Finance Glossary

Plain-English definitions for 578 finance terms across personal finance, business funding, credit, mortgages, and banking. Each term includes a quick-take definition, detailed explanation, worked examples, and FAQs.

1

10-Year Treasury Rate

The 10-year Treasury rate is the yield on U.S. government bonds maturing in 10 years. It is the benchmark long-rate watched by lenders when pricing fixed-rate term loans, SBA 504 debentures, commercial real estate debt, and adjustable-rate mortgages.

1031 Exchange (Like-Kind Exchange)

A 1031 exchange allows a property owner to defer capital gains tax on the sale of real property by reinvesting proceeds into 'like-kind' replacement property under IRC Section 1031. After the Tax Cuts and Jobs Act of 2017 (TCJA), like-kind exchanges are limited to real property — personal property (equipment, vehicles) no longer qualifies.

1099-NEC vs. 1099-MISC

1099-NEC reports nonemployee compensation of $600 or more paid to contractors, freelancers, and service providers. 1099-MISC covers other miscellaneous payments (rent, royalties, prizes, legal settlements). 1099-NEC was reintroduced in 2020 after decades of reporting on 1099-MISC.

15-Year vs 30-Year Mortgage

The choice between a 15-year and a 30-year mortgage is a trade-off between monthly cash flow and lifetime cost. A 15-year loan has a higher monthly payment but a lower interest rate and far less total interest, and you build equity and own the home in half the time. A 30-year loan has a lower, more flexible monthly payment but costs much more in total interest over the life of the loan.

2

2/10 Net 30

2/10 Net 30 is a payment term offering a 2% discount if the invoice is paid within 10 days, otherwise the full amount is due in 30 days. The annualized cost of not taking the discount is approximately 36% — almost always worth taking if you have the cash.

5

5 Cs of Credit

The 5 Cs of Credit is the classical lender framework for evaluating borrower creditworthiness: Character (credit history and reliability), Capacity (cash flow and debt service ability), Capital (owner equity and reserves), Collateral (pledged assets), and Conditions (industry environment and loan purpose). It underpins SMB underwriting at every institutional lender.

A

ABL Covenant (Asset-Based Lending Covenant)

An ABL covenant is a contractual condition in an asset-based lending facility that governs the borrower's ongoing eligibility for advances, typically including a borrowing base certificate requirement, field exam rights, concentration limits, and minimum availability or FCCR maintenance covenants. ABL covenants are structurally different from cash-flow loan covenants — they are collateral-driven rather than earnings-driven. See the Federal Reserve's Senior Loan Officer Opinion Survey (federalreserve.gov/data/sloos.htm) for ABL market conditions.

Acceleration Clause

An acceleration clause is a provision in a loan agreement or promissory note that lets the lender declare the entire outstanding balance immediately due and payable upon a triggering event — typically a missed payment, a covenant violation, or an uncured default — rather than only pursuing the overdue installments.

Accounts Payable (AP)

Accounts payable (AP) is money a business owes to its suppliers and vendors for goods or services received but not yet paid for. AP appears as a current liability on the balance sheet. Strategic AP management — maximizing Days Payable Outstanding within payment terms — is a zero-cost working-capital tool.

Accounts Receivable (AR)

Accounts receivable (AR) is money owed to a business by its customers for goods or services already delivered but not yet paid for. AR appears as a current asset on the balance sheet and is the primary asset monetized through invoice factoring and invoice financing.

Accounts Receivable Aging

An accounts receivable aging report groups the money customers owe by how long the invoices have been outstanding — typically current, 1-30, 31-60, 61-90, and 90+ days. It is a core cash-flow and collections tool and a key input lenders review when financing receivables.

Accrual Accounting

Accrual accounting records revenue when it is earned and expenses when they are incurred — regardless of when cash actually changes hands. It contrasts with cash-basis accounting, which records transactions only when money moves. Accrual gives a more accurate picture of profitability across periods.

Accrual Basis vs Cash Basis Accounting

Cash basis accounting recognizes revenue when cash is received and expenses when paid. Accrual basis recognizes revenue when earned and expenses when incurred, regardless of cash timing. GAAP requires accrual for larger businesses; lenders prefer accrual for an accurate cash flow picture.

Accrued Expenses

Accrued expenses are expenses incurred but not yet paid — wages earned but unpaid at period-end, utilities used but not yet billed, interest accrued but not yet due. They appear as current liabilities on the balance sheet under accrual-basis accounting.

ACH Hold

An ACH hold is a temporary bank-imposed delay on ACH (Automated Clearing House) credit availability — the period between when an ACH deposit is received and when funds are available for withdrawal or use. Hold periods are governed by Regulation CC (12 CFR Part 229) and Nacha operating rules. Businesses experiencing unexpected holds on ACH receipts should review their deposit account agreement. See federalreserve.gov/releases/h15 for funds availability rules and ftc.gov/tips-advice/business-center/guidance/complying-credit-card-act for related guidance.

ACH Originator (ODFI)

An Originating Depository Financial Institution (ODFI) is the bank or credit union that initiates ACH transactions on behalf of originators (businesses or individuals requesting fund transfers). The ODFI is responsible under Nacha Operating Rules for ensuring transactions are authorized, properly formatted, and returned-item rates stay within acceptable limits.

ACH Return

An ACH return is a failed ACH (Automated Clearing House) transfer that comes back to the originator because of insufficient funds (NSF), a closed account, an unauthorized debit, or another reason. NACHA assigns 60+ return reason codes (R01-R85). High ACH return rates on business bank statements are a significant lending red flag.

ACH Withdrawal

An ACH withdrawal is an electronic bank-to-bank debit pulled via the Automated Clearing House network — the standard repayment mechanism for MCAs (daily or weekly fixed debits), term loans (monthly), and lines of credit. A failed ACH triggers NSF fees from your bank ($25–$35) plus a returned-payment fee from the lender ($25–$50) and, after 3+ returns, often activates default provisions.

Acquihire

An acquihire is an acquisition in which the primary motivation is to hire the target company's employees — particularly engineering, product, or research talent — rather than to acquire its products, technology IP, or revenue. The target's business is typically wound down or discontinued after the acquisition. Acquihires are structured as asset purchases or stock mergers and involve employment agreements and retention packages. See sec.gov/cgi-bin/browse-edgar for acquihire disclosures in public-company 8-K filings and irs.gov for tax treatment of acquisition consideration paid as compensation vs. capital gain.

Acquisition Loan (Business Purchase)

An acquisition loan finances the purchase of an existing business — SBA 7(a) is the most common vehicle — and typically requires a business valuation, seller documentation, and often a seller-financing component for the down payment gap.

Actuarial

Actuarial refers to the mathematical and statistical discipline used to assess and price risk in insurance and financial products. Actuaries analyze historical data on mortality, morbidity, accidents, and other events to predict future losses and determine how much insurers must charge in premiums to remain solvent.

Advance Rate

An advance rate is the percentage of an asset's value a lender will actually lend against. A lender might advance 80% against eligible receivables or 60% against inventory — meaning the borrower can borrow up to that percentage of the collateral's value. Advance rates reflect the lender's assessment of how quickly and reliably the asset can be converted to cash.

Allowance for Credit Losses (ACL)

The Allowance for Credit Losses (ACL) is the balance-sheet reserve a bank maintains against expected loan losses — calculated under the CECL (Current Expected Credit Loss) standard (FASB ASC 326), which replaced the older ALLL incurred-loss model beginning 2020–2023.

AML (Anti-Money Laundering)

Anti-money laundering (AML) refers to the comprehensive legal, regulatory, and institutional framework — anchored by the Bank Secrecy Act (BSA), the USA PATRIOT Act, and the Anti-Money Laundering Act of 2020 (AMLA) — that requires financial institutions to detect, deter, and report transactions that may involve proceeds of illegal activity.

AMLA 2020 (Anti-Money Laundering Act of 2020)

The Anti-Money Laundering Act of 2020 (AMLA 2020), enacted as part of the National Defense Authorization Act (Pub. L. 116-283), is the most significant overhaul of U.S. anti-money-laundering law since the USA PATRIOT Act of 2001 — expanding FinCEN's authority, adding AML whistleblower protections, mandating beneficial ownership reporting, and directing Treasury to modernize the AML regulatory framework.

Amortization

Amortization is the process of paying off a loan through a series of fixed periodic payments, where each payment covers both interest (calculated on the remaining principal) and a portion of the principal. Early payments are interest-heavy; later payments are principal-heavy.

Amortization Schedule

An amortization schedule is a table showing each loan payment broken down into principal and interest components over the full loan term. Early payments are mostly interest; later payments are mostly principal.

AMT — Alternative Minimum Tax

The Alternative Minimum Tax (AMT) is a parallel tax computation under IRC Sections 55–59A that ensures individuals and corporations above certain income thresholds pay at least a minimum tax, regardless of deductions and preferences that reduce regular tax liability. The Tax Cuts and Jobs Act (TCJA) of 2017 substantially restructured both the individual and corporate AMT.

Annual Recurring Revenue (ARR)

ARR is the annualized value of a business's recurring subscription or contract revenue. For SaaS companies and subscription businesses, ARR is the primary revenue metric — and a key basis for revenue-based financing sizing.

Anti-Dilution Protection

Anti-dilution protection is a preferred shareholder provision that adjusts the conversion price of preferred stock downward if the company subsequently issues shares at a lower price (a down round), protecting investors from value erosion. Broad-based weighted-average anti-dilution is the market standard; full-ratchet anti-dilution is the most investor-protective variant. The SEC requires disclosure of anti-dilution provisions in registration statements and Reg CF Form C filings. See sec.gov.

Appraisal

An appraisal is a formal, independent opinion of an asset's value performed by a qualified appraiser — for real estate, prepared to the USPAP standard. Lenders order an appraisal to establish the collateral value that loan-to-value and advance-rate calculations are built on; the appraisal is the process, while market value, fair market value, and liquidation value are the value figures it can produce.

APR (Annual Percentage Rate)

APR (Annual Percentage Rate) is the total annualized cost of borrowing expressed as a percentage — including the interest rate plus any prepaid finance charges (origination fees, points, etc.). APR is what regulators require lenders to disclose for apples-to-apples comparison.

APY (Annual Percentage Yield)

APY (Annual Percentage Yield) is the effective annual return on a deposit account, factoring in the impact of compound interest. Always slightly higher than the simple interest rate for accounts with compounding.

ASC 606 (Revenue Recognition)

ASC 606 is the FASB accounting standard that governs when and how to recognize revenue — using a five-step model: identify the contract, identify performance obligations, determine transaction price, allocate price to obligations, and recognize revenue when each obligation is satisfied. It replaced prior industry-specific revenue rules and significantly affects SaaS, construction, and multi-element contracts.

ASC 842 (Lease Accounting)

ASC 842 is the FASB lease accounting standard that requires lessees to recognize nearly all leases — including operating leases — on the balance sheet as a right-of-use (ROU) asset and a corresponding lease liability. Effective for private companies for fiscal years beginning after December 15, 2021. Significantly affects businesses in retail, restaurant, healthcare, and any sector with significant leased facilities.

Asset Turnover Ratio

Asset turnover ratio measures how efficiently a business generates revenue from its total assets — calculated as revenue divided by total assets. Higher is generally better; benchmarks vary widely by industry, with capital-intensive sectors scoring lowest.

Asset-Backed Lending (ABL)

Asset-backed lending (ABL) is a financing structure where the loan is secured by specific business assets — accounts receivable, inventory, equipment, or real estate — with the borrowing availability tied to a percentage of those assets' value.

Asset-Backed Security (ABS)

An asset-backed security (ABS) is a financial instrument created by pooling illiquid assets — such as auto loans, credit card receivables, or equipment leases — and issuing bonds backed by those cash flows to investors. The SEC oversees ABS disclosure under Regulation AB (17 CFR Part 229).

Audited Financial Statements

Audited financial statements have been examined by an independent CPA who provides a formal opinion that they present fairly, in all material respects, in conformity with GAAP. This is the highest level of financial statement assurance.

Authorized User

A person added to another's credit account who can make purchases but is not legally liable for the debt—a strategy used to build credit history by piggybacking on a primary cardholder's positive tradeline.

Average Daily Balance

Average daily balance (ADB) is the mean balance in an account over a period — typically a month or year — calculated by summing the end-of-day balances and dividing by the number of days. Lenders use ADB from bank statements to underwrite cash-flow-based loans, assess revenue stability, and set line-of-credit limits.

B

Balance Sheet

A balance sheet is the financial statement showing a business's assets, liabilities, and owner's equity at a specific point in time. It always balances: Assets = Liabilities + Equity. Lenders use it to assess solvency, capital structure, and collateral.

Balance Transfer Fee

A balance transfer fee is a one-time charge — typically 3-5% of the transferred balance — assessed by a credit card issuer when you move debt from another card to theirs. Usually worth paying if the destination card offers 0% intro APR for 12+ months.

Balloon Payment

A balloon payment is a large lump-sum payment due at the end of a loan term — typically equal to the remaining principal balance — in a loan structure where monthly payments cover only interest or partial amortization.

Bank Secrecy Act (BSA)

The Bank Secrecy Act (BSA), codified at 31 U.S.C. § 5311 et seq., is the primary U.S. federal anti-money-laundering law — requiring financial institutions to maintain records, file Currency Transaction Reports (CTRs) for cash transactions over $10,000, and file Suspicious Activity Reports (SARs) when they detect potentially illicit activity.

Bank Statement Analysis

Bank statement analysis is the practice lenders use to underwrite a business from its actual deposit activity — reading 3-6 months of bank statements for average daily balance, deposit frequency, and NSF/overdraft activity — rather than relying on tax returns or a credit score alone. It's the underwriting technique; a bank statement loan is the product it enables.

Bank Statement Loan (Business)

A bank statement loan underwrites a business primarily on its bank deposits — usually 3–6 months of statements — rather than on tax returns or a high credit score. Lenders read average daily balance, deposit frequency, and NSF/overdraft activity to gauge real cash flow. It's how many revenue-based products and lines fund businesses that can't easily document income the traditional way.

Banking-as-a-Service (BaaS)

Banking-as-a-Service (BaaS) is the delivery of regulated banking capabilities — accounts, payments, cards, lending — through APIs by licensed banks to non-bank businesses (fintechs, brands, platforms) for embedding in their own products, subject to OCC supervisory guidance and CFPB Section 1033 data-portability rules.

Bargain Purchase Option

A Bargain Purchase Option (BPO) is a provision in an equipment lease that grants the lessee the right to purchase the leased asset at the end of the lease term for a price significantly below its expected fair market value — typically a nominal amount like $1 or 10% of original cost — which economically transfers ownership to the lessee and triggers finance lease (vs. operating lease) classification under FASB ASC 842 (https://www.fasb.org/standards/accounting-standards-updates). The IRS likewise treats BPO leases as conditional sales rather than true leases, allowing the lessee to claim depreciation deductions under 26 U.S.C. § 168 (https://www.irs.gov/publications/p946).

Basel III

Basel III is the international regulatory framework for bank capital adequacy, stress testing, and liquidity — developed by the Basel Committee on Banking Supervision and implemented in the US through Federal Reserve and FDIC rules. It sets minimum capital ratios and liquidity buffers that directly affect how much credit banks can extend.

Basis Points (bps)

A basis point (bps) is one one-hundredth of one percent (0.01%). Used universally in finance to express small changes in interest rates, spreads, and yields without ambiguity — '25 bps' means 0.25%, '100 bps' means 1.00%.

