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Glossary: Business loan terminology every business owner must know
Posted by Kanika Sinha
July 26, 2023
Annual percentage rate (APR)
It represents the total annual cost of your business loan. It is expressed as a percentage of the business loan amount and includes the interest rate on the loan balance and other associated finance charges.
It is the visual representation of the monthly payments you’ll make for the business loan, including the number of years you’ll pay, and the amount of interest and principal you’ll pay each month over time.
It is a lump sum one-time payment made at the end of a business loan term. The balloon payment is significantly larger than the series of monthly payments made during the loan period.
The person or business who is taking out a business loan. They are obligated to repay the loan according to the loan terms agreed upon.
These are short-term loans used to provide temporary financing to a business until it can get its hands on long-term financing.
Business line of credit
It is a flexible loan option for businesses that gives them access to money on an as-needed basis until they’ve reached their credit limit.
It is the amount of time given by the lender to pay off the loan. The borrower is required to make regular payments to the lender during this period.
A co-borrower is a person or business that agrees to be jointly responsible for repaying the loan.
It is an asset, such as property or equipment, that can be used to secure a loan. In case the borrower defaults, the lender can seize the collateral and sell it to repay the debt.
A cosigner is someone, usually a friend or family member with good credit, who agrees to give a guarantee to help you qualify for a loan. While doing so, the co-signer also takes on repayment responsibility but usually doesn’t benefit from the proceeds of the loan.
This refers to the record of a person’s or business’ credit transactions and credit score. The better your credit history, the more likely you are to qualify for a loan.
It is a document that consists of information about your credit history, current credit situation and the status of your credit accounts.
It is a number based on your credit history and is deemed to be one of the most important measures of your creditworthiness. It is used by lenders to determine your eligibility for the loan. Generally, the best interest rates and terms for loans go to borrowers with excellent credit scores.
Default occurs when the borrower fails to make payments on the loan according to the terms agreed upon. This can result in late fees or even harm your credit score.
Existing business loan
It is a business loan that has already been approved by the lender and is currently in use.
A type of business loan that provides businesses with the funds they need to purchase or lease equipment and machinery.
Fixed interest rate
It is the interest rate that remains the same for the duration of the loan. Since this interest rate doesn’t change over time, the monthly payment also remains the same for the borrower.
The period of time beyond the due date during which a borrower is allowed to make payments on their loan without being penalized.
It is the cost of borrowing money, that is the amount you are required to pay over and above the principal amount borrowed. They are typically calculated as a percentage of the loan amount and must be paid monthly.
Also known as accounts receivable financing, it is a type of business financing that allows you to borrow funds against outstanding customer invoices.
It is a legal contract between you and the lender. It details out all the loan-related information including the loan duration, interest rate terms, repayment schedule, total repayment amount and late charge amount.
The amount of money that is being borrowed in a business loan.
Such loans have collateral attached to them. If you default, the lender can seize the asset to recoup their losses.
A loan where the borrower is not required to put forth any collateral.
Variable interest rate
Also known as a floating interest rate, this type of interest rate can change over the loan term. It typically fluctuates based on a benchmark rate specified in the loan agreement.
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This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact ushere.
Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.