Commercial Lending Glossary

A non-cash or one-time expense added back to net income when calculating cash flow available for debt service — most commonly depreciation, amortization, and interest expense.

The percentage of an asset's value a lender will lend against — e.g., 80% against eligible accounts receivable. See the Borrowing Base Certificate.

The schedule by which a loan's principal is paid down over time through regular payments. See the Amortization Calculator.

A loan with an interest rate that resets periodically based on a market index, after an initial fixed-rate period.

A large lump-sum payment due at the end of a loan term, when the amortization period is longer than the loan's actual maturity.

Meeting the financial and structural standards a commercial lender needs to approve a loan. See What Does "Bankable" Actually Mean?

A UCC filing that covers essentially all of a business's assets, rather than one specific piece of collateral. See UCC Filings & Liens Explained.

The maximum amount available on a line of credit, calculated from eligible collateral (typically AR and inventory) times the advance rate.

Capitalization rate — Net Operating Income divided by property value, used to value income-producing real estate.

A list of bad-faith acts (fraud, misappropriation of funds) that convert an otherwise non-recourse loan into a full personal guarantee. See Personal Guarantees Explained.

Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding — how many days cash is tied up in operations. See the Cash Conversion Cycle Calculator.

A nonprofit that partners with the SBA to provide the second-mortgage portion of an SBA 504 loan. See the SBA 504 guide.

Community Development Financial Institution — a mission-driven lender focused on underserved businesses and communities, often more flexible than a bank on early-stage or thin-file credits.

An asset pledged to secure a loan, which the lender can seize if the borrower defaults.

A fee charged by a lender to hold agreed-upon loan terms while the loan is being finalized.

The list of requirements (appraisal, insurance, clean lien search, etc.) that must be satisfied before a lender will fund a loan.

A contractual performance requirement in a loan agreement — financial (e.g., minimum DSCR) or reporting (e.g., quarterly financials due). See Loan Covenants Explained.

Current Portion of Long-Term Debt — the amount of long-term debt principal due within the next 12 months, used in DSCR calculations.

The internal document a loan officer writes to present a deal to credit committee for approval. See How to Write a Commercial Credit Memo.

A provision that puts one loan into default automatically if the borrower defaults on a different, separate loan or lease.

Current Assets ÷ Current Liabilities — a measure of short-term liquidity. See Working Capital & Current Ratio.

The total principal and interest payments due on a loan over a given period.

Total liabilities divided by total equity (or tangible net worth) — a leverage measure lenders cap at a maximum threshold.

NOI ÷ Loan Amount — a CRE underwriting metric that doesn't depend on interest rate or amortization assumptions. See the Debt Yield Calculator.

Non-cash expenses that reduce reported net income but don't consume actual cash — added back when calculating cash flow available for debt service.

Days Inventory Outstanding, Days Sales Outstanding, Days Payable Outstanding — the three components of the Cash Conversion Cycle.

Debt Service Coverage Ratio — cash flow available for debt service, divided by total debt service. The single most important ratio in commercial lending. See DSCR Explained.

Earnings Before Interest, Taxes, Depreciation, and Amortization — a common proxy for cash flow, closely related to the DSCR numerator.

The fixed multiplier used to price a merchant cash advance (e.g., 1.35 means repaying $1.35 for every $1 advanced) — not an interest rate, and not directly comparable to one without annualizing. See the Loan Structure Comparison Tool.

Character, Capacity, Capital, Collateral, and Conditions — the five-part framework lenders use to evaluate a borrower. See The 5 Things Every Lender Looks At.

A combined DSCR that includes both business cash flow/debt and personal income/debt, since most small business loans are personally guaranteed. See the Global Cash Flow Calculator.

The upfront fee the SBA charges (passed to the borrower) for guaranteeing a portion of an SBA loan, tiered by loan size.

A contract between two lenders on the same borrower that establishes which lender's claim on collateral takes priority.

When multiple guarantors each guarantee the full debt individually — the lender can collect 100% of the balance from any one guarantor, regardless of their ownership percentage. See Personal Guarantees Explained.

Loan amount divided by total project cost — used primarily in construction lending. See the Construction Loan Analysis Tool.

Loan amount divided by appraised property value.

A purchase of future revenue at a fixed factor rate, repaid via daily or weekly holdback rather than a fixed monthly payment — typically the most expensive financing type on an annualized basis.

Rental income minus vacancy loss minus operating expenses, before debt service — the core cash flow figure for income-producing real estate.

A percentage-based fee charged by a lender at closing to originate a loan.

A snapshot of an individual's personal assets, liabilities, and net worth, required from every guarantor on a commercial loan. See the PFS Generator.

A separate contract in which an individual promises to personally repay a business debt if the business can't. See Personal Guarantees Explained.

A fee charged for paying off a loan early — yield maintenance formulas compensate the lender for the interest income they'll lose, and can be expensive.

A benchmark interest rate that many variable-rate commercial loans are priced off of, as "Prime + [spread]."

A schedule listing every tenant in a commercial property, their square footage, rent, and lease terms. See Rent Roll Analysis & Lease Roll-Off Risk.

A requirement that a revolving line of credit be paid down to zero (or near-zero) for a set period each year, proving it's funding working capital rather than acting as permanent debt.

The SBA's flagship loan program — flexible use of proceeds, up to $5 million, variable rate. See SBA Loans Explained.

An SBA program specifically for real estate and major equipment, structured as a bank first mortgage plus a CDC second mortgage at a fixed rate. See the SBA 504 guide.

A tax provision allowing a business to deduct the full purchase price of qualifying equipment in the year it's placed in service, even if financed rather than paid in cash.

Secured Overnight Financing Rate — the benchmark that has largely replaced LIBOR for pricing variable-rate commercial loans.

The process of reorganizing a business tax return's raw numbers into a standardized cash flow format for underwriting. See How to Spread Business Tax Returns.

An agreement by a lender to accept a lower priority claim on collateral behind another lender.

Total equity minus intangible assets (goodwill, patents, etc.) — a more conservative measure of what a business or individual is actually worth in a liquidation scenario.

A summary of proposed loan terms, typically non-binding on rate and structure but binding on confidentiality and exclusivity. See How to Read a Commercial Loan Term Sheet.

A public filing that establishes a lender's security interest in collateral and its priority against other creditors. See UCC Filings & Liens Explained.

The process by which a lender analyzes a loan application and financials to decide whether — and on what terms — to approve it. See What Happens During Commercial Loan Underwriting.

A fee charged on the undrawn portion of a line of credit.

Current Assets minus Current Liabilities — the cash cushion a business has to meet near-term obligations. See Working Capital & Current Ratio.

A bank's special assets department that manages distressed or defaulted loans. See The Bank's Workout Group.

See Prepayment Penalty above.