BDC (Business Development Company)

A Business Development Company (BDC) is a closed-end investment fund regulated under the Investment Company Act of 1940 that provides debt and equity capital to small and mid-sized private US companies. BDCs are publicly traded on exchanges, pass through 90%+ of investment income to shareholders as dividends, and must invest at least 70% of assets in qualifying US businesses. The SEC oversees BDC registration and compliance at https://www.sec.gov/investment/investment-company-act-of-1940.

Beneficiary

A beneficiary is the person or entity designated to receive policy proceeds — such as a life insurance death benefit or retirement account balance — upon the policyholder's death or a triggering event. Beneficiary designations typically override wills and bypass probate.

Bill of Lading

A bill of lading (BOL) is a carrier-issued document that serves three functions: a receipt for cargo received, a contract of carriage defining shipping terms, and — in negotiable form — a document of title that can be used as collateral for trade financing. Critical to import-export operations and international letters of credit.

Blanket Lien (UCC-1)

A blanket lien is a UCC-1 financing statement filed by a lender that encumbers all present and future business assets — cash, receivables, inventory, equipment, and intellectual property — as collateral. Filed with the state Secretary of State. Public record, visible to all subsequent lenders, and can block future financing until released.

Bonded Warehouse

A bonded warehouse is a secured storage facility licensed by U.S. Customs and Border Protection (CBP) where imported goods can be stored, manipulated, or manufactured for up to five years without payment of import duties. Duties are deferred until the goods are withdrawn for U.S. consumption. If goods are re-exported without entering U.S. commerce, no duties are owed. See CBP regulations at cbp.gov/trade/programs-administration/bonded-warehouses and 19 CFR Part 19 for the full regulatory framework.

Bonus Depreciation

Bonus depreciation lets businesses immediately deduct 100% of the cost of qualifying assets in the year placed in service — permanently restored to 100% by the One Big Beautiful Bill Act for property placed in service after January 19, 2025, reversing the Tax Cuts and Jobs Act's scheduled phase-down.

Book Value

Book value is an asset's accounting value on the balance sheet — original purchase cost minus accumulated depreciation. It often differs significantly from what the asset could actually sell for.

Borrowing Base

A borrowing base is the maximum loan amount a lender will advance under an asset-based lending (ABL) facility, calculated as the sum of eligible accounts receivable plus eligible inventory, each multiplied by a lender-determined advance rate. Typical advance rates: 80–85% on eligible AR, 50–60% on eligible inventory. The borrower submits a borrowing base certificate (BBC) — usually monthly or weekly — to determine the current availability. See fdic.gov and occ.gov for bank ABL examination guidance.

BPO (Broker Price Opinion)

A Broker Price Opinion (BPO) is a real estate value estimate prepared by a licensed real estate broker or agent — less formal and less expensive than a full USPAP-compliant appraisal — used by lenders for loss mitigation, portfolio monitoring, and certain non-agency loan decisions.

Break-Even Point

The break-even point (BEP) is the level of sales at which a business's total revenue equals its total costs — zero profit, zero loss. Below break-even, the business loses money; above it, the business generates profit. BEP = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit).

Bridge Loan

A bridge loan is short-term financing (typically 6-24 months) that 'bridges' a funding gap between two events — such as acquiring a property before selling another, or between construction completion and securing permanent financing.

Burn Rate

Burn rate is the rate at which a pre-profitability business spends its cash reserves — typically expressed as net cash outflow per month. A business 'burning $50K/month' with $600K in the bank has 12 months of runway. Burn rate and runway are the most watched metrics for venture-backed startups.

Business Checking Account

A business checking account is a demand deposit account held in the business's legal name (or DBA). It is a prerequisite for virtually all business financing — lenders review 3-6 months of business bank statements to underwrite cash flow, deposit consistency, and average daily balance.

Business Credit Card

A business credit card is a revolving line of credit issued to a business entity for business purchases. It reports to business credit bureaus (and sometimes personal bureaus), earns rewards on business spending categories, and keeps business and personal expenses separate. Most small-business cards also require a personal guarantee.

Business Credit Score

Business credit scores measure a business's creditworthiness separately from the owner's personal credit — the three major bureaus are Dun & Bradstreet (PAYDEX), Experian Business (Intelliscore Plus), and Equifax Business (Business Credit Risk Score) — and they matter for loan approvals, vendor terms, and insurance rates.

Business Expense

A business expense is an ordinary and necessary cost incurred to carry on a trade or business — deductible from gross income on the business's tax return, reducing taxable income dollar-for-dollar.

Business Interruption Insurance

Business interruption insurance replaces lost net income during a period when a covered disaster (fire, flood, storm damage) forces a business to halt or reduce operations. Often bundled with commercial property insurance in a Business Owner's Policy (BOP). It does not cover pandemic closures unless specifically endorsed.

Business Line of Credit

A business line of credit is a revolving credit facility: a lender approves a maximum limit, and you draw, repay, and redraw as needed — paying interest only on the balance you've actually drawn, not the full limit. It's built for recurring or unpredictable working-capital needs, where a term loan's one-time lump sum doesn't fit.

Business Money Market Account (MMA)

A business money market account (MMA) is a bank deposit account that combines features of checking and savings — offering higher yield than a standard checking account plus limited check-writing or debit access. Used by businesses to earn yield on idle cash while maintaining liquidity.

Business Net Worth

Business net worth is total assets minus total liabilities — the accounting measure of accumulated business value. It is synonymous with owner's equity in simple cases and is a key metric for lenders assessing financial strength and covenant compliance.

Business Savings Account

A business savings account is an interest-bearing deposit account held in the business's name, used to hold operating reserves, tax reserves, or emergency cash. Transaction frequency is limited (typically 6 per month), and yields are higher than checking accounts.

Buy Now Pay Later (B2B)

B2B Buy Now Pay Later is an emerging payment-financing structure that extends split or deferred payment terms to business buyers at checkout — the seller receives payment upfront (minus a provider fee) while the buyer pays in installments or on net-30/60/90 terms. Providers include Mondu, Hokodo, Resolve, and Billie; structurally similar to trade credit but delivered digitally at point-of-purchase.

Buy Now Pay Later (BNPL)

Buy Now Pay Later (BNPL) is short-term installment financing offered at point-of-sale, splitting purchases into equal installments (typically 4 payments over 6 weeks, or longer-term monthly plans). Klarna, Affirm, Afterpay, and PayPal Pay Later dominate the consumer side; business-to-business BNPL is an emerging segment serving SMB procurement.

C

C-Corp

A C-Corp is the default corporate tax structure where the corporation pays income tax at the entity level (21% federal flat rate as of 2026), and shareholders pay tax again on dividends — 'double taxation.' C-Corps are required for venture-capital investment, preferred by institutional equity investors, and required by some SBA programs.

CAGR (Compound Annual Growth Rate)

CAGR is the mean annual growth rate of an investment or metric over a specified time period, assuming compounding — it smooths out volatile year-to-year changes into a single representative annualized growth figure.

Callable Bond

A callable bond gives the issuer the right — but not the obligation — to redeem the bond before its stated maturity date at a predetermined call price, typically par or a slight premium. The SEC requires disclosure of call provisions in bond offering documents under the Securities Act of 1933. See sec.gov/info/smallbus/secg/reg-sk-amendments-secg.htm and investor.gov for callable bond guidance.

CAM Reconciliation

CAM Reconciliation is the annual accounting process in a commercial lease by which the landlord settles the difference between estimated Common Area Maintenance charges billed to tenants throughout the year and the actual expenses incurred — resulting in a tenant credit or additional charge. The IRS governs deductibility of CAM expenses for lessors under 26 U.S.C. § 168 (MACRS depreciation, https://www.irs.gov/publications/p946) and the FASB's ASC 842 requires lessees to account for variable lease costs — including CAM — separately from fixed rent (https://www.fasb.org/standards/accounting-standards-updates).

CAMELS Rating

CAMELS is the confidential bank safety-and-soundness rating system used by US federal regulators — rating banks on Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity to market risk. Rated on a 1–5 scale; banks rated 4–5 face regulatory restrictions on lending growth and new activities.

Cap Rate Compression

Cap rate compression refers to the market phenomenon in which capitalization rates (cap rates) on commercial real estate decline over time, mathematically implying rising property values — the same NOI supports a higher property price when investors accept lower yield requirements.

Cap Table (Capitalization Table)

A cap table (capitalization table) is a spreadsheet or document listing all equity holders in a company — founders, employees (options), angels, VCs, and convertible instrument holders — along with their ownership percentages, share counts, and fully diluted positions. It is essential for fundraising, M&A, and employee equity management.

Capital Adequacy Ratio (CAR)

The Capital Adequacy Ratio (CAR) measures a bank's total capital (Tier 1 + Tier 2) as a percentage of its risk-weighted assets. Under Basel III, a minimum CAR of 8% is required globally; U.S. 'well-capitalized' banks must maintain 10%+. CAR directly governs how much credit a bank can extend.

Capital Expenditures (CAPEX)

Capital expenditures (CAPEX) are spending on long-lived assets — equipment, real estate, technology, vehicles — that are capitalized on the balance sheet and depreciated over their useful life rather than expensed immediately. Section 179 and bonus depreciation allow many businesses to deduct CAPEX in the year of purchase.

Capital Gain

A capital gain is the profit realized when you sell an asset for more than its original purchase price (cost basis). Short-term capital gains (assets held ≤ 1 year) are taxed as ordinary income. Long-term capital gains (assets held > 1 year) are taxed at preferential rates of 0%, 15%, or 20%, depending on your income.

Capital Magnet Fund (CMF)

The Capital Magnet Fund (CMF) is a U.S. Treasury CDFI Fund competitive grant program that awards funding to CDFIs and nonprofit housing organizations to finance affordable housing and community development — each CMF dollar must attract at least 10 dollars in private capital.

Capitalization Rate (Cap Rate)

Cap rate is a real estate metric that expresses a property's net operating income (NOI) as a percentage of its purchase price — used to evaluate income-producing properties and relevant to SBA 504 buyers and commercial real estate investors.

Car Lease (How Leasing Works)

A car lease is a long-term rental: instead of buying the vehicle, you pay for the depreciation it loses during your lease term (plus rent charges and fees), usually for 24-48 months. Monthly payments are typically lower than financing the same car, but you don't build equity, you're capped on mileage, and at lease end you return the car, buy it for its residual value, or lease a new one.

Carbon Credit Lending

Carbon credit lending is an emerging financing structure in which lenders extend credit secured by, or repaid from, the value of carbon credits — tradeable certificates representing one metric ton of CO₂ equivalent reduced or removed from the atmosphere. The IRS Section 45Q tax credit (irs.gov) creates a federal incentive for carbon capture and sequestration that can be monetized as collateral or a repayment source. The voluntary carbon market (VCM) and compliance markets (e.g., California Cap-and-Trade, EPA.gov regulations) each present distinct credit structures.

Card-Not-Present (CNP)

A card-not-present (CNP) transaction is a payment where the physical card is not swiped, dipped, or tapped — including e-commerce, phone orders (MOTO), and recurring billing. CNP transactions carry higher fraud and chargeback rates than card-present transactions, resulting in higher interchange fees and increased merchant fraud-prevention obligations.

Cash Advance

A cash advance is borrowing cash directly against your credit card's credit limit — at an ATM, bank branch, or via convenience check. Cash advances carry a higher APR than purchases, have no grace period, begin accruing interest immediately, and include an upfront fee — making them one of the most expensive forms of short-term borrowing.

Cash Conversion Cycle (CCC)

The Cash Conversion Cycle (CCC) is the number of days from when a business pays for inputs to when it collects cash from customers — calculated as DIO + DSO - DPO. A shorter CCC means less working capital is tied up in operations; a longer CCC drives working-capital financing needs.

Cash Flow Statement

A cash flow statement shows actual cash inflows and outflows over a period, classified into Operating, Investing, and Financing activities. It reconciles net income to actual cash position — often differing significantly from P&L due to non-cash items and working capital changes.

Cash Letter

A Cash Letter is a formal bundle of checks (physical or electronic image files) sent by a presenting bank to a paying bank (or through the Federal Reserve's check processing infrastructure) for collection, accompanied by an accounting record of the total dollar amount — serving as the vehicle through which check clearing and settlement occurs between financial institutions. The Federal Reserve's Check 21 Act (12 U.S.C. § 5001 et seq., https://www.federalreserve.gov/paymentsystems/regcc_about.htm) enabled electronic cash letters (substitute checks and image cash letters); Regulation CC (12 C.F.R. Part 229, https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-229) governs funds availability and check collection including electronic presentment.

Cash-Flow-Based Lending

Cash-flow-based lending underwrites loan eligibility primarily on a business's demonstrated ability to repay from operating cash flows — using metrics like DSCR, EBITDA, and free cash flow — rather than the value of pledged assets.

Cash-on-Cash Return

Cash-on-cash return (CoC) measures the annual pre-tax cash income generated by a real estate or business investment relative to the equity invested — expressed as a percentage. Unlike IRR, CoC ignores time value of money and terminal value; it measures single-period cash yield only. See Federal Reserve Economic Data (fred.stlouisfed.org) for cap rate and property yield benchmarks.

CBDC (Central Bank Digital Currency)

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency issued directly by the central bank — a direct liability of the Federal Reserve, not a commercial bank or private company. The Federal Reserve's CBDC research program (federalreserve.gov/cbdc) is actively exploring U.S. CBDC design, though no U.S. CBDC has been issued as of 2025. See the Federal Reserve's January 2022 discussion paper 'Money and Payments: The U.S. Dollar in the Digital Age' (federalreserve.gov).

CDFI (Community Development Financial Institution)

A CDFI is a Treasury-certified mission-driven financial institution that provides credit and financial services to underserved communities and borrowers — including SBA Microloans, small business loans, and community development financing for borrowers who don't qualify at conventional banks.

Certificate of Deposit (Business CD)

A business certificate of deposit (CD) is a time deposit with a fixed term (30 days to 5+ years) and a fixed interest rate. Higher yield than savings accounts or MMAs in exchange for locked funds. Early withdrawal typically incurs a penalty equal to several months of interest.

CFPB Section 1071 Small Business Lending Rule

CFPB Section 1071 is the rule implementing Section 1071 of the Dodd-Frank Act requiring covered lenders to collect and report demographic and financial data on small business credit applications — designed to identify lending disparities and enforce fair lending laws.

Chapter 11 Bankruptcy (Reorganization)

Chapter 11 allows a business to continue operating while restructuring its debts under court supervision. The business proposes a reorganization plan that creditors vote on and the court confirms.

Chapter 7 Bankruptcy (Liquidation)

Chapter 7 is the federal bankruptcy code chapter for total liquidation. A court-appointed trustee sells non-exempt assets to pay creditors, and remaining eligible debts are discharged.

Charge-off Ratio

The charge-off ratio is the annualized percentage of a bank's average loan portfolio that has been written off as uncollectible net of recoveries. The Federal Reserve and FDIC publish quarterly charge-off rates by loan category as a benchmark for credit quality.

Chargeback

A chargeback is a transaction reversal initiated by a cardholder through their bank, disputing a charge on their credit or debit card statement. The merchant loses the revenue, is charged a chargeback fee (typically $20-100 per incident), and must respond with evidence or accept the reversal. A chargeback ratio above 1% triggers card-network penalties.

Churn Rate

Churn rate is the percentage of customers (or revenue) lost over a defined period. For subscription businesses, churn is the primary risk factor for recurring revenue sustainability — and a direct input to CLV and lending decisions.

