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ABL (Asset-Based Lending)
Loans secured by business assets such as accounts receivable, inventory, or equipment.
Add-Backs
Expenses added back to income to increase calculated cash flow (owner pay, one-time costs).
Advance Rate
The percentage of eligible collateral a lender is willing to finance.
Affirmative Covenants
Requirements a borrower must comply with during the loan term (reporting, insurance, taxes).
Amortization
The scheduled repayment of loan principal over time.
Amortization Schedule
A breakdown of loan payments showing principal and interest allocation.
AR (Accounts Receivable)
Money owed to a business by customers.
As-Is Value
The current market value of a property without future improvements.
Availability
The amount currently accessible under a credit line or facility.
Balance Sheet
A financial statement showing assets, liabilities, and equity at a specific point in time.
Balloon Payment
A large final payment due at loan maturity.
Basis Points (bps)
One-hundredth of one percent (100 bps = 1%).
Blanket Lien
A lien covering all or most of a borrower’s assets.
Borrower
The individual or entity receiving loan funds.
Borrowing Base
A formula determining how much can be borrowed under an ABL facility.
Bridge Loan
Short-term financing intended to be replaced by permanent financing.
Business Purpose Loan
A loan used for commercial or investment purposes, not personal use.
CAM (Common Area Maintenance)
Operating expenses passed through to tenants (taxes, insurance, maintenance, management).
Cap Rate (Capitalization Rate)
Net Operating Income divided by property value or purchase price.
Capital Stack
The layers of financing in a deal (senior debt, mezzanine debt, equity).
Cash Flow
The movement of money in and out of a business.
Cash-Out Refinance
Refinancing that allows a borrower to withdraw equity as cash.
CMBS (Commercial Mortgage-Backed Securities)
Commercial loans pooled and sold to investors as securities.
Collateral
Assets pledged to secure a loan.
Commitment Letter
A lender’s written offer outlining loan terms and conditions.
Compensating Factors
Strengths that offset weaknesses in a credit profile.
Construction Loan
Financing used to build or renovate property.
Covenants
Ongoing conditions or restrictions placed on the borrower.
Credit Box
The lender’s internal underwriting limits and policy guidelines.
Credit Committee
The group responsible for approving or declining loan requests.
Debt Service
Total required principal and interest payments.
Debt Service Coverage Ratio (DSCR)
Net Operating Income divided by annual debt service.
Debt Stack
All existing debt obligations on a borrower or property.
Debt Yield
Net Operating Income divided by loan amount.
Default
Failure to meet loan obligations or covenants.
Draw Schedule
A timeline for releasing construction loan funds.
Earnest Money
A deposit showing a buyer’s intent to complete a transaction.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization.
Economic Vacancy
Loss of rental income due to nonpayment, concessions, or downtime.
Eligible Collateral
Assets that qualify under lender rules for borrowing base or security.
Encumbered
An asset that has an existing lien or debt secured against it.
Equity
The value remaining after liabilities are subtracted from assets.
Exit Strategy
The planned method for repaying or refinancing a loan.
Factoring
The sale of accounts receivable for immediate cash.
Fee Simple
Absolute ownership of real property without limitations.
First Lien / First Position
The primary claim on collateral with highest repayment priority.
Fixed Rate
An interest rate that does not change during the loan term.
Floating Rate
An interest rate tied to an index such as Prime or SOFR.
Forbearance
A temporary agreement to reduce or suspend loan payments.
Free Cash Flow
Cash remaining after operating expenses and capital expenditures.
Fully Amortizing
A loan structured to be completely paid off by maturity.
Global Cash Flow
Combined cash flow of the borrower, related entities, and guarantors.
Grace Period
A short time after a due date during which payment can be made without penalty.
Gross Rent
Total rental income before expenses or vacancies.
Guarantor
An individual or entity that agrees to repay the loan if the borrower defaults.
Guarantee / Guaranty
A legal promise to fulfill a borrower’s debt obligation.
Haircut
A conservative reduction applied to income, collateral value, or projections.
Hard Money Loan
Short-term, asset-based financing with higher rates and lower documentation.
Holdback
Funds withheld until specific conditions are met.
HUD Loan
Government-insured financing for multifamily properties.
