Glossary

Lending Terms and Acronyms

When applying for a small business loan, you will inevitably come in contact with numerous jumbled and confusing loan acronyms that require you to do some solid research in order to understand them.

Fortunately, we have compiled the most common loan acronyms in a handy list to help make deciphering the lending

language that much easier

ACH

Automated Clearing House.

An electronic network that processes financial

transactions by transferring funds from one

account to another through public and private

sectors. You can set up your loan payments to

be made by ACH transactions to make sure that you don’t miss a payment.

APR

Annual Percentage Rate.

APR compiles your loan’s yearly interest rate

with any fees or additional charges that you

have to pay for that cash. In short, it’s the true

cost of a loan.


ABL

Asset-Based Loan.

An ABL is secured by business assets, most

often by inventory or receivables. Lenders make these loans based on a formula that calculates a percentage of those assets’ value. The percentage can vary depending on the type of collateral.

BVI

Borrower Viability Index.

Your BVI is similar to a credit score, but takes

into account a broader range of factors that tell a lender more accurately if you are qualified for a business loan. The BVI considers your credit score, but puts more weight on factors like track record, profit-and-loss metrics, and intent.


CDC

Certified Development Company.

The Small Business Administration certifies and regulates these nonprofit organizations, which work with participating lenders nationwide to lend to small businesses under the SBA’s 504 Loan Program. SBA 504 loans provide financing for the purchase of major fixed assets such as real estate or equipment.

CDFI

Community Development

Financial Institution.

These financial institutions—generally

banks, credit unions, or loan funds—are

government-certified organizations that offer

financial services to underserved markets and

individuals. CDFIs might offer business loans

to entrepreneurs who can’t get traditional

financing as well.

CPLTD

Current Portion of Long-Term Debt.

This figure represents the amount of long-term debt that you need to repay within one year.







DSCR

Debt Service Coverage Ratio.

This ratio tells lenders how much cash you have available to service the debt you’re considering taking on. Lenders arrive at this figure by dividing your company’s net operating income by the amount you’ll need for debt service. This number is important, because if you don’t have adequate cash to service your debt, lenders won’t front you the money you want.

EBITDA

Earnings Before Interest, Tax, Depreciation, and Amortization.

Lenders use this measurement to assess your

company’s creditworthiness and your ability to pay back your debt.






FICO

Fair Isaac Corporation.

FICO is the largest and most well-known

company that provides software for calculating a person’s credit score.








GAAP

Generally Accepted Accounting Principles.

Standards set by the Financial Accounting

Standards Board of accounting principles,

standards and procedures that companies

use to compile their financial statements for

potential lenders.





ISO

Independent Sales Organization

ISO is an individual or an organization that is

not an association member (i.e., not a Visa or a

MasterCard member bank), but still has a bank card relationship with an association member bank. ISO’s provide payment-related services to members of an association, either directly or indirectly, including customer service, sales, merchant solicitation and training activities.

LO

Loan Officer.

The person at the lending organization who

handles your loan.








LOC

Line of Credit

A type of financing in which a lender extends

you credit for a certain amount that you can

draw on whenever you need. You don’t have to start repaying the credit line until you actually draw from it, and once you repay all the money, you’ll again have access to the full amount of the credit line.



LTD

Long-Term Debt.

ISO is an individual or an organization that is

not an association member (i.e., not a Visa or a

MasterCard member bank), but still has a bank card relationship with an association member bank. ISO’s provide payment-related services to members of an association, either directly or indirectly, including customer service, sales, merchant solicitation and training activities.

LTV Ratio

Loan-to-Value Ratio.

The ratio of outstanding debt to the value

of the collateral for the loan. Lenders have a

maximum LTV that they’re willing to accept,

depending on the type of collateral you’re

putting up for the loan.







PP&E

Property, Plant, and Equipment.

This term describes business assets or property that is not liquid—in other words, it can’t be quickly turned into cash. PP&E is also

sometimes known as fixed assets or tangible

assets, in contrast to liquid or current assets

such as cash or money in the bank.





SBA

The U.S. Small Business Administration.

The SBA provides a wide variety of resources

and services to small business owners. Most

importantly for borrowers, this federal agency

guarantees small business loans—known as

SBA loans. But the SBA doesn’t actually make

loans. Instead, it works with approved lenders

and guarantees a certain percentage of the

money they lend to small businesses via SBA

loans, typically 80-90 percent. The SBA’s main

guaranteed loan program is the 7(a) loan.

SBSS

Small Business Scoring Service.

The SBA’s loan guaranty processing center uses SBSS scores when screening small businesses’ loan applications. The SBSS score,

generated by FICO, is based on factors like the business’s credit history and the business owner’s individual FICO score. The SBSS score

can range from 0 to 300. In 2014, the SBA set a minimum score of 140 to be considered for its 7(a) loan program.




USDA Loan or B&I Loan

U.S. Department of Agriculture loans or

Rural Department of Business and Industry

Loans.

U.S. Department of Agriculture loans, offered through the federal agency’s Rural Department of Business and Industry, help to develop or

finance businesses with the goal of improving the economic and environmental climate of rural communities. Like SBA loans, many of

these loan programs provide guarantees to lenders to encourage lending.

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