CLO (Collateralized Loan Obligation)

A Collateralized Loan Obligation (CLO) is a securitization vehicle that pools broadly syndicated leveraged loans and issues tranched notes with varying risk/return profiles to investors. CLOs are the dominant buyers of leveraged loans in the US market and significantly influence the availability and pricing of institutional credit to larger private companies.

Co-Signer

A co-signer is a person who agrees to be legally responsible for a loan along with the primary borrower — typically used when the primary borrower has thin credit or insufficient income to qualify alone. Co-signers are EQUALLY liable for the debt.

Coinsurance

Coinsurance is the percentage of a covered cost that you pay after meeting your deductible. In health insurance, an 80/20 plan means the insurer pays 80% and you pay 20% until you hit your out-of-pocket maximum. In property insurance, coinsurance clauses require you to insure your property to a minimum percentage of its replacement value.

Collateral

Collateral is an asset a borrower pledges to a lender to secure a loan. If the borrower defaults, the lender can seize and sell the collateral to recover the unpaid balance. Common examples include real estate, equipment, vehicles, inventory, and accounts receivable.

Collateralized Debt Obligation (CDO)

A collateralized debt obligation (CDO) is a structured credit vehicle that pools debt instruments — loans, bonds, or other ABS — and issues tranched securities backed by those pools. Post-2008 reforms under Dodd-Frank significantly tightened CDO disclosure and risk retention requirements.

Combined Ratio

The combined ratio is the primary measure of property and casualty insurer profitability, calculated as loss ratio + expense ratio — where a combined ratio below 100% indicates an underwriting profit and above 100% indicates an underwriting loss that must be offset by investment income (https://content.naic.org/sites/default/files/inline-files/2023-Annual-Statutory-Basis-Financial-Statements-Instructions.pdf). NAIC IRIS ratio system flags insurers whose combined ratio trends signal solvency risk (https://content.naic.org/cipr-topics/insurance-regulatory-information-system).

Commercial HELOC (Home Equity Line of Credit for Business)

A commercial HELOC (or business-purpose HELOC) uses equity in commercial or residential real estate as collateral to provide a revolving line of credit for business purposes. Business-purpose HELOCs secured by the owner's primary residence are subject to CFPB TILA rules (Regulation Z) and state usury laws. See cfpb.gov/rules-policy/final-rules and fdic.gov for lender guidance.

Commercial Mortgage-Backed Security (CMBS)

A commercial mortgage-backed security (CMBS) is a bond backed by a pool of commercial real estate loans — office, retail, multifamily, hotel, industrial — structured as a Real Estate Mortgage Investment Conduit (REMIC) with multiple tranches rated by credit agencies.

Commercial Real Estate Loan

A commercial real estate (CRE) loan finances the purchase, refinance, or improvement of income-producing or owner-occupied business property — office, retail, industrial, or multifamily. Unlike a residential mortgage, underwriting centers on the property's income (debt-service coverage) and combined loan-to-value rather than primarily the borrower's personal income.

Common Area Maintenance (CAM)

Common Area Maintenance (CAM) is a commercial lease charge passed from landlord to tenants covering maintenance, insurance, and operating costs for shared spaces — a variable cost component that can materially increase a tenant's effective occupancy cost above base rent.

Common Equity Tier 1 (CET1)

Common Equity Tier 1 (CET1) is the highest-quality regulatory capital — consisting primarily of common stock, retained earnings, and accumulated other comprehensive income (AOCI) minus regulatory deductions. The CET1 ratio (CET1 capital / risk-weighted assets) is the most closely watched bank safety measure under Basel III.

Community Reinvestment Act (CRA)

The Community Reinvestment Act (CRA) is a 1977 federal law requiring banks to meet the credit needs of all communities they serve — including low- and moderate-income (LMI) areas. CRA exam ratings affect bank approvals for mergers and branch expansions, and are a significant driver of bank SMB lending volume in underserved markets.

Community Reinvestment Act (CRA)

The Community Reinvestment Act (CRA), codified at 12 U.S.C. § 2901 et seq., requires federally insured depository institutions to meet the credit needs of all communities they serve — including low- and moderate-income (LMI) areas — and subjects them to periodic CRA examinations by the FDIC, OCC, and Federal Reserve.

Compiled Financial Statements

Compiled financial statements are prepared by a CPA from management-provided data, with no verification, testing, or assurance. The lowest level of CPA involvement — the CPA reports that no audit or review was performed.

Compound Interest

Compound interest is interest calculated on both the initial principal and the accumulated interest from prior periods. On savings and investments, compounding grows wealth exponentially. On debt, compounding accelerates the balance owed — making early repayment especially valuable.

Confession of Judgment (COJ)

A Confession of Judgment (COJ) is a pre-signed legal document in which a borrower consents in advance to a court judgment against them if they default — allowing the lender to skip trial, notice, and appeal. COJs are banned or severely restricted in commercial finance contracts in New York (2019), Virginia (2020), and New Jersey (2021) due to widespread abuse.

Conforming Loan

A conforming loan is a mortgage that meets Fannie Mae and Freddie Mac purchase limits — for 2026, $806,500 in most US counties (higher in high-cost areas). Conforming loans typically have the lowest available mortgage rates because Fannie/Freddie buy them, providing liquidity to lenders.

Contribution Margin

Contribution margin is revenue minus variable cost. It represents the amount each sale 'contributes' toward covering fixed costs — and toward profit once fixed costs are recovered.

Controlled Foreign Corporation (CFC)

A Controlled Foreign Corporation (CFC) is a foreign corporation in which U.S. shareholders (each owning 10%+ of voting power or value) own more than 50% in the aggregate. CFCs are subject to special anti-deferral rules under IRC Subpart F (§§ 951–965) and the TCJA's GILTI regime (§ 951A), which require U.S. shareholders to include certain CFC income in their U.S. taxable income currently — regardless of whether profits are distributed.

Convertible Note

A convertible note is a short-term debt instrument used in early-stage startup financing that converts into equity at a future priced financing round. The investor lends money now; instead of repaying cash at maturity, the note converts to shares at a discount to the next round's price.

Corporate Guarantee

A corporate guarantee is a promise by one business entity — typically a parent company, holding company, or affiliate — to repay another entity's debt if that entity defaults. Unlike a personal guarantee, the guarantor is a company, not an individual, though lenders generally still require an individual personal guarantee alongside it on SBA and most bank loans.

Cost of Capital

Cost of capital is the weighted average rate a business pays for its capital across all debt and equity sources. It is the minimum hurdle rate for investments — any project must generate returns exceeding the cost of capital to create value.

Cost of Funds (COF)

Cost of funds (COF) is a bank's weighted-average rate paid for its funding sources — deposits, wholesale borrowings, and FHLB advances — expressed as an annual percentage. It anchors the floor below which a bank cannot profitably lend.

Cost of Goods Sold (COGS)

Cost of goods sold (COGS) is the direct cost of producing the goods or services sold during a period — materials, direct labor, and direct overhead. Gross profit = Revenue minus COGS. COGS does not include operating expenses like rent, marketing, or management salaries.

Cost Segregation Study

A cost segregation study is an engineering-based tax analysis that reclassifies components of commercial real estate from 39-year depreciation to faster 5-, 7-, or 15-year schedules — dramatically accelerating deductions. Studies typically cost $5,000–$25,000 and generate first-year tax savings several times the study fee.

CRA Public File

The CRA Public File is a mandatory disclosure package that FDIC-supervised banks and other CRA-covered institutions must maintain and make available to the public, containing the institution's most recent Community Reinvestment Act performance evaluation, a list of branch locations, and a description of lending, investment, and service activities in their assessment area — required under 12 C.F.R. Part 345 (FDIC CRA regulations, https://www.fdic.gov/regulations/laws/rules/2000-6500.html) and 12 U.S.C. § 2906 (https://www.fdic.gov/regulations/laws/rules/1000-4600.html#fdic1000-4600.4.4.3).

Credit Bureau Score Pull

A credit bureau score pull is a lender's request to one or more of the three major credit bureaus — Equifax, Experian, or TransUnion — to retrieve a consumer or business credit report and score in connection with a credit application; when initiated by a lender, it is a 'hard inquiry' that is recorded on the applicant's credit file and can reduce the credit score by a small amount, as governed by the Fair Credit Reporting Act (15 U.S.C. § 1681b, https://www.consumerfinance.gov/rules-policy/statutes/fcra/) and CFPB Regulation V (12 C.F.R. Part 1022, https://www.consumerfinance.gov/rules-policy/regulations/1022/).

Credit Card APR

A credit card's APR (Annual Percentage Rate) is the yearly cost of carrying a balance, shown as a percentage. Most card APRs are variable — set as the Prime Rate plus a margin based on your credit — so they move when the Federal Reserve changes rates. If you pay your statement balance in full each month, the grace period means you owe $0 in interest regardless of the APR.

Credit Default Swap (CDS)

A credit default swap (CDS) is a bilateral derivatives contract that transfers the credit risk of a reference entity (a company or sovereign) from the protection buyer to the protection seller — the seller pays the buyer if the reference entity defaults or experiences a specified credit event. CDS contracts are governed by ISDA documentation and central counterparty clearing (CCP) requirements under Dodd-Frank.

Credit Freeze (Business)

A business credit freeze restricts new credit inquiries on a business's commercial credit file at Dun & Bradstreet, Experian Business, and Equifax Business — preventing new credit accounts from being opened fraudulently. Unlike personal credit freezes, business credit freezes are NOT federally mandated under FCRA (15 U.S.C. § 1681 et seq.) and are offered at each bureau's discretion.

Credit Limit

A credit limit is the maximum outstanding balance an issuer allows on a revolving credit account — a credit card or personal line of credit. Spending above the limit typically triggers a fee or declined transaction; maintaining a low balance relative to your limit improves your credit utilization ratio and credit score.

Credit Mix

Credit mix is the variety of credit account types you hold — revolving accounts (credit cards) and installment accounts (auto, mortgage, personal, student loans). It is a smaller scoring factor (roughly 10% of a FICO score) that rewards demonstrated ability to manage different kinds of credit responsibly.

Credit Stacking

Credit stacking is the practice of applying to and obtaining multiple credit facilities — typically merchant cash advances, business credit cards, or unsecured term loans — from different lenders within a short window before any individual lender can see the others on a credit report, exploiting the lag between origination and tradeline reporting; this practice carries significant UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) risk under CFPB authority (https://www.consumerfinance.gov/compliance/supervision-examinations/udaap-examination-procedures/) and can constitute fraud if material debt is concealed from lenders requiring full debt disclosure (https://www.fdic.gov/regulations/laws/rules/2000-4500.html).

Credit Utilization

Credit utilization is the percentage of your available credit you're currently using — calculated as total credit card balances divided by total credit limits. Keeping utilization under 30% (ideally under 10%) is the single highest-leverage credit-score factor.

Cross-Border ACH (IAT)

A Cross-Border ACH (International ACH Transaction, or IAT) is an ACH payment that involves a financial agency outside the United States in the payment chain — either the originating or receiving depository financial institution is located outside the U.S. IATs are governed by Nacha Operating Rules (nacha.org) and subject to OFAC screening, FinCEN BSA requirements, and, for consumer transactions, Regulation E. IATs are used for cross-border payroll, supplier payments, and remittances.

Cross-Default

A cross-default clause in a loan agreement triggers default on that loan if the borrower defaults on any other debt obligation. It allows the lender to act before a domino effect reaches their loan.

Cross-Default Clause

A loan provision that declares a borrower in default under one agreement if they default on any other debt obligation, allowing multiple lenders to accelerate simultaneously.

Current Ratio

The current ratio is current assets divided by current liabilities. It measures short-term liquidity — whether a business can meet its obligations due within the next 12 months. Above 1.0 means assets cover liabilities; above 2.0 is considered strong; below 1.0 signals potential cash stress.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers acquired in the same period. It measures how much the business spends to win each new customer. Lenders and investors use CAC alongside Lifetime Value (LTV) to assess growth efficiency and capital requirements.

Customer Lifetime Value (CLV / LTV)

Customer Lifetime Value (CLV or LTV) is the total revenue expected from a single customer over the entire relationship. It is distinct from loan LTV — it measures customer economics, not collateral ratios. Investors and lenders use CLV/CAC ratio to assess business unit economics.

D

Daylight Overdraft

A daylight overdraft is an intraday negative balance in a depository institution's Federal Reserve account — occurring when outgoing payments (Fedwire transfers, ACH settlements) exceed incoming credits during the business day. The Federal Reserve Board's Policy Statement on Payments System Risk (PSR Policy) governs daylight overdraft limits, collateralization requirements, and fees charged to depository institutions (https://www.federalreserve.gov/paymentsystems/psr_about.htm); the Federal Reserve's Regulation J governs collection of checks and electronic funds transfers through Fedwire (12 C.F.R. Part 210, https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-210).

Days Cash on Hand

Days cash on hand measures how many days a business could sustain operations using only its existing cash and cash equivalents, without any new revenue. Calculated as cash / (annual operating expenses / 365).

Days Inventory Outstanding (DIO)

Days inventory outstanding (DIO) measures the average number of days it takes a business to sell its inventory. DIO = 365 / inventory turnover. It is a component of the cash conversion cycle.

Days Payable Outstanding (DPO)

Days Payable Outstanding (DPO) is the average number of days a business takes to pay its suppliers — calculated as (Accounts Payable / COGS) × Days in Period. Higher DPO means you hold supplier credit longer, improving your working-capital position. Optimal DPO maximizes free supplier credit without damaging vendor relationships.

Days Sales Outstanding (DSO)

Days Sales Outstanding (DSO) is the average number of days it takes a business to collect payment after a sale is made — calculated as (Accounts Receivable / Revenue) × Days in Period. Lower DSO means faster cash collection. Industry benchmarks: trucking 30–90 days, B2B services 30–60 days, restaurants 0–1 day (cash).

Debt Consolidation

Debt consolidation is the process of combining multiple existing debts into a single new loan — ideally at a lower blended rate, a single monthly payment, and a predictable payoff schedule. For small businesses, consolidation can simplify cash flow management and reduce total financing costs.

Debt Covenant

A debt covenant is a condition a lender writes into a loan agreement that the borrower must meet for the life of the loan. Covenants protect the lender by requiring financial performance (e.g., a minimum coverage ratio) or restricting risky actions (e.g., taking on more debt). Breaching one can trigger default even if payments are current.

Debt Covenants

Debt covenants are conditions in loan agreements that borrowers must maintain to avoid technical default. They include affirmative covenants (things you must do) and negative covenants (things you can't do).

Debt Schedule

A debt schedule is a one-page summary of all current business and personal debt obligations — listing lender name, original balance, current balance, monthly payment, interest rate, and maturity date — required by most SBA and bank loan applications.

Debt Service

Debt service is the total cash required to cover all scheduled loan payments — principal plus interest — over a given period, typically one year. Lenders use the Debt Service Coverage Ratio (DSCR) to evaluate whether a borrower's income can comfortably support their debt service obligations.

Debt Service Coverage Ratio (DSCR)

Debt Service Coverage Ratio (DSCR) measures a business's ability to cover its debt payments from operating cash flow — calculated as net operating income divided by total annual debt service. Lenders typically require DSCR of 1.20 or higher.

Debt Yield

Debt yield is a commercial real estate underwriting metric calculated as Net Operating Income (NOI) divided by total loan balance. It measures the lender's return if they were forced to foreclose today, independent of interest rates or amortization. Most CRE lenders require debt yield of 8–12% or higher.