Income Statement (Profit & Loss Statement)
A financial statement showing revenue, expenses, and net income over a period of time.
Interest-Only Loan
A loan where payments cover interest only for a specified period.
Intercreditor Agreement
A contract defining rights and priorities between multiple lenders on the same borrower or collateral.
Internal Rate of Return (IRR)
The annualized rate of return used to evaluate an investment.
Invoice Financing
A loan or advance secured by unpaid customer invoices.
Junior Lien
A subordinate lien with lower repayment priority than a senior lien.
Key Man Risk
The risk that a business depends heavily on one individual for operations or revenue.
Leverage
The use of borrowed funds to increase potential return on investment.
Leverage Ratio
A measurement comparing total debt to earnings, assets, or equity.
Lien
A legal claim against an asset to secure repayment of a debt.
Lien Position
The priority order in which lenders are paid from collateral proceeds.
LIBOR (Legacy Term)
A former interest rate benchmark largely replaced by SOFR.
Liquidity
Cash or near-cash assets readily available to meet obligations.
Loan-to-Value (LTV)
The loan amount divided by the value of the collateral.
Maturity Date
The date on which the loan balance must be repaid in full.
Mezzanine Financing
Subordinate financing that sits between senior debt and equity.
Mortgage
A loan secured by real estate.
MCA (Merchant Cash Advance)
An advance repaid from a percentage of future business sales.
Net Operating Income (NOI)
Income remaining after operating expenses, before debt service.
Net Worth
Total assets minus total liabilities.
Non-Recourse Loan
A loan where the lender’s recovery is limited to collateral, subject to carve-outs.
Origination Fee
A fee charged by the lender to process and originate a loan.
Owner-Occupied
Property where the borrower’s business occupies a majority of the space.
Participation Loan
A loan shared by multiple lenders.
Personal Financial Statement (PFS)
A statement listing an individual’s assets, liabilities, and net worth.
Personal Guarantee (PG)
A personal promise to repay a business loan.
Points
Upfront fees expressed as a percentage of the loan amount.
Prepayment Penalty
A fee charged for paying off a loan before maturity.
Pro Forma
Projected financial performance after planned changes.
Quality of Earnings (QoE)
An analysis assessing the sustainability and accuracy of reported earnings.
Recourse Loan
A loan where the borrower and guarantor are personally liable for repayment.
Refinance
Replacing an existing loan with new financing.
Reserves
Funds set aside for future expenses such as taxes, insurance, or repairs.
Return on Investment (ROI)
A measure of profitability calculated as gain divided by cost.
Seasoning
The length of time an asset, income, ownership, or funds have been in place and verifiable.
Seasoned Funds
Cash that has been in an account long enough to be considered owned and not borrowed.
Senior Debt
Debt with first priority claim on collateral and cash flow.
SOFR (Secured Overnight Financing Rate)
The benchmark interest rate that replaced LIBOR.
Sponsor
The individual or entity responsible for operating and managing the deal.
Stabilized Property
A property with consistent occupancy and income.
Subordination
An agreement allowing one lender’s lien to rank behind another.
Term Sheet
A summary of proposed loan terms and conditions.
Title
Legal ownership documentation for real property.
Trailing Twelve Months (T-12)
Financial performance for the most recent twelve-month period.
UCC (Uniform Commercial Code) Filing
A public filing that establishes a lender’s security interest in business assets.
UCC Release / Termination
Documentation removing a previously filed UCC lien.
Underwriter
The person or team responsible for evaluating credit risk and loan structure.
Underwriting
The process of analyzing financials, collateral, borrower strength, and risk.
Unencumbered
An asset that has no liens or debt secured against it.
Unsecured Loan
A loan not backed by collateral.
Use of Funds
How loan proceeds will be spent.
Vacancy Rate
The percentage of a property that is unoccupied.
Variable Rate
An interest rate that fluctuates based on an index.
Waterfall
The order in which cash flow and profits are distributed among lenders and investors.
Working Capital
Funds used to support day-to-day business operations.
X-Date
The projected date when available cash or liquidity is exhausted.
Yield
The return earned on a loan or investment.
Zoning
Local regulations governing property use and development.