Understanding small business loan terms and phrases is vital for any business owner seeking financing.
As with most products in today’s marketplace, business loans come with some distinct vocabulary. Small business loan terms are indicators of your loan agreement. A working grasp of these phrases will help you avoid potential misunderstandings with your lender.
A business loan is a debt advanced by a financial institution to a business. It is repayable with interest. The loan can be for better cash flow, business expansion, product development, or other business needs.
Business financing is a critical component of your enterprise as it helps you maintain constant liquidity. That means that even in lean times, your business can meet its recurrent expenditure (such as bills, salaries, and payments for supplies).
For businesses, a loan provides a robust support system to expand or grow the business. In other words, the loan offers a way to fund your expansion journey without having to dip into your private or personal savings.
Thanks to the convenience of applying for a small business loan online, companies have easy access to business financing with flexible terms.
Small Business Loan Repayment Terms
As a result of the economic turmoil caused by the Covid-19 pandemic, every industry was forced to make adjustments or halt operations entirely. Despite the economic uncertainty, Americans are still opening up businesses and growing their local economy.
According to the Intuit QuickBooks Small Business Insights: 2022 report, Intuit predicts 17 million new small businesses will be started in 2022. This would be a third consecutive record year for entrepreneurship.
Unfortunately, that spike in new small businesses is seldom accompanied by business financing availability by traditional financial institutions. In fact, according to the World Bank, traditional banks tend to tighten their credit conditions during a recession, resulting in reduced access to loans for small and medium companies.
Fortunately for business owners, there are alternative lenders like National Funding that can provide your business with the working capital it needs to navigate through restructuring or financing business growth. Alternate lenders offer flexible terms and less stringent loan qualification criteria than traditional financial institutions.
Below are two popular types of business loans available from National Funding and their repayment terms:
- Working Capital Loan
- Loan amount: between $5,000 $500,000
- Repayment term: 4 months to 2 years
- Loan available within 24 hours1 of approval.
- Repayment schedule: Daily or Weekly
- Loans available in all states
- Equipment Financing
- Loan amount: up to $150,000
- Repayment term: 2 to 5 years
- Loan available within 24 hours of approval
- Repayment Schedule: Monthly
The fees charged under each type of business loan varies on a case-by-case basis. Approval considerations that a lender will consider are your personal credit score, age of business and gross annual sales.
25 Business Loan Terms Defined
Below are some of the most common business loan terms you are most likely to come across before, during, and after the application process.
- Accounts Payable
- What your business owes under the loan
- Accounts Receivable
- The amount your business is owed
- Blanket Lien
- The lender’s right to seize any of your business property in case of default
- Collateral
- The specific property offered to the lender as security for the loan
- Cash Flow Statement
- Your business’ income and expenditure for a given period
- Debt Financing
- Entity Type
- The legal category under which your business falls
- Fixed Interest Rate
- A constant rate of interest
- Insolvency
- The inability of a business to pay its debts
- Line of Credit
- The borrowing limit is extended by the lender that you can access when needed
- Revolving Line of Credit
- A recurring line of credit
- Loan Agreement
- A contract detailing the terms of the loan
- Maturity
- The day when the loan plus interest is fully repaid
- Prepayment Penalty
- Fees imposed by the lender for early loan repayment
- Principal
- The initial amount borrowed without interest
- Prime Rate
- The interest rate for the most creditworthy borrower
- Profit and Loss Statement
- Document showing your business’ income and expenses over a given period
- Refinancing
- Repayment of existing debt through a new, better loan
- SBA
- Small Business Administration
- Secured
- A loan that is accompanied by a lien
- Sub-prime Borrower
- Long Term
- A loan that is repayable within a year or more
- Term
- Time within which loan is to be repaid
- Variable Interest Rate
- An interest rate that is subject to change
- Working Capital
- How much money the business has minus its debt
Understanding the terminology used in a business loan agreement can help you make the right decision for your business.
National Funding provides online business loans when you need it the most with a quick and easy application process. National Funding is an award-winning alternative lender that specializes in personalized service and custom business loan options to help you reach your business goals.
Our Funding Specialists take the time to learn about you and your business in order to provide the best loan options.
Contact National Funding to learn more about your small business loan options or apply online today.