Debt-to-Equity Ratio

The debt-to-equity ratio is total debt divided by total equity. It measures how much a business is financed by debt versus owner capital. Above 2.0 is considered leverage-heavy; bank loan covenants often cap the ratio at 3.0–4.0. SBA lenders watch this closely.

Debt-to-Income Ratio (DTI)

Debt-to-Income Ratio (DTI) is the percentage of your monthly gross income that goes to debt payments — including the proposed new debt. Mortgage lenders typically cap DTI at 43% (front-end housing) or 36% (back-end including all debts).

Deductible (Insurance)

An insurance deductible is the amount you pay out-of-pocket on a covered claim before the insurance company pays its share — chosen at policy purchase, with higher deductibles producing lower premiums.

Deed-in-Lieu of Foreclosure

A deed-in-lieu of foreclosure is a voluntary transfer of property title from a defaulted borrower to the lender — in exchange for release of the mortgage debt — avoiding a formal foreclosure proceeding. The borrower may face cancellation-of-debt income under IRC Section 108 unless they qualify for an exclusion.

Default Interest Rate

A default interest rate is a higher interest rate automatically triggered when a borrower defaults on a loan. Typically prime + 3–7%, it compensates the lender for increased risk and incentivizes cure. State usury laws may cap default rates even on commercial loans.

Default Rate

A default rate is the percentage of loans in a portfolio where borrowers have failed to meet payment obligations — typically defined as being 90+ days past due or having received a formal notice of default. Lenders use portfolio default rates to price risk; rising defaults signal worsening credit conditions across an industry or loan type.

Defeasance

Defeasance is a CMBS loan prepayment mechanism in which the borrower substitutes a portfolio of U.S. Treasury securities for the mortgaged property as collateral — with cash flows exactly matching the remaining loan payments — releasing the property from the lien without paying a cash prepayment penalty.

Deferred Revenue

Deferred revenue is cash received from customers but not yet earned — a current liability on the balance sheet representing the obligation to deliver goods or services. It converts to revenue only when the performance obligation is fulfilled.

Delinquency Ratio

The delinquency ratio is the percentage of a bank's loans that are 30, 60, or 90+ days past due — a leading indicator of future charge-off losses. The Federal Reserve tracks delinquency rates quarterly by loan category at federalreserve.gov/releases/chargeoff/.

Demurrage

Demurrage is the fee charged by port terminals and ocean carriers when a shipper or consignee fails to pick up or return shipping containers within the terminal's free-time window (typically 3-7 days). Demurrage accrues daily and can escalate rapidly — often $150-$500+ per container per day. The FMC (Federal Maritime Commission) governs demurrage and detention practices. See fmc.gov for FMC demurrage rule 46 CFR Part 545 and ftc.gov for FTC supply chain oversight.

Depreciation

Depreciation is the accounting method that spreads a tangible asset's cost over its useful life, reducing taxable income each year without an actual cash outlay. It applies to physical business property (equipment, vehicles, buildings) and is distinct from amortization, which applies to intangible assets and loan principal.

Discount Rate (DCF)

In discounted cash flow (DCF) valuation, the discount rate is the required rate of return used to convert future cash flows to present value — typically set equal to WACC for enterprise valuations or a project-specific hurdle rate for capital budgeting. The SEC requires public companies to disclose discount rate assumptions in impairment testing under FASB ASC 350.

Discount Window

The Federal Reserve's Discount Window is the central bank's standing lending facility — the 'lender of last resort' — through which eligible depository institutions can borrow short-term funds directly from the Fed at the discount rate. It operates three programs: primary credit, secondary credit, and seasonal credit.

Discounted Cash Flow (DCF)

Discounted Cash Flow (DCF) is a valuation method that estimates the present value of a business or investment by discounting its projected future cash flows back to today using a discount rate. It is the foundational framework for business valuation.

Diversification

Diversification is the investment strategy of spreading capital across different assets, sectors, geographies, or asset classes to reduce the impact of any single investment's poor performance on the overall portfolio. The core principle: combining assets with low or negative correlations lowers portfolio risk without proportionally reducing expected return.

Dividend

A dividend is a cash or stock payment made by a corporation to its shareholders, typically from profits, on a regular schedule. Dividends are a component of total return for stock investors and are taxed differently based on whether they are 'qualified' (long-term capital gains rates) or 'ordinary' (regular income rates).

Dodd-Frank Act

The Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) is the largest US financial regulation overhaul since the Great Depression. It created the Consumer Financial Protection Bureau (CFPB), enacted the Volcker Rule, reformed derivatives markets, and — via Section 1071 — mandated small business credit data collection from lenders.

Drag-Along Rights

Drag-along rights give a majority shareholder (or defined shareholder group) the contractual power to force minority shareholders to join and accept the same terms in a sale of the company — preventing minority holders from blocking an acquisition.

Due Diligence

Due diligence is the structured investigation phase of a lending, acquisition, or investment transaction. Lender due diligence covers financial statements, tax returns, debt verification, lien searches, and site visits. Borrower due diligence means reviewing loan terms, lender reputation, contract clauses, and prepayment provisions before signing.

E

EAR — Effective Annual Rate

The Effective Annual Rate (EAR) is the mathematically precise annualized cost of a loan or return on an investment, accounting for the effect of compounding within the year. Unlike APR (which is a nominal annualized rate), EAR reflects what you actually earn or pay when compounding occurs more frequently than annually.

Earnest Money Deposit

An earnest money deposit (EMD) is a buyer's good-faith payment made at the time of signing a purchase agreement — typically 1-5% of the deal price — held in escrow until closing, at which point it applies toward the purchase price or is forfeited if the buyer defaults without cause. The IRS treats EMD forfeitures as ordinary income to the seller (IRS Publication 544, https://www.irs.gov/publications/p544).

Earnout

An earnout is an acquisition structure where a portion of the purchase price is paid contingent on the acquired business meeting future performance targets (revenue, EBITDA, milestones) over a specified period. Earnouts bridge valuation gaps between buyer and seller when future performance is uncertain.

EBIT (Earnings Before Interest and Taxes)

EBIT is a company's earnings before interest expense and income taxes are deducted. It measures operating profitability and is used in interest coverage ratios.

EBITDA

EBITDA is Earnings Before Interest, Taxes, Depreciation, and Amortization — a proxy for a business's operating cash-generating capacity. Lenders use EBITDA to calculate Debt Service Coverage Ratio (DSCR) and assess whether the business generates enough cash flow to service proposed debt.

EBITDA Margin

EBITDA Margin is EBITDA divided by total revenue, expressed as a percentage. It measures operating profitability before financing costs, taxes, and non-cash charges — a key metric lenders and investors use to compare operating efficiency across businesses and industries.

ECOA Adverse Action Notice

An ECOA Adverse Action Notice is a written disclosure required by the Equal Credit Opportunity Act (15 U.S.C. § 1691c) and CFPB Regulation B, Section 1002.9 (https://www.consumerfinance.gov/rules-policy/regulations/1002/9/), that a creditor must provide within 30 days whenever it denies credit, revokes existing credit, changes terms unfavorably, or takes other adverse action on a credit application — stating the specific reasons for the action or advising the applicant of their right to request the reasons.

Economic Value Added (EVA)

Economic Value Added (EVA) measures the dollar surplus a business generates above its cost of capital — calculated as NOPAT minus the product of invested capital and WACC. Positive EVA confirms value creation; negative EVA means the business earns below its true financing cost.

EIN (Employer Identification Number)

An EIN is a 9-digit federal tax identification number assigned to a business by the IRS — free to obtain online at irs.gov. Required for opening business bank accounts, filing business tax returns, hiring employees, and building a business credit profile separate from personal credit.

Eligible Receivables

Accounts receivable that meet a lender's underwriting criteria and can be included in the borrowing base for an asset-based revolving credit facility.

Embedded Capital

Embedded capital is financing offered within vertical SaaS platforms or industry-specific software — capital that is natively integrated into the platform the business already uses for operations, underwritten using that platform's proprietary operational data rather than traditional credit metrics. Examples: Shopify Capital, Toast Capital, Square Loans, Mindbody Capital.

Embedded Finance

Embedded finance is the integration of financial services — lending, payments, insurance, banking — directly into non-financial platforms and software used by businesses. Shopify Capital, Square Loans, Toast Capital, and Stripe Capital are the leading examples: businesses access financing within the platform they already use, without a separate loan application or bank visit.

Embedded Lending

Embedded lending integrates loan or credit products directly into non-financial platforms — software, marketplaces, e-commerce tools — so businesses can access financing within the workflow they already use. The OCC's fintech charter guidance and FDIC's bank partnership frameworks govern how non-bank lenders access banking infrastructure to deliver these products. See fdic.gov and occ.gov for current guidance.

Employee Retention Credit (ERC)

The Employee Retention Credit (ERC) was a refundable payroll tax credit for businesses that retained employees during qualifying quarters of 2020 and 2021 despite COVID-19 disruptions. The credit program is now closed to new original claims; the IRS has aggressive audit and fraud enforcement underway for 2024–2026.

Employee Stock Purchase Plan (ESPP)

An Employee Stock Purchase Plan (ESPP) is a company-sponsored benefit allowing employees to buy company stock at a discount — typically 15% below market price — through payroll deductions. Qualified plans under IRC Section 423 provide additional tax advantages when holding-period requirements are met.

Encumbrance

An encumbrance is any claim, lien, or restriction against property — including mortgages, UCC liens, easements, and leases — that affects the owner's title or use. Lenders require 'clear title' (free of unexpected encumbrances) before funding real estate or asset-backed loans.

Engagement Letter

An engagement letter is a written contract between a professional services firm (attorney, CPA, consultant) and a client that defines the scope of work, fees, responsibilities, and limitations of liability before work begins — the binding starting point of a professional service relationship.

EPLI (Employment Practices Liability Insurance)

Employment Practices Liability Insurance (EPLI) covers businesses against claims by employees alleging wrongful employment practices — including discrimination, harassment, wrongful termination, and retaliation — arising from obligations under the ADA, Title VII, ADEA, and related employment laws.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (15 USC 1691) prohibits credit discrimination based on race, color, religion, national origin, sex, marital status, age, or public-assistance income. It applies to both consumer and business credit, and the CFPB's Section 1071 rule extends its data-collection requirements to small-business lending.

Equipment Financing

Equipment financing is business debt secured by the equipment being purchased — the equipment serves as collateral, which lets lenders accept broader credit profiles and approve up to 100% financing. Typical terms 24-84 months matching equipment useful life.

Equity Dilution

Equity dilution is the reduction in existing owners' ownership percentage when new shares are issued — through fundraising rounds, option exercises, convertible note conversions, or warrants. Dilution reduces per-share economic value and voting power unless proportionally offset by the value added.

Equity Financing

Equity financing is raising capital by selling an ownership stake in the business — shares, membership units, or a percentage of the company — rather than borrowing it. The investor's return comes from the company's future value, not a repayment schedule, making it the primary alternative to debt financing (loans).

Errors & Omissions (E&O) Insurance

Errors and omissions (E&O) insurance covers claims arising from mistakes, errors, failures, or omissions in professional services rendered. Standard for accounting, legal, real estate, consulting, technology, and financial services firms. Protects against client lawsuits alleging professional negligence.

Estoppel Certificate

An Estoppel Certificate is a signed statement by a tenant (or landlord) certifying the current status of a lease — confirming lease dates, rent amount, prepaid rent, security deposit, the absence of defaults, and any outstanding landlord obligations — used by lenders and buyers in CRE transactions as binding evidence of lease terms. The legal doctrine of estoppel (preventing a party from asserting facts contrary to a prior sworn statement) is rooted in common law equity; lender use in CRE transactions is governed by secondary market standards including Freddie Mac's Multifamily Seller/Servicer Guide (https://mf.freddiemac.com/docs/multifamily-seller-servicer-guide.pdf) and CMBS pooling requirements enforced by the SEC (https://www.sec.gov/structured-finance).

EXIM Bank (Export-Import Bank of the United States)

The Export-Import Bank of the United States (EXIM) is the official US export credit agency. It provides government-backed loans, loan guarantees, and export credit insurance to US exporters — filling gaps where private financing is unavailable or too risky for foreign-buyer transactions.

Expected Credit Loss (ECL)

Expected Credit Loss (ECL) is the probability-weighted estimate of credit losses over a financial instrument's life, required under IFRS 9 and the FASB's CECL standard (ASU 2016-13) — replacing the old 'incurred loss' model with a forward-looking allowance.

Expense Ratio

An expense ratio is the annual fee a mutual fund or ETF charges as a percentage of assets under management (AUM). It is deducted from the fund's returns before they are reported — meaning you don't receive a bill, but your net return is already reduced by this amount. Lower expense ratios mean more of the fund's return flows to you.

Exposure at Default (EAD)

Exposure at Default (EAD) is the total outstanding credit exposure a lender faces at the moment a borrower defaults — including drawn balances, accrued interest, and an estimate of additional draws on undrawn commitments before default is declared.

F

Factor Rate

A factor rate is a fixed cost multiplier — typically 1.10 to 1.50 — applied to merchant cash advances (MCAs) and revenue-based financing: multiply the advance amount by the factor rate to get total payback (a $50,000 advance at 1.30 = $65,000 owed, $15,000 in financing cost). Unlike interest rates, factor rates don't compound and the total payback is locked at funding — paying early does not reduce what you owe.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (15 USC 1681) governs how consumer credit reports are collected, used, and disputed. The CFPB and FTC jointly enforce it. FCRA rights — accuracy, access, and dispute — apply to personal credit reports, including those pulled by business lenders when they require a personal guarantee.

Fair Credit Reporting Act (FCRA)

The Fair Credit Reporting Act (FCRA), codified at 15 U.S.C. § 1681 et seq., governs how consumer reporting agencies (CRAs) collect, use, and share credit information — giving consumers the right to access, dispute, and correct their credit files, and imposing requirements on lenders who use credit reports to make decisions.

Fair Debt Collection Practices Act (FDCPA)

The Fair Debt Collection Practices Act (15 USC 1692) prohibits abusive, deceptive, and unfair practices by third-party debt collectors on consumer debts. It restricts collection call timing, false representations, and harassment, and gives consumers the right to dispute and verify debts in writing.

Fair Market Value (FMV)

Fair market value is the price an asset would sell for between a knowledgeable, willing buyer and a willing seller under no compulsion to transact. It assumes an arm's-length transaction with both parties equally informed.

FDIC (Federal Deposit Insurance Corporation)

The FDIC is the federal agency that insures bank deposits up to $250,000 per depositor per insured bank, protecting business and personal account holders if a bank fails.

FDIC Insurance Limit

The FDIC insures deposits up to $250,000 per depositor, per FDIC-insured bank, per ownership category. Business accounts and personal accounts at the same bank are insured separately if titled differently. Deposits above $250K per category are uninsured and at risk if the bank fails.

Federal Funds Rate

The federal funds rate is the target interest rate set by the Federal Open Market Committee (FOMC) at which U.S. depository institutions lend reserve balances to each other overnight — the primary tool the Federal Reserve uses to implement monetary policy and influence borrowing costs across the economy.

Federal Home Loan Bank (FHLB)

The Federal Home Loan Bank System is a network of 11 regional government-sponsored enterprises (GSEs) established by the Federal Home Loan Bank Act of 1932 (12 U.S.C. § 1421 et seq.) that provide wholesale funding — primarily through collateralized loans called 'advances' — to member financial institutions including banks, thrifts, credit unions, and insurance companies.

