A Quick Guide to Loan Lingo

Loans of any kind can be a bit intimidating for the uninitiated, whether they be a mortgage, line of credit or small business loan. For those new to business lending, here are some common and not so common terms to get you started.

Cash advance is a financing option where a lender will provide a borrower a one time lump sum that will then be paid back as a percentage of future credit card sales until the full amount is repaid plus any applicable fees.

ACH or automated clearing house is an electronic secure payment transfer system that allows financial institutions to send or receive funds. When obtaining a loan an ACH debit will be used to make payments which could be monthly, weekly or daily.  

Asset backed loan is a business loan that’s secured by collateral, it can be piece of equipment, property, inventory or other balance-sheet assets. These types of loans can also be refereed to as collateral loans.  

Factor rate is another way of presenting the amount of interest charged on a loan. A factor rate is not presented in percentages like interest rates are but as a decimal figure. Your factor rate will be determined by your credit score, banking history, length in business as well as a number of other factors.

Inventory financing is a short term asset backed loan made to business so that they may purchase products for sale, that inventory is then used as collateral for the loan.  

ISO or Independent Sales Organization is an organization or individual that is contracted by a lender to procure new relationships.

Judgments are court rulings a creditor obtains by winning a lawsuit against a debtor. It allows a creditor to take possession of a debtor’s real property (any property that is attached directly to land as well as the land itself) if the debtor fails to fulfill his/her contractual obligations. The creditor has the right to sell the property to pay off the debt.

Line of credit is a form of revolving credit that allows a business to draw from a pool of capital up to a specified limit, much like a credit card. A borrower is able to tap into the same pool of funds again and again as needed, paying interest on the funds used rather than the loan amount like with a traditional loan.

Purchase order financing is a short term loan allowing a business to purchase the necessary supplies to fulfill customer orders. There are a few criteria a company would have to meet in order to qualify for PO financing, this varies lender to lender and is contingent on the type of business.

Tax liens are a legal claim by a government entity against an individual for not paying their taxes. A tax lien can be filed for unpaid income or property taxes.

Term loan is a loan from a bank or other lending institution for a specific amount to be paid back over a set period of time.

Short term loans are designed to meet a companies short-term funding needs, they are generally scheduled to be repaid in less than a year.

Unsecured loans are loans that are obtained without the use of property or another asset as collateral for the loan. These loans are issued based on the borrower’s creditworthiness and their ability to repay the loan in full.

For those just starting the loan search you’ve probably come across a few terms, abbreviations and acronyms that make business lending lingo sound like a foreign language. We hope this quick glossary guide of loan terms helps make it a little easier to navigate the loan process.

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 to see how LiftForward's small business loans and financing options might be the right fit for you and your business, no dictionary required.