50 Lending Terms: The Essentials for Small Business Owners
Staying current with financing terms is paramount in navigating the complex landscape of personal and business finance. Understanding these terms empowers individuals to make informed decisions about borrowing, investing, and managing their money effectively. From interest rates and credit scores to loan types and repayment structures, familiarity with financial terminology enables individuals to decipher loan agreements, evaluate investment opportunities, and negotiate favorable terms. Moreover, being up-to-date on financing terms helps mitigate the risk of falling victim to predatory lending practices and financial scams. In today's dynamic economic environment, where financial products and regulations constantly evolve, staying informed ensures individuals can adapt to changes and seize opportunities for financial growth while safeguarding against potential pitfalls. Ultimately, the ability to comprehend and utilize financing terms equips individuals with the knowledge and confidence needed to achieve their financial goals and secure their financial future.
Here are the top 50 financing terms a small business should know when applying for working capital:
Principal: The initial amount of money borrowed or invested, excluding interest.
Term: The length of time over which a loan is repaid.
Credit Score: A numerical representation of a person's creditworthiness, based on their credit history.
Collateral: Assets pledged as security for a loan.
APR (Annual Percentage Rate): The total cost of borrowing, expressed as a yearly percentage.
Loan-to-Value (LTV) Ratio: The ratio of the loan amount to the value of the asset being purchased.
Debt-to-Income (DTI) Ratio: The ratio of a person's monthly debt payments to their monthly income.
Amortization: The process of gradually paying off a debt through regular payments.
Grace Period: A period of time during which no interest or payments are due on a loan.
Origination Fee: A fee charged by a lender for processing a loan application.
Prepayment Penalty: A fee charged for paying off a loan before the end of its term.
Secured Loan: A loan backed by collateral.
Unsecured Loan: A loan that is not backed by collateral.
Default: Failure to repay a loan according to the terms agreed upon.
Credit Report: A detailed record of a person's credit history.
Credit Bureau: A company that collects and maintains credit information on individuals.
Co-signer: Someone who agrees to be responsible for a loan if the primary borrower fails to repay it.
Fixed Rate: An interest rate that remains the same for the entire term of the loan.
Variable Rate: An interest rate that can change over time based on market conditions.
Refinancing: Obtaining a new loan to replace an existing one, often to secure better terms.
Default Rate: The percentage of loans in a portfolio that are in default.
Late Payment Fee: A fee charged for making a loan payment after the due date.
Closing Costs: Fees associated with finalizing a loan agreement.
Mortgage: A loan used to purchase real estate, typically with the property serving as collateral.
Equity: The value of an asset minus any liabilities associated with it.
Down Payment: The initial payment made when purchasing a large item, such as a house or car.
Amortization Schedule: A table showing the breakdown of loan payments over time, including principal and interest.
Underwriting: The process of evaluating a borrower's creditworthiness and determining the terms of a loan.
Subprime Loan: A loan offered to borrowers with poor credit histories, typically with higher interest rates.
Prime Rate: The interest rate that banks offer to their most creditworthy customers.
Credit Union: A financial institution owned and operated by its members, offering banking services similar to a bank.
Payday Loan: A short-term, high-interest loan typically repaid with the borrower's next paycheck.
Installment Loan: A loan repaid over time with a set number of scheduled payments.
Balloon Payment: A large payment due at the end of a loan term to repay the remaining balance.
Credit Limit: The maximum amount of credit a lender is willing to extend to a borrower.
Overdraft: A deficit in a bank account caused by withdrawing more money than is available.
Default Risk: The likelihood that a borrower will fail to repay a loan.
Predatory Lending: Lending practices that impose unfair or abusive loan terms on borrowers.
Securitization: The process of pooling and repackaging loans into securities that can be sold to investors.
Amendment: A change or addition made to a loan agreement after it has been signed.
Renegotiation: The process of revising the terms of a loan agreement.
FICO Score: A credit score developed by Fair Isaac Corporation, commonly used by lenders to assess credit risk.
Hard Inquiry: A credit check initiated by a lender in response to a credit application.
Soft Inquiry: A credit check that does not affect a person's credit score, often used for background checks.
Prime Borrower: A borrower with a high credit score and low risk of default.
Subprime Borrower: A borrower with a low credit score and higher risk of default.
Joint Account: A bank account or credit account shared by two or more individuals.
Financial Statement: A document that summarizes a person's or company's financial activities.
Debt Consolidation: Combining multiple debts into a single loan, often with lower interest rates and monthly payments.
Affordable Small Business Financing
Free Business Financing Consultation (203) 212-8741