Federal Open Market Committee (FOMC)

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve responsible for US monetary policy. It sets the federal funds rate target at 8 scheduled meetings per year. FOMC rate decisions directly move the Prime Rate, Treasury yields, and SBA loan pricing.

FHA Loan

An FHA loan is a mortgage insured by the Federal Housing Administration (part of HUD) — designed to expand homeownership access with lower credit-score and down-payment requirements than conventional loans. Typical minimums: 580 FICO with 3.5% down, or 500-579 FICO with 10% down.

FICA (Federal Insurance Contributions Act)

FICA is the 15.3% combined payroll tax funding Social Security (12.4%) and Medicare (2.9%) — split equally between employee (7.65%) and employer (7.65%). Self-employed individuals pay both halves as self-employment tax.

FICO Score

FICO Score is the standard 300-850 credit-scoring model produced by Fair Isaac Corporation. It's the score model used by ~90% of US lenders for actual lending decisions. Five factors drive the score: payment history (35%), amounts owed/utilization (30%), credit history length (15%), credit mix (10%), new credit (10%).

Fiduciary Duty

Fiduciary duty is a legal obligation to act in the best interest of another party. Corporate officers and directors owe fiduciary duties to the corporation and its shareholders. Breach can trigger personal liability even for good-faith business judgment errors.

Field Examination

An on-site audit conducted by a lender or third-party firm to verify the accuracy of a borrower's borrowing-base certificate, the existence of pledged collateral, and the integrity of internal controls.

Financial Leverage

Financial leverage is the use of borrowed capital to amplify returns on equity. It increases potential profits when business performance is strong and amplifies losses when it is weak.

First-Position Lien

A first-position lien (or first lien) is a creditor's primary legal claim on a borrower's collateral — it has priority over all other liens in the event of default or liquidation. The first-lien holder is paid first from any recovery proceeds, making first-position loans lower-risk and typically lower-cost than subordinate financing.

Fiscal Year vs. Calendar Year

A calendar year runs January 1 to December 31; a fiscal year is any 12-month accounting period that ends on the last day of any month other than December — businesses may elect a fiscal year to align reporting with their natural business cycle.

Fixed Asset (PP&E)

Fixed assets (Property, Plant, & Equipment — PP&E) are long-term tangible assets used in business operations over multiple years. They are capitalized on the balance sheet and depreciated over their useful lives. Distinct from current assets like cash, inventory, and receivables.

Fixed Cost

Fixed costs are expenses that do not change with production or sales volume — rent, salaried labor, insurance, and depreciation are examples. They exist regardless of whether the business sells one unit or one million.

Fixed vs Variable Interest Rate

A fixed interest rate stays the same for the entire loan term, making payments predictable. A variable rate adjusts periodically based on a benchmark index (Prime Rate or SOFR), causing payments to fluctuate.

Fleet Financing

Fleet financing is debt or lease financing structured for businesses acquiring multiple vehicles at once or over time — delivery vans, service trucks, over-the-road trucks, or company cars. Common structures are TRAC leases, conditional-sale loans, and master lease agreements that let a business add vehicles under one negotiated set of terms instead of re-underwriting each purchase.

Forbearance

Forbearance is a temporary agreement by a lender to pause, reduce, or delay required loan payments for a borrower experiencing financial hardship — without declaring a formal default. SBA SOP 50 57 3 governs forbearance options for SBA-guaranteed loans.

Forbearance Agreement

A forbearance agreement is a negotiated arrangement where a lender temporarily pauses or reduces loan payments during a period of borrower financial distress — typically 3–12 months. It defers but does not forgive debt and is common in commercial loan workout situations.

Foreign Currency Hedge

A foreign currency hedge is a financial strategy — using derivatives such as forward contracts, options, or currency swaps — to reduce or eliminate the risk that exchange rate movements will negatively affect the value of a cross-border business transaction, receivable, or debt obligation. The CFTC (cftc.gov) regulates FX derivatives for U.S. persons; FASB ASC 815 (fasb.org) governs hedge accounting treatment for U.S. GAAP reporters.

Foreign Trade Zone (FTZ)

A Foreign Trade Zone (FTZ) is a US Customs and Border Protection-designated area where merchandise can be imported, stored, manipulated, assembled, or re-exported without standard customs procedures and duty payments. FTZs defer tariff payments and can reduce effective duty rates for manufacturers and importers.

Form 10-K (Annual Report)

Form 10-K is the comprehensive annual report that U.S. public companies must file with the SEC within 60-90 days of fiscal year end, covering business operations, risk factors, audited financial statements, and MD&A. It is the primary investor disclosure document for SEC-registered issuers. See sec.gov/forms for 10-K filing requirements and EDGAR at sec.gov/edgar for all public company filings.

Form 10-Q (Quarterly Report)

Form 10-Q is the quarterly SEC filing required from most public companies within 40-45 days of each fiscal quarter end (Q1, Q2, Q3; Q4 is covered by the 10-K). It contains unaudited interim financial statements and updated MD&A. See sec.gov/forms and the SEC's EDGAR database at sec.gov/edgar for all 10-Q filings.

Form 1065 (U.S. Return of Partnership Income)

Form 1065 is the IRS information return filed annually by partnerships and multi-member LLCs taxed as partnerships — reporting total income, deductions, gains, and losses, and generating Schedule K-1s for each partner showing their allocable share of pass-through tax items.

Form 1099 (Independent Contractor Income)

IRS Form 1099-NEC reports non-employee compensation of $600 or more paid to independent contractors; lenders treat 1099 income differently from W-2 income, typically requiring 2 years of tax returns to document it.

Form 1099-DIV

Form 1099-DIV is the IRS information return that banks, brokerages, and mutual funds use to report dividends and distributions paid to investors — recipients report these amounts on their individual tax returns, and the IRS cross-matches the filings (irs.gov/forms-pubs/about-form-1099-div).

Form 1099-K (Third-Party Payment Platform Reporting)

IRS Form 1099-K reports gross payments received through payment card transactions and third-party payment networks (PayPal, Venmo, Stripe, Square) — under IRC Section 6050W, the 2024 threshold is $5,000 (transitional), with a $600 threshold phasing in for tax year 2025.

Form 1120-S

Form 1120-S is the annual federal income tax return filed by S-corporations with the IRS; it reports the company's income, deductions, credits, and each shareholder's allocable share — which flows to shareholders via Schedule K-1 (irs.gov/forms-pubs/about-form-1120-s).

Form 4562

Form 4562 is the IRS form used to claim depreciation and amortization deductions on business assets, elect the Section 179 immediate expensing deduction, and claim bonus depreciation — filed as part of the business tax return (irs.gov/forms-pubs/about-form-4562).

Form 720

Form 720 is the IRS quarterly return used to report and pay federal excise taxes on specific goods, services, and activities — including fuel, air transportation, communications, heavy trucks, indoor tanning, and certain health insurance policies (irs.gov/forms-pubs/about-form-720).

Form 8-K (Current Report)

Form 8-K is the SEC 'current report' that public companies must file within 4 business days of any material corporate event — including M&A announcements, earnings releases, leadership changes, credit agreement amendments, or bankruptcy. It is the primary disclosure mechanism for time-sensitive material information. See sec.gov/forms and the SEC's EDGAR database at sec.gov/edgar.

Form 8826

Form 8826 is used to claim the Disabled Access Credit — a nonrefundable federal tax credit of up to $5,000 for eligible small businesses that incur costs to provide access to persons with disabilities as required by the Americans with Disabilities Act (irs.gov/forms-pubs/about-form-8826).

Form 8829

Form 8829 is used by self-employed individuals and sole proprietors to calculate and claim the business-use-of-home deduction on Schedule C — based on the percentage of the home exclusively and regularly used for business (irs.gov/forms-pubs/about-form-8829).

Form 8881

Form 8881 is used by eligible small employers to claim the Credit for Small Employer Pension Plan Startup Costs — a federal tax credit covering up to $5,000 per year for 3 years of eligible costs to set up a new qualified retirement plan (irs.gov/forms-pubs/about-form-8881).

Form 8941

Form 8941 is used by eligible small employers to claim the Credit for Small Employer Health Insurance Premiums — a federal tax credit of up to 50% (35% for tax-exempt employers) of premiums paid for employee health coverage purchased through the SHOP Marketplace (irs.gov/forms-pubs/about-form-8941).

Form 941 (Employer's Quarterly Federal Tax Return)

Form 941 is the IRS quarterly return employers file to report wages paid plus income, Social Security, and Medicare taxes withheld — due the last day of the month following each quarter-end.

Form W-9 (Request for Taxpayer Identification)

IRS Form W-9 is a Request for Taxpayer Identification Number and Certification used by businesses to collect a vendor's, contractor's, or partner's Social Security Number (SSN) or Employer Identification Number (EIN) for 1099 reporting purposes.

Form W-9 (Taxpayer Identification)

IRS Form W-9 is used to collect a taxpayer's legal name, business name, entity type, and Taxpayer Identification Number (TIN or EIN) — required before a business can issue a 1099 or open most business credit accounts.

Forward Rate Agreement (FRA)

A Forward Rate Agreement (FRA) is an over-the-counter derivatives contract that locks in an interest rate for a future period on a notional principal amount — allowing a borrower or lender to hedge against rate movements before a loan is drawn or refinanced. Settlement is cash-based on the difference between the agreed rate and the prevailing market rate at settlement.

Free Cash Flow

Free cash flow (FCF) is operating cash flow minus capital expenditures. It's the cash available to service debt, pay owners, or reinvest after maintaining and growing the business's asset base. FCF is the most common numerator for DSCR calculations at the bank lending tier.

Front-End Ratio

The front-end ratio is a mortgage underwriting metric that measures a borrower's proposed housing expense — principal, interest, taxes, and insurance (PITI), plus HOA fees if applicable — as a percentage of gross monthly income, used by lenders and the FDIC to assess housing payment affordability separately from total debt load (https://www.fdic.gov/regulations/applications/pdf/fdi_acs_a.pdf); conventional mortgage guidelines (Fannie Mae/Freddie Mac) generally cap the front-end ratio at 28–31%, and CFPB's Ability-to-Repay rule under Regulation Z addresses the broader debt burden context (12 C.F.R. § 1026.43, https://www.consumerfinance.gov/rules-policy/regulations/1026/43/).

FTC (Federal Trade Commission)

The FTC is the federal consumer protection and antitrust agency that enforces against deceptive business practices — including predatory MCA marketing, misleading small business finance advertising, and unfair collection practices.

FUTA (Federal Unemployment Tax)

FUTA is the 6% federal employer-only tax on the first $7,000 of each employee's wages annually, funding federal unemployment benefit administration. Most employers pay an effective net rate of 0.6% after the state UI tax credit.

G

General Liability Insurance

General liability insurance covers a business against third-party claims of bodily injury, property damage, and personal/advertising injury. It is required by most commercial leases and client contracts, and is typically the first insurance policy a new business purchases.

Glass-Steagall Act

The Glass-Steagall Act of 1933 separated commercial banking from investment banking in the United States — prohibiting deposit-taking banks from underwriting or dealing in securities. Its core provisions were repealed by the Gramm-Leach-Bliley Act (GLBA) in 1999, allowing the formation of universal banks (bank holding companies combining commercial, investment, and insurance activities).

Going Concern

The going concern assumption is the accounting principle that a business will continue operating for the foreseeable future (at least 12 months). When auditors identify substantial doubt about this assumption, they issue a going concern opinion — a material disclosure that can trigger lender defaults and investor concern.

Going-Private Transaction

A going-private transaction (also called a take-private) is a transaction in which a publicly traded company's equity is purchased — typically by a private equity firm, management team, or controlling shareholder — and the company's SEC reporting obligations are terminated by deregistering its securities. Going-private transactions involving affiliates of the issuer are subject to SEC Rule 13e-3 (17 CFR § 240.13e-3) and require a Schedule 13E-3 disclosure filing with the SEC. See sec.gov/rules/final/2023/34-98296.htm for the SEC's 2023 amendments to Rule 13e-3 disclosure requirements.

Goodwill

Goodwill is an intangible asset recorded when a business is acquired for more than the fair value of its identifiable net assets. It represents the premium paid for brand value, customer relationships, reputation, and other unquantifiable advantages.

Grace Period

A grace period on a credit card is the window between the end of a billing cycle and the payment due date during which no interest accrues on new purchases — provided you paid the prior statement balance in full. The Credit CARD Act of 2009 mandates at least 21 days for grace periods on credit cards.

Green Loan

A green loan is any debt instrument exclusively used to finance or refinance eligible green projects — as defined by the ICMA/LMA Green Loan Principles (GLP). Eligibility requires clear use-of-proceeds designation, project evaluation criteria, segregated proceeds management, and ongoing reporting. The EPA and DOE both offer green-aligned financing programs for small businesses. See epa.gov/green-power-markets and energy.gov/eere/financing for federal green financing programs.

Gross Margin

Gross margin is gross profit expressed as a percentage of revenue — the share of each sales dollar remaining after covering direct production costs. Industry benchmarks: retail 25–50%, restaurants 60–70% (food cost basis), SaaS 70–85%, manufacturing 25–40%.

Gross Profit

Gross profit is revenue minus cost of goods sold (COGS) — the first profitability line on the income statement. It measures how much a business earns after covering direct production costs before operating expenses, interest, and taxes.

Gross Receipts

Gross receipts is total revenue before any deductions — the full amount received from sales, services, and other business activities. It is the tax basis for several state and local taxes and the starting point for most business revenue analysis.

Ground Lease

A ground lease is a long-term lease (typically 50-99 years) of land only — the tenant constructs and owns the improvements (building) during the lease term. At lease expiration, improvements revert to the land owner. Ground leases separate land and building ownership, enabling developers and businesses to acquire use of prime real estate without purchasing the land. The IRS and SBA both address leasehold financing. See irs.gov/publications/p946 for depreciation of leasehold improvements and sba.gov for SBA leasehold collateral rules.

H

Hard Inquiry

A hard inquiry is a credit check pulled by a lender when you formally apply for credit — it appears on your credit report, costs 5-10 FICO points typically, and stays on the report for 24 months.

Hard Money Loan

A hard money loan is a short-term, asset-based loan secured by real estate — underwritten primarily on the property's value (LTV) rather than the borrower's credit — used mainly for real estate acquisition, renovation, and bridge financing.

HELOC (Home Equity Line of Credit)

A HELOC is a revolving line of credit secured by your home equity — you draw what you need (up to the credit limit), pay interest only on what you draw, and repay flexibly over a 10-30 year period split between a draw phase and a repayment phase.

High-Yield Savings Account (HYSA)

A high-yield savings account (HYSA) is a savings account — usually from an online bank — that pays a much higher APY than a traditional big-bank savings account, while keeping your money liquid and FDIC- or NCUA-insured up to $250,000. The trade-off versus a standard account is minimal; the yield difference is often 10x or more.

Historic Tax Credit (HTC)

The Historic Tax Credit (HTC) is a 20% federal tax credit under IRC Section 47 for the certified rehabilitation of income-producing historic buildings listed on the National Register of Historic Places — one of the most powerful tools for financing adaptive reuse and commercial historic preservation.

HMDA Reporting

HMDA Reporting is the annual obligation of covered financial institutions to collect, record, and publicly disclose data on every mortgage loan application they receive — including loan purpose, applicant demographics, loan amount, property location, and action taken — under the Home Mortgage Disclosure Act (12 U.S.C. § 2801 et seq.) and CFPB Regulation C (12 C.F.R. Part 1003, https://www.consumerfinance.gov/rules-policy/regulations/1003/). CFPB uses HMDA data to enforce fair lending laws and detect discriminatory mortgage lending patterns (https://www.consumerfinance.gov/data-research/hmda/).

