A
ABL (Asset-Based Lending)
A financing structure where your credit facility is secured by business assets — typically accounts receivable, inventory, or equipment. The borrowing limit adjusts based on the value of those assets, making it flexible for growing businesses with strong balance sheets but limited cash flow history.
Accounts Payable
Money your business owes to suppliers, vendors, or service providers for goods and services already received. High accounts payable relative to cash on hand often signals a need for working capital to avoid late payments and damaged supplier relationships.
Accounts Receivable
Money owed to your business by customers who have received goods or services but haven't yet paid. Receivables are one of the most common assets used to secure working capital facilities, since they represent near-term cash that simply hasn't arrived yet.
Advance Rate
The percentage of your collateral's value that a lender will actually advance to you. For example, an 85% advance rate on $1M in receivables means you can access $850K. Advance rates vary by asset type — receivables typically command higher rates than inventory.
Amortization
The process of paying down a loan through regular scheduled payments that include both principal and interest. A fully amortizing loan is paid in full by the end of its term. Understanding your amortization schedule helps you forecast exact monthly cash outflows.
Annual Revenue
Your business's total top-line income over a 12-month period before expenses. Most capital providers use annual revenue as a primary qualification metric — typically requiring $1M+ for structured facilities and $3M+ for larger asset-based programs.
APR (Annual Percentage Rate)
The true annualized cost of borrowing, including fees and compounding. APR allows you to compare different facility types on an apples-to-apples basis. A facility with a low monthly rate but high origination fees may have a higher APR than one with a slightly higher rate and no fees.
Asset-Based Lending
See ABL. A revolving or term credit facility secured by specific business assets. Unlike traditional bank loans that focus primarily on credit score and profitability, ABL facilities are underwritten based on the quality and liquidity of your collateral.
B
Balance Sheet
A financial statement showing what your business owns (assets), owes (liabilities), and the owner's equity at a specific point in time. Lenders review your balance sheet to understand your overall financial position and determine which assets might secure a facility.
Bank Statement
A monthly record from your bank showing all deposits, withdrawals, and ending balances. Most capital providers request 3–6 months of bank statements during underwriting to verify revenue consistency, average daily balance, and cash flow patterns.
Blanket Lien
A lien that gives a lender a security interest in all of your business assets — not just specific collateral. This is common with MCAs and some lines of credit. It can complicate future borrowing since subsequent lenders may be in a subordinate position.
Borrowing Base
The calculated maximum you can draw on an asset-based facility at any given time. It's determined by applying advance rates to your eligible collateral. As your receivables or inventory grow, your borrowing base — and available capital — grows with them.
Bridge Capital
Short-term financing designed to cover a gap between an immediate need and a longer-term solution. Common uses include bridging payroll during a contract transition, covering expenses while awaiting a closing, or maintaining operations during a seasonal dip.
Business Line of Credit
A revolving credit facility that lets you draw funds up to a set limit, repay, and draw again. You only pay interest on what you've drawn. Lines of credit are ideal for managing uneven cash flow, covering short-term gaps, or seizing time-sensitive opportunities.
C
Capital Stack
The total combination of financing sources a business uses — from senior secured debt at the top to equity at the bottom. Understanding your capital stack helps you evaluate where new capital fits and what priority it has in repayment relative to existing obligations.
Cash Flow
The net amount of cash moving in and out of your business over a period. Positive cash flow means more money coming in than going out. Many capital facilities are structured around your cash flow patterns to ensure repayment aligns with when you actually receive revenue.
Collateral
Assets pledged to secure a loan or credit facility. If you default, the lender can seize the collateral to recover their funds. Common collateral includes accounts receivable, inventory, equipment, and real estate. Stronger collateral typically means better rates and higher advance amounts.
Concentration Risk
The risk that a large percentage of your receivables or revenue comes from a single customer. If one client represents 40%+ of your revenue, lenders may reduce your advance rate or borrowing base on that portion, since losing that customer would significantly impact repayment ability.
Covenant
A condition or requirement written into your loan agreement that you must maintain throughout the facility's life. Common covenants include minimum revenue levels, debt-to-equity ratios, or restrictions on taking additional debt. Violating a covenant can trigger default provisions.
Credit Facility
A broad term for any structured lending arrangement between a business and a capital provider. It encompasses lines of credit, term loans, revolving facilities, and asset-based programs. "Facility" implies a more structured, ongoing relationship than a one-time loan.
D
Daily Payment
A repayment structure where a fixed amount is debited from your business account every business day. Common with MCAs and some revenue-based products. While individual payments are small, the cumulative daily outflow can strain cash-sensitive businesses.
Debt Service Coverage Ratio (DSCR)
A ratio measuring your business's ability to cover debt payments from operating income. Calculated as net operating income divided by total debt service. A DSCR above 1.25 is generally considered healthy — it means you earn 25% more than your obligations require.
