Financing Glossary

Accounts Receivable (AR)

Money customers owe your business for goods or services you've already delivered, typically due within 30-90 days. Lenders often treat AR as collateral for a line of credit or as part of a borrowing base, since it's usually one of the more liquid assets on a balance sheet.

See it in action: borrowing base calculator · borrowing base guide.

Add-On Acquisition

A smaller acquisition made by an already private-equity-backed "platform" company to expand its size, geography, or capabilities -- typically financed with incremental debt layered onto (or alongside) the platform's existing credit facility.

See it in action: add-on acquisition financing guide.

Advance Rate

The percentage of an asset's value a lender will actually lend against. A common advance rate is 85% for accounts receivable and 50% for inventory -- meaning a lender might lend $85,000 against $100,000 of eligible receivables.

See it in action: borrowing base calculator.

Amortization

The schedule by which a loan's principal and interest get paid down over time, usually in equal monthly installments. A longer amortization (say, 20 years instead of 10) lowers the monthly payment but increases the total interest paid over the life of the loan.

See it in action: SBA payment calculator.

Asset-Based Lending (ABL)

Financing sized and secured against specific business assets -- usually accounts receivable and inventory -- rather than against cash flow the way a DSCR-based loan is. An asset-based revolving line of credit lets you draw against your borrowing base as it moves with your AR and inventory balances.

See it in action: borrowing base calculator · borrowing base guide.

Borrowing Base

The maximum amount a lender will advance against your pledged collateral, found by applying advance rates to your eligible assets.

See it in action: borrowing base calculator · borrowing base guide.

Covenant

A condition in a loan agreement that the borrower has to keep meeting to stay in good standing -- commonly a minimum DSCR or a maximum leverage ratio, checked quarterly or annually. Breaching a covenant can trigger a default even if every payment has been made on time.

Debt-Service Coverage Ratio (DSCR)

Your adjusted EBITDA divided by your total annual debt payments -- the most common single measure of whether your cash flow can actually support a loan.

See it in action: DSCR calculator · DSCR & borrowing capacity calculator.

Depreciation

The tax deduction that spreads the cost of a business asset over its useful life instead of deducting it all in the year you bought it. See Section 179 for the exception that lets you accelerate this for qualifying equipment.

See it in action: lease vs. loan calculator · lease vs. loan guide.

EBITDA

Earnings before interest, taxes, depreciation, and amortization -- a proxy for a business's core cash-generating ability, and the starting point for both DSCR and leverage calculations. If a business doesn't track EBITDA directly, a common shorthand estimate is about 10% of annualized revenue.

See it in action: DSCR calculator.

Equipment Finance / Lease

Financing structured around a specific piece of equipment -- either a loan (you own the equipment and use it as collateral) or a lease (you pay for the use of it over a term, typically without owning it when the term ends).

See it in action: lease vs. loan calculator · lease vs. loan guide.

Interest-Only

A loan structure where payments cover only the interest for a period (or the whole term), with the principal due later or in a lump sum ("balloon") at maturity. Common on bridge loans and some revolving lines of credit.

Invoice Factoring

Selling an unpaid invoice to a factoring company at a discount in exchange for most of the cash immediately, rather than waiting for your customer to actually pay it.

See it in action: factoring vs. line of credit calculator · factoring vs. line of credit guide.

Leverage (Debt-to-EBITDA)

Your total debt divided by your adjusted EBITDA, expressed as a multiple -- how much debt your business carries relative to what it earns. Lower is generally viewed as lower risk.

See it in action: DSCR & borrowing capacity calculator.

Line of Credit (LOC)

Revolving credit you can draw against, repay, and draw again up to an approved limit, paying interest only on what you've actually drawn.

See it in action: factoring vs. line of credit calculator · factoring vs. line of credit guide.

Loan-to-Value (LTV)

The loan amount expressed as a percentage of the collateral's appraised value.

More common in real-estate-secured lending than in the working-capital and equipment financing most BizyFi borrowers are looking at.

Mezzanine Debt

Subordinated financing that sits between senior debt and equity in a company's capital structure (see senior vs. junior debt), priced higher than senior debt to compensate for its junior position. Often used to fill the gap between what a senior lender will provide and what a deal actually needs.