Holdback (Acquisition)

In acquisitions, a holdback is a portion of the purchase price withheld at closing and placed in escrow for 12–24 months to cover potential indemnification claims against the seller (breaches of representations and warranties, undisclosed liabilities). Distinct from MCA holdbacks. Typical holdback: 10–15% of purchase price.

Holdback Escrow (M&A)

A holdback escrow is a portion of M&A deal proceeds — typically 5-15% of the purchase price — withheld at closing and held by a neutral escrow agent for a defined period (commonly 12-24 months) to fund any post-close indemnification claims by the buyer against the seller. FASB ASC 805 governs the accounting treatment of contingent consideration including holdback escrows in business combinations (https://www.fasb.org/standards/accounting-standards-updates).

Holdback Percentage

Holdback percentage is the daily collection rate on a merchant cash advance — either 8–20% of daily credit card batches (split-funded structure) or a fixed daily/weekly ACH debit equivalent to 1–4% of average daily total deposits. It's the single biggest driver of day-to-day cash-flow impact on an MCA.

Holding Company

A holding company is a corporate parent that owns controlling interests in one or more subsidiary operating companies. The holding company itself typically conducts no direct operations — its purpose is to own, control, and provide capital to subsidiaries while isolating liability across entities. The IRS and SEC both address holding company structures extensively. See irs.gov/businesses/corporations and sec.gov/cgi-bin/browse-edgar for reporting requirements.

Hurdle Rate

A hurdle rate is the minimum rate of return that an investment must achieve before a project is approved or a fund manager earns a performance fee (carried interest). In private equity and CRE, the hurdle rate is typically 8% IRR — below this, the GP earns no carry. In corporate capital budgeting, the hurdle rate equals the weighted average cost of capital (WACC) plus a risk premium. See sec.gov Form ADV filings and federalreserve.gov/data/sloos.htm for rate benchmarks.

I

Income Share Agreement (ISA)

An Income Share Agreement (ISA) is a financing structure where the recipient agrees to repay a fixed percentage of future income (or business revenue) over a defined period, rather than a fixed principal amount — repayment is contingent on income being above a floor threshold. Originally developed for education financing; increasingly applied to business and workforce contexts.

Incoterms

Incoterms (International Commercial Terms) are standardized trade terms published by the International Chamber of Commerce (ICC) that define who is responsible for shipping costs, insurance, customs clearance, and the precise point at which risk transfers from seller to buyer in international transactions. The current edition is Incoterms 2020.

Indemnity

Indemnity is the legal and insurance principle that a claimant should be restored to the financial position they were in before a loss — no better, no worse. Most property and casualty policies are indemnity contracts; life insurance is not (it pays a fixed benefit regardless of actual economic loss).

Industrial Development Bond (IDB)

An Industrial Development Bond (IDB) is a type of tax-exempt municipal bond issued by a state or local government on behalf of a private manufacturing or industrial company to finance facilities that create jobs and support economic development.

Ineligible Receivables

Accounts receivable excluded from the borrowing base in an asset-based lending facility because they fail one or more of the lender's eligibility criteria.

Initial Public Offering (IPO)

An Initial Public Offering (IPO) is the process by which a private company first offers shares to the public by registering with the SEC, typically via Form S-1, and listing on a national exchange such as NYSE or Nasdaq. After an IPO, the company is subject to ongoing SEC reporting obligations under the Exchange Act. See sec.gov/cgi-bin/browse-edgar for S-1 filings and sec.gov/divisions/corpfin for SEC registration guidance.

Instant Payment

Instant payments are fund transfers that settle in seconds — 24/7/365, with irrevocable finality — as opposed to traditional ACH which settles in 1-2 business days. In the U.S., the two instant payment networks are The Clearing House (TCH) Real-Time Payments (RTP) and the Federal Reserve's FedNow Service, both launched for U.S. financial institutions.

Insurance Claim

An insurance claim is a formal request to an insurer for payment under the terms of a policy after a covered loss or event occurs. The insurer reviews the claim against policy terms, investigates the loss if needed, and pays the benefit (or denial) within applicable state-mandated timeframes.

Insurance Endorsement

An insurance endorsement is a written modification attached to a base policy that adds, removes, or changes coverage terms. Endorsements are the primary mechanism for customizing a standard policy form to match specific needs — common in homeowners, commercial property, and liability insurance.

Insurance Premium

An insurance premium is the amount you pay to keep an insurance policy in force. Premiums are set by insurers based on actuarial risk assessments and are paid on a schedule — monthly, quarterly, or annually — regardless of whether you file a claim.

Insurance Rider

An insurance rider is an optional add-on that modifies the coverage, terms, or benefits of a base policy — either expanding protection (e.g., critical illness benefit) or limiting it (e.g., an exclusion rider). Riders are typically priced separately and attached at issue or renewal.

Intangible Asset

An intangible asset is a non-physical asset with economic value — patents, trademarks, copyrights, software, customer lists, brand value, and goodwill. Intangibles are amortized over their useful life and receive different tax treatment than physical assets.

Intelliscore Plus

Intelliscore Plus is Experian Business's predictive business credit risk score ranging from 1-100, where lower scores indicate higher risk — widely used by trade creditors and alternative lenders to assess business creditworthiness.

Interchange Fee

Interchange fees are per-transaction fees paid by the merchant's bank (acquiring bank) to the cardholder's bank (issuing bank) every time a credit or debit card is used. Set by card networks (Visa, Mastercard), they range from approximately 1.5% to 3.5% of the transaction amount and are embedded in the merchant processing rate.

Interchange Plus Pricing

Interchange plus pricing is a transparent payment-processing model where the merchant pays the actual interchange rate (set by Visa/Mastercard and published at usa.visa.com/support/small-business/merchant-resources.html and mastercard.us/en-us/business/overview/merchant-resources.html) plus a fixed processor markup — typically IC + 0.10%–0.40% + $0.05–$0.15 per transaction — instead of a blended flat rate.

Intercreditor Agreement

An intercreditor agreement is a multi-lender contract defining the rights, priorities, and remedies among two or more lenders to the same borrower — covering payment waterfalls, collateral access, enforcement coordination, and voting rights. Used in syndicated loans and mezzanine financings.

Interest Rate

An interest rate is the percentage of a loan's principal a lender charges annually for the use of its money, before fees. It's the raw price of borrowing — distinct from APR, which layers in prepaid finance charges like origination fees.

Interest Rate Swap

An interest rate swap is a derivatives contract in which two counterparties exchange interest payment streams on a notional principal amount — typically one party pays a fixed rate while the other pays a floating rate (e.g., SOFR) — governed by the ISDA Master Agreement. Used by businesses to convert variable-rate debt exposure to fixed, or vice versa.

Interest-Only Payment

An interest-only payment covers only the accrued interest on a loan for a defined period — no principal is reduced. The full principal balance remains due at the end of the interest-only period or at maturity.

Internal Rate of Return (IRR)

Internal Rate of Return (IRR) is the discount rate at which a project's net present value equals zero — the project's effective compound annual growth rate. An investment is attractive when IRR exceeds the cost of capital.

Internal Rate of Return (IRR)

Internal Rate of Return (IRR) is the discount rate at which the net present value (NPV) of all future cash flows from an investment equals zero — effectively the annualized compound return on invested capital. IRR is the primary total-return metric used by private equity, CRE investors, and corporate finance professionals for investment underwriting. See federal reserve economic data at fred.stlouisfed.org and sec.gov filings for IRR benchmarks in PE and CRE.

Inventory

Inventory is the raw materials, work-in-process, and finished goods a business holds for production or resale. It sits on the balance sheet as a current asset, but ranks among the least liquid current assets — the reason lenders and the quick ratio treat it differently from cash and receivables.

Inventory Turnover Ratio

Inventory turnover ratio measures how many times a business sells and replaces its inventory in a period — calculated as COGS divided by average inventory. Higher turnover generally means greater efficiency and lower carrying costs.

Investment Tax Credit (ITC — IRC §38/§46/§48)

The Investment Tax Credit (ITC) under IRC Section 38 is a federal dollar-for-dollar credit against income tax for qualifying capital investments — most commonly the 30% clean energy ITC under IRC §48 for solar, wind, battery storage, and other eligible energy property placed in service.

Investment-Grade Bond

An investment-grade bond is a corporate or government bond rated BBB-/Baa3 or higher by S&P/Fitch/Moody's, indicating low default probability and eligibility for institutional portfolios with rating-based investment restrictions. The SEC mandates rating disclosure in offering documents; the Federal Reserve tracks investment-grade spreads as financial conditions indicators. See sec.gov and federalreserve.gov/releases/h15.

Invoice Factoring

Invoice factoring is the sale of outstanding business-to-business invoices to a factoring company for an immediate cash advance — typically 80-90% of face value up front, with the remainder (minus a discount fee) released once the customer pays. It is legally a sale of receivables, not a loan.

Invoice Financing

Invoice financing is a loan secured by unpaid invoices (accounts receivable) — the lender advances 70–90% of the invoice face value and holds the AR as collateral, while the borrower retains ownership of the receivable and collects from customers directly. Distinct from invoice factoring, where the receivable is sold outright.

IRS Form 4506-C — IVES Income Verification

IRS Form 4506-C is the Income Verification Express Service (IVES) request form that authorizes a lender or other IVES participant to obtain tax transcript data directly from the IRS. It replaced the older Form 4506-T in 2021 and is now required for all lender-initiated IRS income verification on SBA and conventional loan applications.

ISO 20022

ISO 20022 is the international standard for financial messaging — a rich, structured XML-based format for payment instructions, account statements, and settlement messages that replaced legacy SWIFT MT formats. The U.S. Federal Reserve adopted ISO 20022 for Fedwire Funds Service in 2025 and FedNow uses it natively.

J

Joint Venture (JV)

A joint venture (JV) is a business arrangement in which two or more independent parties combine resources to undertake a specific project or business activity, while each party retains its separate legal identity.

Junk Bond / High-Yield Bond

A junk bond (also called a high-yield bond) is a corporate bond rated below investment grade — BB+/Ba1 or lower by S&P/Moody's/Fitch — indicating elevated default risk. Issuers compensate investors with higher yields. The SEC regulates public high-yield offerings under the Securities Act of 1933, and the Federal Reserve tracks high-yield spreads as credit market stress indicators. See sec.gov and federalreserve.gov/releases/h15 for rate and spread data.

K

Key Person Insurance

Key person insurance is a life (or disability) insurance policy owned by the business on a critical employee or founder. The business pays the premium and is the beneficiary — if the insured person dies or becomes disabled, the payout provides the business with capital to manage the loss, cover revenue gaps, recruit a replacement, or repay business debt. Some lenders require it as a loan condition.

KYC / Customer Identification Program (CIP)

KYC (Know Your Customer) refers to the identity verification and due diligence obligations that banks and financial institutions must perform on customers under the Bank Secrecy Act (31 U.S.C. § 5311 et seq.) and FinCEN's Customer Identification Program (CIP) rule (31 CFR § 1020.220). For business accounts, KYC includes beneficial ownership verification — identifying natural persons who own or control 25%+ of the entity — per FinCEN's 2016 CDD Rule. See fincen.gov/resources/statutes-regulations/guidance/customer-due-diligence-requirements-financial-institutions.

L

Lease Covenant

A lease covenant is a contractual obligation embedded in an equipment or commercial real estate lease — either a lessee covenant (maintenance, insurance, permitted use, assignment restrictions) or a lessor covenant (quiet enjoyment, title warranty) — with financial reporting implications under FASB ASC 842.

Letter of Credit

A letter of credit is a bank's written guarantee to pay a seller on behalf of a buyer when specific terms are met — commonly used in international trade to eliminate counterparty risk between importers and exporters.

Letter of Intent (LOI)

A letter of intent (LOI) is a pre-contract document that signals a party's commitment to negotiate and potentially close a deal — acquisition, lease, financing, or partnership. Most provisions are non-binding; confidentiality and exclusivity clauses typically are binding.

License & Permit Bond

A license and permit bond is a surety bond required by a state, county, or city as a condition of obtaining or renewing a business license or occupational permit. It guarantees the licensed business will comply with applicable laws and regulations; if the business violates those rules and causes harm, the bond compensates the injured party up to the bond amount.

Line of Credit vs. Credit Card

A line of credit and a credit card are both revolving credit — you can borrow up to a limit, repay, and borrow again. The practical differences: a line of credit usually carries a lower interest rate and lets you draw cash directly (often for larger or planned expenses), while a credit card is built for everyday purchases, offers rewards and a grace period, but charges a higher APR and treats cash access as an expensive cash advance.

Liquidation Preference

Liquidation preference is a preferred shareholder provision that determines how sale or liquidation proceeds are distributed — preferred investors receive their investment back (often at a 1x or higher multiple) before common stockholders receive anything. The market standard for institutional VC deals is 1x non-participating preferred. The SEC requires disclosure of liquidation preferences in registration statements and Reg CF Form C filings. See sec.gov.

Liquidation Value

Liquidation value is what assets would sell for in a forced or expedited sale — typically a 30–90 day timeline. It is significantly lower than fair market value and represents a lender's worst-case collateral recovery.

Liquidity

Liquidity is a business's ability to convert assets to cash quickly and without significant loss of value. Cash is the most liquid asset; specialized equipment or real estate is the least.

Liquidity Coverage Ratio (LCR)

The Liquidity Coverage Ratio (LCR) is a Basel III requirement that large banks hold enough high-quality liquid assets (HQLA) to cover their total net cash outflows over a 30-day stress scenario. The required minimum is 100% — meaning at least $1 of HQLA for every $1 of projected net outflows. LCR constraints affect how aggressively banks can extend credit.

LLC (Limited Liability Company)

An LLC is a business entity structure that combines limited personal liability protection with pass-through taxation — the most popular entity type for U.S. small businesses. Owners (called members) are generally not personally liable for business debts beyond their investment, except where a personal guarantee or fraud exception applies.

Loan Agreement

A loan agreement is the definitive legal contract between a borrower and lender that sets out the loan amount, interest rate, repayment schedule, collateral, debt covenants, and default remedies. It's the document that governs the entire life of the loan, from funding through final repayment (or default). See the OCC's Comptroller's Handbook on Loan Portfolio Management for the regulatory framework banks use to structure and administer these agreements.

Loan Default

A loan default occurs when a borrower fails to meet the obligations of a loan agreement — either a payment (monetary) default, where a scheduled payment is missed, or a technical (non-monetary) default, where some other loan term such as a financial covenant or reporting requirement is violated. Either form gives the lender contractual remedies: a notice of default, a cure period, the default interest rate, and ultimately acceleration or collateral enforcement. See the CFPB's loan default and servicing standards for the regulatory framework.

Loan Modification

A permanent change to one or more terms of an existing loan—rate, payment, or maturity—negotiated between borrower and lender to avoid default.

Loan Pricing Grid

A loan pricing grid is a matrix that sets the interest rate spread above a benchmark (Prime Rate or SOFR) based on a borrower's risk profile — typically FICO band, Loan-to-Value (LTV), and Debt Service Coverage Ratio (DSCR) tier. Higher risk = wider spread = higher borrower rate.

