Different business loans come with different requirements. To be able to choose the right business funding for your business, you should be well equipped with the knowledge, including business loan terms, before entering the world of business financing.
Business Loan Terms & Funding to Know
All merchants are looking for easy access to small business financing at the cheapest possible rates. No one likes long applications, complex repayment options, difficult-to-manage accounts, and a slow funding process. To avoid falling into a misleading situation where you can’t make the right choice, it’s important to learn business loan terminology.
- Annual Percentage Rate or APR: Calculation necessary for the comparison of credit costs.
- Amortization: Refers to scheduled regular payments until the borrower pays off the main sum and interest before the loan maturity date.
- Balloon Payment: A large sum that the borrower pays to the loan provider at the end of the loan term.
- Blanket Lien: A lien that allows the lender to take the borrower’s assets in case he/she can’t pay off the debt.
- Consolidation: Combining different loans into a single one.
- EBITDA: Stands for “earnings before interest, taxes, depreciation and amortization.”
- Grace Period: The period after the due date (usually 15 days) when the interest doesn’t accumulate on debt, and there are no late payment penalties.
- Insolvency: The state of not being able to pay off the debt.
- Lien: A legal claim allowing the lender to take the debtor’s assets provided as collateral in case he/she is unable to pay off the debt.
- Maturity: This is when the loan term comes to its end, and it’s time to make the final payments.
- Prime Rate: The interest rate (based on the Federal Funds Rate) that large commercial banks require their most creditworthy borrowers to pay.
- Revolving Credit Line: Allows the debtor to repay the borrowed funds, and then repeat the process within the limits of the credit.
- Subprime Borrower: A high-risk borrower. By the way, there are respectable alternative online lenders like FirstAmericanMerchant.com that are ready to work with high-risk merchants, offering the most secure and cheapest business financing in the field.
FAM is an award-winning high risk business funding provider and processor that can help you avoid confusion associated with business loan terms.
- Underwriting: Is included in the vetting process and is followed by the approval or rejection stages.
- Variable Interest/ Floating Interest Rate: Interest rate fluctuating over the loan term.
To avoid getting confused by business loan terminology, learn the basic terms before applying to a lender. Work with a reputable lending company to get exceptional funding for your business.