See it in action: add-on acquisition financing guide.

Money Factor

The way a lease's finance charge is expressed -- roughly an annual interest rate divided by 2400. Our lease calculator converts a plain annual rate into this factor for you rather than asking you to work with it directly.

See it in action: lease vs. loan calculator.

Orderly Liquidation Value (OLV)

A conservative estimate of what an asset -- commonly equipment -- would fetch in a reasonably managed sale, as opposed to its full market or replacement value. Lenders typically size equipment-secured advances off OLV, not market value.

See it in action: borrowing base calculator.

Personal Guaranty

A business owner's personal promise to repay a business debt if the business itself can't -- putting personal assets, not just the business's, behind the loan. Common on small-business loans, including most SBA products.

Prepayment Penalty

A fee some loans charge if you pay off the balance -- in full or in part -- before the scheduled term ends, meant to compensate the lender for interest income it won't collect. Worth checking on your current loan before refinancing.

See it in action: UCC-1 guide.

Residual Value

The estimated value of leased or financed equipment at the end of the term. A lease payment is calculated partly off this figure (see money factor); with a loan, you're credited with owning whatever the residual value turns out to be, since you keep the equipment.

See it in action: lease vs. loan calculator.

SBA 7(a)

The SBA's most flexible loan program -- usable for working capital, equipment, real estate, refinancing, and business acquisitions (including goodwill).

See it in action: SBA payment calculator · SBA 7(a) vs. 504 guide.

SBA 504

An SBA loan program purpose-built for major fixed assets -- commercial real estate and heavy equipment -- structured through a bank and a Certified Development Company. Generally not usable for working capital or business acquisitions.

See it in action: SBA payment calculator · SBA 7(a) vs. 504 guide.

Second Lien

Debt secured by collateral that's already pledged to a first-lien (senior) lender. If the collateral is ever liquidated, the second-lien lender is repaid only after the first lien is satisfied in full -- see senior vs. junior debt.

Section 179

An IRS provision that lets a business deduct the full purchase price of qualifying equipment in the year it's placed in service, instead of depreciating it over several years. It's subject to an annual dollar cap that changes periodically -- confirm the current limit with your accountant rather than assuming last year's number still applies.

See it in action: lease vs. loan calculator · lease vs. loan guide.

Senior Debt vs. Junior (Subordinated) Debt

Senior debt has first claim on a company's assets and cash flow if things go wrong. Junior (or subordinated) debt -- like mezzanine debt or a second lien -- is repaid only after senior debt is satisfied, and is priced higher to compensate for that added risk. See also subordination.

See it in action: add-on acquisition financing guide.

Sponsor (Private Equity Sponsor)

The private equity firm that owns and controls a portfolio company. A sponsor's track record and financial backing often factor directly into how a lender underwrites that company's debt, especially for an add-on acquisition.

See it in action: add-on acquisition financing guide.

Subordination

A lender formally agreeing to rank behind another lender's claim on the same collateral or borrower, documented in a subordination agreement between the two lenders. This is what makes debt "junior" in practice -- see senior vs. junior debt.

UCC-1 Financing Statement

A public notice a lender files with the state when it takes a security interest in a borrower's assets as collateral for a loan or lease. It doesn't create the debt -- it just publicly records the lender's claim, so other lenders searching the business know that collateral is already pledged.

See it in action: UCC-1 guide.

UCC-3 Termination Statement

The filing a lender submits to release a UCC-1 once the underlying loan is paid off. A UCC-1 doesn't disappear automatically when a loan is repaid -- if you've paid off a loan and still see an active-looking filing against your business, this is usually the missing step.

See it in action: UCC-1 guide.

Unitranche

A single loan that blends senior and subordinated debt into one facility with one blended interest rate, simplifying what would otherwise be separate senior and mezzanine pieces.

See it in action: add-on acquisition financing guide.

Working Capital

The cash a business needs to fund its day-to-day operations -- payroll, inventory, rent -- in the gap between when it pays its own bills and when its customers pay it.

See it in action: factoring vs. line of credit guide.