Loan Tape

A loan tape is a loan-level data file — typically a spreadsheet or CSV — that summarizes every loan in a portfolio with standardized fields: balance, rate, term, origination date, borrower characteristics, delinquency status, and collateral type. Loan tapes are the primary data artifact exchanged in secondary market whole-loan sales, CLO collateral management, and due diligence for portfolio acquisitions.

Loan Term

The loan term is the total length of time a borrower has to repay a loan in full, set in the loan agreement at origination — commonly 1-7 years for equipment or working-capital loans and up to 25 years for SBA real estate loans. It determines both the amortization schedule and, for interest-only or balloon structures, when the remaining balance comes due. See the Federal Reserve's G.19 consumer credit release for benchmark amortization data.

Loan Workout

A loan workout is a negotiated restructuring of a troubled loan before foreclosure or bankruptcy — the lender and borrower agree to modified terms (extended maturity, reduced payments, interest deferral) to avoid default. The FDIC's SR 13-2 guidance establishes the supervisory framework for troubled debt restructurings.

Loan Workout vs. Foreclosure

A loan workout is a negotiated out-of-court resolution between a distressed borrower and lender; foreclosure is the legal process by which the lender seizes and sells collateral to satisfy the debt.

Loan-to-Cost Ratio (LTC)

Loan-to-cost ratio (LTC) divides the loan amount by the total project cost (land + hard costs + soft costs) on a construction or renovation project. Lenders use LTC to size construction loans — typical commercial LTC ranges from 65% to 80%, depending on project type and borrower strength. LTC is distinct from LTV, which measures loan against completed appraised value. See fdic.gov/regulations/applications/cre and occ.gov for CRE concentration guidance.

Loan-to-Income Ratio (LTI)

The Loan-to-Income Ratio (LTI) is a credit underwriting metric that compares total proposed debt obligations — including the new loan's debt service — against the borrower's verified gross income, used by regulators and lenders to assess debt sustainability; the FDIC and Federal Reserve cite LTI as a key residential and commercial mortgage underwriting standard (https://www.fdic.gov/regulations/applications/pdf/fdi_acs_a.pdf), and the CFPB's Ability-to-Repay (ATR) rule under Regulation Z (12 C.F.R. § 1026.43, https://www.consumerfinance.gov/rules-policy/regulations/1026/43/) requires consideration of income relative to debt obligations for covered mortgage loans.

Loan-to-Value Ratio (LTV)

Loan-to-Value Ratio (LTV) is the loan amount divided by the appraised value of the collateral (typically property). An 80% LTV on a $500K home means a $400K loan and $100K down payment.

Loan-to-Value Ratio (LTV)

Loan-to-value (LTV) is the loan amount divided by the value of the asset securing it, expressed as a percentage. Lenders cap LTV to keep a cushion if they ever have to liquidate the collateral — so a lower LTV (more equity or down payment) generally means easier approval and better terms. It's central to commercial real estate, equipment, and mortgage lending.

Lockbox Service

A lockbox is a bank service where customers mail invoice payments to a dedicated P.O. box that the bank processes daily — extracting checks, depositing funds, and providing remittance data electronically. It accelerates accounts receivable collection and reduces float.

Loss Adjustment Expense (LAE)

Loss Adjustment Expense (LAE) is the cost an insurer incurs to investigate, manage, and settle claims — including claims adjuster salaries, legal defense costs, and third-party administrator fees — reported separately from incurred losses in NAIC statutory financial statements (https://content.naic.org/sites/default/files/inline-files/2023-Annual-Statutory-Basis-Financial-Statements-Instructions.pdf). LAE is divided into Allocated LAE (ALAE, tied to a specific claim) and Unallocated LAE (ULAE, overhead claim-handling costs not tied to individual claims) per NAIC SAP No. 55 (https://content.naic.org/cipr-topics/statutory-accounting-principles).

Loss Given Default (LGD)

Loss Given Default (LGD) is the proportion of a credit exposure a lender expects to lose if the borrower defaults — the inverse of the recovery rate. A 40% LGD means lenders expect to recover 60 cents on the dollar after default costs.

Loss Ratio

The loss ratio is the percentage of earned premium an insurer pays out in claims — calculated as claims paid (incurred losses) divided by earned premium — and is the primary measure of underwriting profitability published in NAIC annual financial statements (https://content.naic.org/sites/default/files/inline-files/2023-Annual-Statutory-Basis-Financial-Statements-Instructions.pdf). A loss ratio above 100% means the insurer paid more in claims than it collected in premium; below 100% indicates underwriting profit before expenses (https://www.fdic.gov/regulations/applications/pdf/fdi_acs_a.pdf).

Loss Reserve

A loss reserve is the accumulated balance-sheet provision set aside by a lender to absorb expected future credit losses — funded through provision expense on the income statement. Adequate reserving is required by FDIC bank examiners and governed by FASB ASC 326 (CECL) for bank financial reporting.

Low-Income Housing Tax Credit (LIHTC — IRC §42)

The Low-Income Housing Tax Credit (LIHTC) under IRC Section 42 is the primary federal program for financing affordable rental housing — providing tax credits to developers who set aside units for low-income households, which are then sold to investors to raise equity capital for construction.

LTV:CAC Ratio

LTV:CAC ratio divides Customer Lifetime Value (LTV) by Customer Acquisition Cost (CAC) to measure how efficiently a business converts sales and marketing spend into durable customer value. A 3:1 ratio is the widely-cited healthy benchmark for SaaS businesses; below 1:1 means the business destroys value on every customer acquired.

M

MACRS Depreciation

MACRS is the standard U.S. tax depreciation system that assigns business assets to property classes (3-year, 5-year, 7-year, etc.) and front-loads deductions using a declining-balance method.

Marginal Cost

Marginal cost is the cost of producing one additional unit of output. It drives pricing decisions, production-volume choices, and the point at which adding more output stops being profitable.

Mark-to-Market (Fair Value Accounting)

Mark-to-market (MTM) is an accounting method that values assets and liabilities at their current market price rather than historical cost — recognizing unrealized gains and losses through income or other comprehensive income. Governed by FASB ASC 820 (Fair Value Measurement) and IFRS 13.

Market Value

Market value is the price an asset would sell for in a current, arm's-length transaction between a willing buyer and willing seller. It is determined by appraisal, market comparables, or actual transactions.

Master Services Agreement (MSA)

A Master Services Agreement (MSA) is a contract that establishes the overarching legal terms — liability caps, IP ownership, indemnification, dispute resolution — governing all future work between two parties, with project-specific scope and pricing set in separate Statements of Work (SOWs). The FAR (Federal Acquisition Regulation, 48 C.F.R. § 16.505, https://www.acquisition.gov/far/16.505) uses indefinite-delivery contracts as a federal analogue to MSA/SOW structures.

Material Adverse Change (MAC)

A material adverse change (MAC) clause allows a lender to declare default or refuse to fund if the borrower's financial condition or prospects materially worsen between commitment and closing or draw.

Material Adverse Effect (MAE) Clause

A Material Adverse Effect (MAE) clause is a deal-termination trigger in M&A purchase agreements that permits the buyer to walk away (and typically recover their earnest money deposit) if the target company experiences a defined material adverse change between signing and closing. Delaware courts — which govern most M&A litigation — have interpreted MAE clauses narrowly, requiring a 'durationally significant' impairment (Delaware Chancery Court, Akorn, Inc. v. Fresenius Kabi AG, 2018).

MBDA (Minority Business Development Agency)

The MBDA is the US Department of Commerce agency supporting minority-owned businesses through a national network of Business Centers, capital access programs, federal contracting assistance, and policy advocacy.

Merchant Cash Advance

A merchant cash advance (MCA) is a form of business financing structured as a sale of future receivables — the funder advances capital upfront in exchange for a fixed daily or weekly draw from your business bank account until a contracted total payback is reached.

Mezzanine Debt

Mezzanine debt is a hybrid financing instrument that sits between senior secured debt and equity in a company's capital structure — typically unsecured, bearing higher interest rates (12-20%+ PIK or cash), and frequently including warrant kickers or equity co-investment rights.

Mezzanine Financing

Mezzanine financing is a hybrid of debt and equity that sits between senior debt and ownership in the capital stack. It is subordinated to senior loans, carries a higher rate to compensate for that risk, and often includes warrants or conversion rights that give the lender an equity upside.

Minimum Payment

The minimum payment is the smallest amount you must pay on a credit card statement by the due date to keep the account in good standing and avoid a late fee. Paying only the minimum on a high-balance account results in the majority of your payment going to interest rather than principal, significantly extending payoff time.

Modified Gross Lease

A modified gross lease is a commercial lease structure in which the landlord and tenant negotiate a split of operating expenses — somewhere between a full-service gross lease (landlord pays all expenses) and a triple-net lease (tenant pays all expenses). The specific cost-sharing formula is determined by negotiation and must be explicitly stated in the lease agreement. See GSA.gov and HUD.gov guidance on commercial lease structures for reference frameworks used in government-leased properties.

MOIC (Multiple on Invested Capital)

MOIC is the total value returned by an investment divided by the total capital invested — a straightforward multiple (e.g., 3.0x) that shows gross return without regard to timing or time value of money.

Monthly Recurring Revenue (MRR)

MRR is the total predictable, recurring revenue a subscription or contract business generates in a single month. It is the month-by-month operational pulse metric for subscription businesses and a key input to ARR.

Mortgage Points

Mortgage points (also called discount points) are upfront fees paid to a lender at closing to reduce the interest rate on a loan. One point equals 1% of the loan amount. Paying points 'buys down' the rate and reduces monthly payments — the trade-off is a higher upfront cost versus long-term savings.

Mortgage-Backed Security (MBS)

A mortgage-backed security (MBS) is a bond backed by a pool of residential or commercial mortgages — investors receive a pass-through of borrower principal and interest payments. Agency MBS are issued or guaranteed by Ginnie Mae, Fannie Mae, or Freddie Mac; the Federal Reserve tracks MBS holdings on its H.8 statistical release.

N

NAICS Code

A NAICS code is a 6-digit number that classifies a business by its primary industry activity — published by the U.S. Census Bureau. Lenders use NAICS codes as an industry-risk input in business loan underwriting; some SBA programs restrict or limit financing for specific NAICS codes.

NAICS Code System

The North American Industry Classification System (NAICS) is the U.S. standard for classifying businesses by economic activity — a 6-digit code assigned by the Census Bureau that determines SBA size standards, eligibility for government loan programs, and industry-level economic statistics.

NCUA (National Credit Union Administration)

The NCUA is the federal agency that charters and supervises federally chartered credit unions and insures deposits at federal and most state-chartered credit unions through the National Credit Union Share Insurance Fund (NCUSIF), up to $250,000 per member.

Net 30 (Vendor Terms)

Net 30 means invoice payment is due within 30 calendar days of the invoice date. It is the most common B2B trade-credit term. Net-30 vendor accounts that report to Dun & Bradstreet are a primary tool for building business credit from scratch.

Net 60 / Net 90

Net 60 and Net 90 are extended payment terms giving buyers 60 or 90 days to pay an invoice. Common in manufacturing, government contracting, and large-enterprise B2B sales. The longer the term, the more working capital the buyer needs to bridge the payment gap.

Net Interest Margin (NIM)

Net Interest Margin (NIM) is the difference between a bank's interest income on loans/investments and interest expense paid on deposits, expressed as a percentage of earning assets. NIM is the primary driver of bank profitability and directly influences how aggressively banks price and pursue SMB loans.

Net Lease (NNN)

A net lease — specifically a triple-net (NNN) lease — requires the tenant to pay base rent plus property taxes, building insurance, and maintenance costs. It is the dominant structure in single-tenant commercial real estate (retail, restaurants, medical, industrial). NNN leases shift operating expense risk and variability to the tenant.

Net Margin

Net margin is net profit expressed as a percentage of revenue — the bottom-line efficiency metric. It tells lenders how much profit survives after all costs and taxes. The median U.S. small business net margin runs 7–10% across sectors.

Net Operating Income (NOI)

Net Operating Income (NOI) is property revenue minus operating expenses — excluding mortgage payments and depreciation — and is the core underwriting metric for commercial real estate loans and SBA 504 deals.

Net Operating Loss (NOL)

A Net Operating Loss (NOL) occurs when a business's tax-deductible expenses exceed its taxable income in a given year. Under post-TCJA rules (for most businesses), NOLs can be carried forward indefinitely to offset future taxable income — but are limited to 80% of taxable income in any future year. NOL carrybacks were eliminated for most businesses by TCJA.

Net Present Value (NPV)

Net Present Value (NPV) is the present-value sum of all expected cash flows from an investment minus the initial cost. NPV > 0 means the investment creates value; NPV < 0 means it destroys value.

Net Proceeds

Net proceeds is the amount of money a borrower actually receives after all fees, costs, and deductions are subtracted from the gross loan amount. For a $100,000 loan with a 3% origination fee, net proceeds are $97,000. Understanding net proceeds helps borrowers budget accurately — you may need to borrow more than your project cost to receive enough after fees.

Net Profit

Net profit is the bottom-line income remaining after all business expenses, interest, and taxes are deducted from revenue. Lenders examine net profit on tax returns to assess a business owner's true take-home from the business as part of debt-service capacity analysis.

Net Working Capital (NWC) Adjustment

In M&A transactions, a Net Working Capital (NWC) adjustment is a post-close purchase price true-up that compares actual NWC at closing to a pre-agreed NWC target, with the purchase price adjusted dollar-for-dollar for any shortfall or excess. The SEC's Staff Accounting Bulletin Topic 5.T addresses purchase price allocation and working capital representations in acquisitions (https://www.sec.gov/interps/account/sabcodet5.htm).

New Markets Tax Credit (NMTC)

The New Markets Tax Credit (NMTC) program provides a 39% federal tax credit over 7 years to investors who make qualified equity investments in Community Development Entities (CDEs), which then deploy capital into low-income businesses and real estate projects. Authorized under IRC Section 45D, the program is administered by the CDFI Fund at Treasury. See cdfifund.gov and irs.gov/credits-deductions/businesses/new-markets-tax-credit.

Non-Performing Loan (NPL)

A non-performing loan (NPL) is a bank loan that is 90 or more days past due or has been placed on non-accrual status — meaning the bank has stopped recognizing interest income on it due to doubt about collectibility. NPL ratio is a core bank safety-and-soundness metric.

Notice of Default (NOD)

A notice of default (NOD) is a lender's formal written declaration that the borrower has defaulted on a loan. It triggers a cure period — typically 30–90 days — before the lender may accelerate the loan balance, pursue collateral, or initiate collection actions.

NSF Fee (Non-Sufficient Funds Fee)

An NSF (non-sufficient funds) fee is a charge assessed by a bank when a payment item — check, ACH debit, or bill payment — cannot be honored due to insufficient account balance. Under Regulation DD (12 CFR Part 1030) and CFPB oversight, banks must disclose NSF fee schedules. Chronic NSF activity is a significant underwriting negative for business loan applications. See cfpb.gov/data-research/research-reports/checking-account-and-non-sufficient-funds-fees and federalreserve.gov.

O

OCC (Office of the Comptroller of the Currency)

The OCC is the Treasury bureau that charters, regulates, and supervises national banks and federal savings associations — any bank with 'National' in its name or 'N.A.' after it falls under OCC oversight.

OFAC Sanctions Screening

OFAC sanctions screening is the compliance process by which financial institutions and businesses check customers, counterparties, and transactions against the Office of Foreign Assets Control's Specially Designated Nationals (SDN) list and other sanctions programs — a legal requirement enforced by the U.S. Treasury Department.