Default
A failure to meet the terms of your loan agreement — most commonly a missed payment, but also a covenant violation or bankruptcy filing. Defaulting can trigger acceleration (the full balance becoming due immediately), penalties, and potential seizure of collateral.
Draw
The act of accessing funds from a revolving credit facility or line of credit. Unlike a term loan where you receive the full amount upfront, a draw lets you take only what you need when you need it, reducing interest costs on unused capital.
E
EIN (Employer Identification Number)
A nine-digit tax ID number assigned by the IRS to your business entity. Required on virtually all capital applications. Think of it as your business's Social Security number — it identifies your company for tax and lending purposes.
Equipment Financing
A loan or lease specifically for purchasing business equipment — vehicles, machinery, technology, or specialized tools. The equipment itself typically serves as collateral, which often means lower rates and easier qualification compared to unsecured options.
Equity Dilution
The reduction in an owner's percentage stake when new equity investors are brought in. Non-dilutive capital (debt facilities) allows you to access growth funding without giving up ownership. This is a primary reason many operators prefer structured debt over equity fundraising.
F
Factor Rate
A multiplier (typically 1.1 to 1.5) applied to your advance amount to determine total repayment. A $100K advance at a 1.3 factor rate means you repay $130K total. Factor rates are common with MCAs and don't decrease if you pay early unless a specific discount is built in.
Factoring (Invoice Factoring)
Selling your outstanding invoices to a third party (the factor) at a discount in exchange for immediate cash. The factor then collects directly from your customers. Factoring accelerates receivables but involves your customers knowing a third party is involved in collections.
Facility
The formal term for a structured credit arrangement. When we say "facility," we mean the complete package — the amount, terms, collateral requirements, covenants, and repayment structure that define your borrowing relationship with a capital provider.
FICO Score
A personal credit score ranging from 300–850 that lenders use as one qualification factor. While traditional banks may require 700+, many non-bank capital providers work with scores as low as 600 if your business fundamentals are strong — revenue, cash flow, and asset quality matter more.
Fixed Payment
A repayment structure where the same dollar amount is due each period regardless of your revenue. Fixed payments provide predictability for budgeting but don't flex during slow periods the way revenue-based structures do.
Floating Rate
An interest rate that adjusts periodically based on a benchmark (like Prime or SOFR). Your payments may increase or decrease over the facility's life. Floating rates often start lower than fixed rates but carry the risk of rising if market rates increase.
G
General Lien
A lien that attaches to all assets of a business rather than a specific piece of property. Similar to a blanket lien, it gives the creditor broad security. Understanding lien positions is critical when evaluating whether you can stack additional capital on top of existing facilities.
Gross Revenue
Your total income before any deductions for expenses, returns, or allowances. Gross revenue is the top line on your income statement and is the most common initial qualifier for capital facilities — most providers require minimum gross revenue thresholds ranging from $500K to $5M+.
Guarantee (Personal)
A commitment by a business owner to personally repay a facility if the business cannot. Most non-bank facilities require a personal guarantee, though the practical enforcement varies. A "limited" guarantee caps your personal exposure at a specific dollar amount.
I
Interest Rate
The cost of borrowing expressed as a percentage of the principal, typically annualized. Unlike factor rates, interest rates accrue over time — meaning early payoff reduces your total cost. Always compare rates on the same basis (APR) when evaluating options.
Invoice Factoring
See Factoring. The sale of outstanding invoices to a factor in exchange for immediate working capital. Particularly useful for businesses with long payment terms (net-60 or net-90) from creditworthy customers.
L
Lien
A legal claim against your assets that secures a debt obligation. Liens are recorded publicly (via UCC filings) and establish priority — the first lien holder gets paid first in a liquidation. Understanding existing liens on your business is essential before seeking additional capital.
Line of Credit
See Business Line of Credit. A revolving facility that provides flexible access to capital up to a pre-approved limit. Draw what you need, repay it, and the availability refreshes — making it ideal for managing variable cash flow needs.
Liquidity
How quickly and easily an asset can be converted to cash without significant loss of value. Cash is perfectly liquid; real estate is illiquid. Lenders assess your business's liquidity to determine how easily you can meet short-term obligations and service debt payments.
M
MCA (Merchant Cash Advance)
A purchase of your future receivables at a discount — technically not a loan. You receive a lump sum and repay through a fixed percentage of daily credit card sales or daily ACH debits. MCAs are fast (often funded in 24–48 hours) but typically carry high factor rates.
Monthly Payment
A repayment structure with a single payment due each month. Monthly payments are easier to manage from a cash flow perspective than daily or weekly structures. Most term loans, SBA loans, and traditional lines of credit use monthly payment schedules.
