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30 Small Business Loan Terms You Need to Know

If you’ve ever applied for a small business loan before, you would’ve come across loads of financial jargon. From assets and APR to insolvency and working capital; it can all get a little overwhelming.

Today on the blog, we thought we’d bust this jargon and explain 30 business loan terms you need to know.

Collateral

Something pledged as security for repayment of a loan, which is forfeited if the loan cannot be repaid.

Secured loan

With a secured business loan, financing is secured by a valuable asset that you own (like equipment, your car, or even your home) as collateral. (Read more)

Unsecured loan

The opposite of a secured loan (see above); a loan that doesn’t require you to use property you own, vehicles, or other assets as collateral. (Read more)

Business credit card

A business credit card is similar to a personal credit card, but it is designed specifically for work or business spending, as opposed to personal expenses. (Read more)

Short term loan

A loan carrying short repayment terms, usually 3 – 18 months. (Read more)

Long term loan

A loan carrying longer repayment terms, often from 12 months to up to 30 years. (Read more)

Invoice financing

Also known as accounts receivables financing. This is a type of loan allowing businesses to use money owed to them as a loan asset, enabling them to get paid for outstanding invoices right away. It is essentially a secured loan as you are using your outstanding invoices as collateral for the loan. (Read more)

Equipment financing

A business loan designed specifically for the purchase of business equipment. You can use existing equipment or the equipment you want to purchase as collateral to get what you need. (Read more)

Business microloan

A small loan ranging anywhere from $100 up to around $50,000. Microloans tend to have short term repayment schedules. (Read more)

Merchant cash advance

Designed for retailers receiving a high proportion of payments via credit card or EFTPOS, such as shops, cafés and restaurants. (Read more)

Line of credit

You can borrow a certain amount of capital annually, just as with personal credit, but you only make payments on the credit you’ve actually used. (Read more)

Overdraft

An overdraft is a type of business loan that’s connected to your existing bank account, allowing you to spend more than you’ve put into it. (Read more)

Traditional lender

This is a term that’s used to refer to financial institutions such as banks, or those who have traditionally been known as financial providers.

Alternative lender

Also known as a non-traditional lender, this refers to a company that is aiming to disrupt the traditional model of business financing. They do this by utilising technology and real-time data to make the process of applying for a loan and acquiring funds much easier. (Lumi is one such alternative lender).

Asset

An item of property owned by an individual or company that contains significant value i.e. a car, equipment, or real estate.

Accounts payable

Money owed by a company to its creditors (a person or company to whom money is owing).

Accounts receivable

Money owed to a company by its debtors (a person or company that owes money).

APR

This stands for Annualised Percentage Rate. While it isn’t exactly the same as interest rate, the APR measures the cost of a loan over a one-year comparable term.

Blanket Lien

A blanket lien gives a creditor the right to seize, in the event of nonpayment, all types of assets serving as collateral owned by a debtor.

Cash Flow Statement

This is the financial statement that measures the cash generated or used by a company in a given period.

Entity type

The structure of your business i.e. Sole Proprietorship, Limited Liability Partnership (LLP), Limited Liability Company (LLC), etc.

Fixed interest rate

An interest rate that remains the same either for the entire term of the loan or for part of the term.

Variable Interest Rate

Unlike a fixed interest rate, a variable interest rate fluctuates over time, based on an underlying benchmark interest rate.

Insolvency

Being unable to pay the money owed, by a person or company, on time.

Loan agreement

A contract between a borrower and a lender detailing the conditions for a loan.

Maturity

The maturity date simply refers to the final payment date of a loan when the principal (and all remaining interest) is due to be paid.

Principal

This term refers to the initial size of a loan, however it can also mean the amount still owed on a loan.

Refinancing

To finance something again. This usually involves a new loan at a lower interest rate.

Term

Refers to a period of time. The ‘term’ of your loan is simply how long your repayment schedule is (i.e. in months or years).

Working Capital

The wealth of a business which is used in its day-to-day trading operations. This amount is calculated using the current assets minus the current liabilities.

 

Got any other business loan terms you want to know? At Lumi, we’re all about transparency, so if you have any other questions relating to business finance, let us know in the comments section below!

Want a business loan that contains no hidden fees or charges? Get started with a Lumi loan today.

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Post Author: Melanie D

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