replacing existing financing with new financing on different terms, usually to lower the payment, extend the term, or pull additional capital. Refinancing works best from a position of strength: improved revenue, cleaner statements, or more time in business than when you signed the original deal.

Renewal

Taking a new advance from your current funder once an existing one is substantially paid down, a common rhythm with MCAs. Renewals move fast because the funder already knows your file. Compare the renewal against the open market anyway; loyalty pricing is never guaranteed.

Revenue-based financing

An umbrella term for funding repaid from a share of ongoing revenue rather than on a fixed calendar, with merchant cash advances the most common form. Underwriting centers on deposit consistency, which is why bank deposits can matter more than credit scores for these products.

Runway

How many months your business can operate before cash runs out at the current burn rate: cash on hand divided by monthly burn. $90,000 in the bank against $15,000 of monthly burn is six months of runway. Check yours with the cash runway calculator.

S

SBA loan

A loan issued by a bank or approved lender and partially guaranteed by the U.S. Small Business Administration, which lets lenders extend terms to borrowers they might otherwise decline. The trade-off is documentation and time: SBA underwriting is thorough, paperwork-heavy, and rarely fast.

Soft credit pull

A credit check that is not visible to other lenders and does not affect your score, used for pre-qualification. Checking your options through Forwardfy has no effect on your personal credit score; any soft credit pull happens only if you choose to move forward. Ask any funder which pull they use at each stage.

Stacking

Taking additional advances from different funders on top of ones you are still paying, creating second, third, or fourth positions that each pull from the same revenue. Stacking compounds daily cash outflow fast and can breach existing agreements. Consolidation is usually the healthier answer to the same pressure.

Stipulations (stips)

The documents a funder requires between approval and wiring money: bank statements, a voided check, a driver’s license, proof of ownership, sometimes tax returns or a landlord contact. Having stips ready is the single biggest thing an owner controls about funding speed.

T

Term

How long a financing arrangement runs, from months on a short advance to years on a term loan or SBA loan. Longer terms shrink each payment but usually raise total cost; shorter terms do the reverse. Match the term to the useful life of whatever the money buys.

Term loan

A lump sum repaid on a fixed schedule, usually monthly, over a set term with interest: the structure everyone pictures when they hear business loan. Predictable payments reward predictable revenue. See term loans, and compare structures in the MCA vs. term loan vs. line of credit guide.

Time in business

How long your company has legally operated, usually counted from registration or first revenue. It is one of the fastest underwriting filters there is: more history means more data and more confidence. If your business is young, expect the file to lean harder on deposits and personal credit.

U

UCC lien (UCC-1 filing)

A public notice a funder files under the Uniform Commercial Code claiming a security interest in some or all of your business assets. It establishes lien position and is visible to every other lender. Ask funders whether they file one, and confirm old liens are terminated after payoff.

Underwriting

The process of evaluating a funding application: verifying revenue, reading bank statements, checking credit and liens, and pricing the risk. Revenue-based underwriting can finish in hours because it reads deposits rather than tax returns. See how underwriters read your bank statements for the inside view.

Unsecured financing

Funding not backed by specific collateral, where the funder relies on cash flow, credit, and usually a personal guarantee instead of assets it can seize. Unsecured does not mean risk-free for you: the guarantee and default remedies still apply. It mainly means faster, asset-light approval.

V

Variable rate

An interest rate that moves with a benchmark over the life of the financing, so payments can rise or fall after signing. Contrast with fixed rates, and with factor rates, which never change once set. Always ask what the rate can move with, how often, and by how much.

W

Working capital

Current assets minus current liabilities: the cash cushion a business runs on day to day. Too little working capital is the root cause behind most funding searches, whatever the immediate trigger looks like. Read what working capital really covers, and check your own current ratio against it.

Hit a term in an offer that is not on this page, or a term being used in a way that does not match these definitions? That is worth a conversation before you sign anything. Check your options in about three minutes: no effect on your credit score to check, and an advisor who will walk you through every line of the paperwork.