N
Net Revenue
Your gross revenue minus returns, allowances, and discounts. Net revenue gives a more accurate picture of the money your business actually retains from sales. Some capital providers use net revenue rather than gross when calculating facility amounts and repayment capacity.
Non-Dilutive Capital
Financing that doesn't require giving up equity or ownership in your business. All debt-based facilities — loans, lines of credit, factoring, ABL — are non-dilutive. You maintain full control and upside while accessing growth capital through structured repayment rather than selling shares.
O
Origination Fee
A one-time fee charged by a lender to process and fund your facility, typically 1–3% of the total amount. Origination fees are usually deducted from your proceeds at closing. Always factor them into your total cost of capital calculation.
P
Payoff
The total amount required to completely satisfy and close an existing facility, including remaining principal, accrued interest, and any applicable fees. Knowing your exact payoff amount is essential when refinancing or consolidating existing positions.
Prepayment Penalty
A fee charged if you pay off your facility before its scheduled maturity date. Not all facilities have them — some allow early payoff with a discount. Always ask about prepayment terms before signing, as they significantly affect your flexibility to refinance later.
Principal
The original amount borrowed or the remaining balance of a loan excluding interest. Each payment you make typically covers both principal (reducing what you owe) and interest (the cost of borrowing). Faster principal paydown means less total interest paid over the facility's life.
Purchase Order Financing
Capital advanced against confirmed purchase orders from creditworthy customers. It allows you to fulfill large orders you couldn't otherwise afford to produce. The PO itself — and the customer's commitment to pay — serves as the basis for the advance.
R
Receivables
See Accounts Receivable. Money owed to you by customers. Receivables are among the highest-quality collateral for working capital facilities because they represent documented obligations from identified customers with established payment histories.
Refinancing
Replacing an existing facility with a new one — typically to secure better terms, lower cost, or additional capital. Refinancing makes sense when your business has grown, rates have improved, or your current facility's structure no longer matches your operations.
Renewal
Extending or refreshing an existing facility at the end of its term. Renewals may come with updated terms, adjusted limits, or new documentation requirements. A smooth renewal process typically indicates a healthy lender-borrower relationship and strong repayment history.
Revenue-Based Financing
A facility where repayment is tied to a fixed percentage of your monthly revenue. Payments flex with your business — higher when revenue is strong, lower during slow periods. This structure works well for businesses with seasonal variation or unpredictable revenue timing.
Revolving Credit
A credit structure that replenishes as you repay. Unlike a term loan (which is a one-time advance), revolving credit lets you draw, repay, and draw again up to your limit. It functions as a permanent source of flexible working capital for ongoing operational needs.
S
SBA Loan
A loan partially guaranteed by the U.S. Small Business Administration, offered through approved lenders. SBA loans typically carry the lowest interest rates and longest terms but require extensive documentation, strong credit, and processing times of 30–90+ days.
Secured Facility
Any credit arrangement backed by specific collateral. Because the lender has recourse to seize assets in a default, secured facilities typically offer lower rates and higher limits than unsecured options. Most serious working capital facilities are secured.
Stacking
Taking multiple capital positions simultaneously — often from different lenders who may not know about each other. Stacking is risky because combined daily payments can quickly exceed your cash flow capacity. Responsible capital advisors help you consolidate rather than stack.
T
Term Loan
A lump-sum loan repaid over a fixed period (the "term") through regular scheduled payments. Terms range from 6 months to 10+ years depending on the facility type. Term loans work best when you have a specific, one-time capital need with a predictable repayment timeline.
Total Cost of Capital
The all-in expense of a facility including interest, fees, and any other charges over its full life. This is the most accurate way to compare options. A facility with a lower rate but high fees might cost more overall than one with a slightly higher rate and no fees.
U
UCC Filing
A public notice filed under the Uniform Commercial Code that records a lender's security interest in your business assets. UCC filings establish lien priority and are visible to other potential lenders. They're standard for most secured facilities and are removed when the facility is paid off.
Underwriting
The process a capital provider uses to evaluate your application, assess risk, and determine whether and on what terms to extend a facility. Underwriting typically involves reviewing financials, bank statements, credit, industry risk, and the specific use of funds.
Unsecured Facility
A credit arrangement that is not backed by specific collateral. Because the lender takes on more risk, unsecured facilities typically carry higher rates and lower limits. They're accessible for businesses with strong revenue and credit but limited pledgeable assets.
Use of Funds
How you plan to deploy the capital you receive. Lenders ask about use of funds to assess risk and ensure the capital will generate returns that support repayment. Common uses include inventory purchases, equipment, hiring, marketing, and bridging receivables gaps.
W
Working Capital
The difference between your current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). Positive working capital means you can cover near-term obligations. Working capital facilities provide the liquidity to operate, grow, and manage timing gaps between expenses and revenue.