Open Banking

Open banking is a framework enabling consumers and businesses to securely share their financial account data with authorized third parties — via APIs — with the account holder's explicit consent. In the U.S., the CFPB's Personal Financial Data Rights rule (Section 1033 of Dodd-Frank) creates the regulatory foundation for open banking.

Operating Agreement (LLC)

An LLC operating agreement is the foundational governance document that defines ownership percentages, capital contributions, profit and loss allocations, management structure, voting rights, and transfer restrictions for a limited liability company. Most states require one; all lenders require it before approving a business loan.

Operating Cash Flow

Operating cash flow (OCF) is the cash generated by a business's core operations — before investing activities (CAPEX) and financing activities (debt repayment, equity). It equals net income adjusted for non-cash charges (depreciation, amortization) and changes in working capital. Positive and growing OCF is the strongest signal of business health for lenders.

Operating Company (OpCo)

An operating company (OpCo) is the subsidiary within a HoldCo/OpCo structure that conducts actual business operations, generates revenue, employs workers, and holds the operating assets — as distinct from the holding company (HoldCo) above it that owns the equity. Lenders typically lend to the OpCo and may require the HoldCo to pledge its equity interest as additional collateral. See irs.gov/businesses/corporations and sec.gov/cgi-bin/browse-edgar for tax and disclosure requirements in HoldCo/OpCo structures.

Operating Expenses (OPEX)

Operating expenses (OPEX) are the ongoing costs of running a business that aren't part of COGS — rent, utilities, marketing, non-production salaries, insurance, and administrative costs. OPEX is subtracted from gross profit to produce operating income (EBIT).

Operating Lease vs. Finance (Capital) Lease

An operating lease is a rental agreement — payments are an operating expense and the asset stays off the balance sheet. A finance lease (formerly capital lease) puts the asset and a corresponding liability on the balance sheet, treated like debt.

Operating Leverage

Operating leverage measures how sensitive a business's operating income is to changes in revenue. High operating leverage means a small revenue increase drives a large profit increase — but a small revenue drop drives a large loss.

Opportunity Cost

Opportunity cost is the value of the next-best alternative forgone when making a choice. It is often invisible in accounting but is always present in economic decision-making — and is critical to accurate ROI calculations.

Opportunity Zone

An Opportunity Zone is a census tract designated by a state governor and certified by the U.S. Treasury as eligible for Qualified Opportunity Zone (QOZ) tax benefits under IRC Sections 1400Z-1 and 1400Z-2 (added by TCJA 2017). The designation is permanent. Investors who reinvest capital gains into Qualified Opportunity Funds (QOFs) deployed in these tracts can defer and partially exclude federal capital gains tax. See irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions and treasury.gov.

Origination Fee

An origination fee is a one-time charge by a lender to process and underwrite a loan — typically 0-12% of the loan amount, deducted from the funds at closing. Already factored into the APR disclosure.

Overdraft

An overdraft occurs when a transaction exceeds the available balance in a bank account, resulting in a negative balance. Banks may cover the transaction (for a fee) or decline it. The CFPB has issued rules limiting overdraft fees on debit card and ATM transactions for large banks.

Owner's Draw

An owner's draw is a distribution of business profits to the owner of a pass-through entity (sole proprietorship, partnership, LLC, or S-corp). Draws are not a business expense and are not tax-deductible. They reduce owner equity and affect the business's debt-to-equity ratio.

Owner's Equity (Member's Equity)

Owner's equity is the owner's residual claim on business assets after all liabilities are subtracted. It equals total assets minus total liabilities. For LLCs it's called member's equity; for corporations, stockholders' or shareholders' equity.

P

Pari Passu

Pari passu (Latin: 'equal step') is a legal term meaning two or more obligations rank equally and share priority — neither has preference over the other in the event of default or liquidation. Lenders, bondholders, or creditors described as pari passu receive equal treatment in payment and enforcement.

Partnership

A partnership is a business entity owned by two or more people who share in profits, losses, and (depending on structure) liability. The three main forms are the general partnership (GP), limited partnership (LP), and limited liability partnership (LLP) — each with different liability exposure and, for lenders, a different personal-guarantee requirement.

Partnership Agreement

A partnership agreement is the foundational governance document for general partnerships and limited partnerships, defining profit and loss allocations, capital contributions, management authority, voting rights, partner responsibilities, and dissolution mechanics. All lenders require it before approving loans to partnership entities.

Pass-Through Entity

A pass-through entity is a business whose profits 'pass through' to its owners' personal tax returns instead of being taxed at the entity level — sole proprietorships, partnerships, S corporations, and most LLCs. Owners pay tax at individual rates; the business itself generally pays no separate income tax.

Pass-Through Entity Tax (PTET)

A Pass-Through Entity Tax (PTET) is a state-level income tax elected by partnerships, S corporations, and LLCs taxed as pass-throughs — paid at the entity level rather than by individual owners — specifically designed to work around the $10,000 federal SALT deduction cap for individual taxpayers. The IRS blessed this strategy in Notice 2020-75 (irs.gov/pub/irs-drop/n-20-75.pdf) on November 9, 2020. See irs.gov and your state's revenue department for applicable PTET rules.

Payback Period

Payback period is the time required for an investment's cash flows to equal the initial investment cost. It's a simple capital budgeting tool — shorter payback periods are preferred — though it doesn't account for the time value of money.

PAYDEX Score

The PAYDEX score is Dun & Bradstreet's business payment performance score, rated 0-100, where 80+ indicates on-time or early payment — the most widely cited business credit score in commercial lending and trade credit decisions.

Payment Bond

A payment bond is a surety guarantee that a general contractor will pay its subcontractors, laborers, and material suppliers on a construction project. Required alongside performance bonds on federal contracts over $150,000 under the Miller Act (40 USC 3131) and on most state public contracts under Little Miller Acts.

PCI Compliance Levels (Level 1–4)

PCI compliance levels (1–4) classify merchants by annual card transaction volume, determining audit requirements: Level 1 (>6M Visa/Mastercard transactions/year) requires annual on-site QSA audit + quarterly network scans; Levels 2–4 (fewer transactions) use Self-Assessment Questionnaires (SAQs). Defined by the PCI Security Standards Council at pcisecuritystandards.org and enforced through card network merchant agreements.

PCI DSS (Payment Card Industry Data Security Standard)

PCI DSS is the security standard mandating how merchants and payment processors must protect cardholder data. Compliance is required by the card networks (Visa, Mastercard, Amex) and enforced through merchant agreements; non-compliance can result in fines, increased transaction fees, or loss of card acceptance. The FTC enforces related unfair-practice rules under 15 U.S.C. § 45. See ftc.gov/tips-advice/business-center/guidance/complying-credit-card-act and the PCI Security Standards Council at pcisecuritystandards.org.

Percentage Rent

Percentage rent is a commercial lease provision — common in retail — requiring tenants to pay a base rent plus a percentage of gross sales above a 'natural breakpoint.' It aligns landlord income with tenant revenue performance and is standard in shopping center leases. The IRS addresses percentage rent deductibility under IRC Section 162. See irs.gov/publications/p535 and ftc.gov/business-guidance for related business expense and franchise guidance.

Performance Bond

A performance bond is a surety guarantee that a contractor will complete a project according to contract specifications. Required on most government construction contracts and many private construction projects. Bond premiums typically run 0.5–3% of the contract value.

Peril

A peril is a specific cause of loss covered — or excluded — by an insurance policy. Named-peril policies cover only the perils explicitly listed (fire, theft, windstorm). Open-peril (all-risk) policies cover every cause of loss except those specifically excluded.

Personal Financial Statement (PFS)

A Personal Financial Statement (PFS) is a standardized document — SBA Form 413 — listing all personal assets, liabilities, and income; required for SBA loans and most bank commercial loans when a personal guarantee is involved.

Personal Guarantee

A personal guarantee (PG) is a contractual promise by a business owner to personally repay a business loan if the business defaults — required from owners with 20%+ equity on virtually all SBA, bank, and alternative business loans. Failure to pay allows the lender to pursue personal bank accounts, real property, and other personal assets.

Personal Loan

A personal loan is unsecured installment debt — you borrow a fixed lump sum and repay it in equal monthly payments over a set term (typically 2-7 years) at a fixed APR. No collateral is required, so approval and pricing rest entirely on your credit and income.

Phantom Stock

Phantom stock is a deferred compensation arrangement that mimics equity ownership — employees receive cash payments tied to the value of company stock (or equity increases) without receiving actual shares. No real equity is issued; no ownership dilution occurs.

PIPE (Private Investment in Public Equity)

A PIPE (Private Investment in Public Equity) is a transaction in which accredited investors purchase securities directly from a public company at a negotiated price — typically at a discount to market — bypassing the registered public offering process. PIPEs are used to raise capital quickly and are subject to SEC registration rights requirements. See sec.gov/divisions/corpfin for SEC guidance on PIPE transactions and Regulation D exemptions at sec.gov/regulation-d.

Post-Money Valuation

Post-money valuation is the company's implied value immediately after a new investment closes — equal to pre-money valuation plus the new investment. It determines the investor's ownership percentage and the per-share price at which the round is priced. The SEC requires post-money valuation disclosure in Regulation CF (crowdfunding) Form C filings. See sec.gov/cfportal.

Pre-Money Valuation

Pre-money valuation is the value attributed to a company immediately before a new investment round closes — before the new capital enters the business. It determines what percentage of the company investors receive for their investment. The SEC requires disclosure of pre-money valuations in registration statements and Reg CF crowdfunding offerings (sec.gov/cfportal).

Pre-qualification vs Pre-approval

Pre-qualification is an informal estimate of how much you might borrow based on self-reported income and a soft credit pull — non-binding. Pre-approval is a lender's conditional commitment letter for a specific loan amount based on verified income and a hard credit pull.

Prepayment Penalty

A prepayment penalty is a fee charged by a lender for paying off a loan early — typically a percentage of the remaining balance or a defined number of months of interest. Most consumer loans no longer carry prepayment penalties under federal Truth in Lending Act standards.

Prime Rate

The prime rate is the benchmark interest rate U.S. commercial banks charge their most creditworthy corporate customers — set at roughly the federal funds rate plus 3 percentage points. As of August 2026, the prime rate is 6.75%, unchanged since the Fed's June 17 and July 29, 2026 meetings. Most SMB loan APRs are priced as prime plus a spread of 2–8%.

Principal

Principal is the original amount borrowed on a loan — separate from interest. Each loan payment splits between paying down principal and paying interest. Early in an amortization schedule, most of the payment goes to interest; as the loan matures, more goes to principal.

Private Activity Bond (PAB)

A Private Activity Bond (PAB) is a tax-exempt municipal bond where more than 10% of the proceeds benefit private entities and more than 10% of debt service is secured by private property — issued for qualified purposes such as manufacturing, affordable housing, airports, and nonprofit hospitals.

Private Party Auto Loan

A private party auto loan is financing used to buy a used car directly from an individual seller rather than a dealership. Fewer lenders offer them — mainly banks, credit unions, and some online lenders — and the process requires more documentation (title, VIN, bill of sale) because there's no dealer to handle the paperwork. Rates are often slightly higher than dealer or new-car loans, and lenders typically cap the loan to a percentage of the car's book value.

Pro Forma Financial Statements

Pro forma financial statements project hypothetical financial performance under specified assumptions — what the business will look like post-financing, post-acquisition, or post-expansion. Required for SBA acquisition loans.

Probability of Default (PD)

Probability of Default (PD) is the likelihood that a borrower will fail to meet its debt obligations over a given time horizon — typically one year — and is the foundational input in the Basel framework's Internal Ratings-Based (IRB) approach to credit risk capital.

Profit & Loss Statement (P&L / Income Statement)

A Profit & Loss statement (P&L or income statement) summarizes revenues, costs, and expenses over a period, showing net profit or loss. It is one of the three core financial statements and the primary document lenders use to assess profitability.

Profits Interest

A profits interest is a form of LLC equity compensation that entitles the recipient to a share of future profits and appreciation — but not existing value — at the time of grant. Under IRS Revenue Procedures 93-27 and 2001-43, a properly structured profits interest is not taxable at grant.

Property and Casualty Insurance (P&C)

Property and Casualty (P&C) insurance covers physical assets against damage or loss (property) and legal liability for harm caused to others (casualty). The National Association of Insurance Commissioners (NAIC) coordinates state-based regulation of U.S. P&C insurers.

Putable Bond

A putable bond gives the bondholder — not the issuer — the right to sell the bond back to the issuer at par on specified dates before maturity, protecting investors from rising interest rates. Because this option benefits investors, putable bonds carry lower yields than equivalent non-putable bonds. The SEC requires disclosure of put provisions in offering documents. See sec.gov and investor.gov for fixed-income investor guidance.

Q

Qualified Business Income (QBI) Deduction

The QBI deduction (IRC Section 199A) lets eligible owners of pass-through businesses deduct up to 20% of their qualified business income on their personal return, subject to income thresholds and limitations. It reduces the effective tax rate on business profits that flow through to the owner.

Qualified Business Income Deduction (QBI — IRC §199A)

The Qualified Business Income (QBI) deduction under IRC Section 199A allows eligible self-employed individuals and pass-through business owners to deduct up to 20% of qualified business income on their personal tax return — reducing effective federal income tax on business earnings.

Qualified Opportunity Zone (QOZ)

A Qualified Opportunity Zone is a designated low-income census tract under IRC Section 1400Z-2 (added by TCJA 2017) that offers capital gains tax deferral and partial exclusion to investors who reinvest realized gains into Qualified Opportunity Funds (QOFs) within 180 days. IRS Form 8996 is the annual reporting form for QOFs.

Quantitative Easing (QE)

Quantitative easing (QE) is a Federal Reserve monetary policy tool in which the Fed purchases large quantities of Treasury securities and agency mortgage-backed securities (MBS) to inject reserves into the banking system, suppress long-term interest rates, and stimulate economic activity — used when the federal funds rate is already near zero.

Quantitative Tightening (QT)

Quantitative tightening (QT) is the Federal Reserve's process of reducing its balance sheet — the reverse of quantitative easing — by allowing maturing Treasury and agency MBS securities to 'run off' without reinvestment, draining reserves from the banking system and putting upward pressure on long-term interest rates.

Quarterly Estimated Tax

Quarterly estimated taxes are IRS prepayments of income and self-employment tax made by self-employed individuals and business owners on income not subject to payroll withholding — due April 15, June 15, September 15, and January 15.

Quick Assets

Quick assets are the subset of current assets convertible to cash within 90 days — cash, accounts receivable, and marketable securities — explicitly excluding inventory. They form the numerator of the quick ratio.

Quick Ratio (Acid Test)

The quick ratio is (current assets minus inventory) divided by current liabilities. It measures immediate liquidity — how well a business can meet short-term obligations without relying on selling inventory. Also called the acid test ratio.

R

R&D Tax Credit (Research & Development Tax Credit)

The R&D Tax Credit (formally the 'Credit for Increasing Research Activities') is a federal income tax credit under IRC Section 41 (26 U.S.C. § 41) that offsets a portion of qualified research expenses (QREs) — including wages, contract research, and supplies used in qualifying R&D activities. See irs.gov/instructions/i6765 (Form 6765 instructions) and irs.gov/pub/irs-pdf/p535.pdf for qualification standards.

R&D Tax Credit (Section 41)

The federal R&D Tax Credit (IRC Section 41) provides a credit of up to 20% of qualified research expenditures above a base amount — in practice, most SMBs claim ~6–8% of qualifying R&D spending. Available to businesses developing new or improved products, processes, software, or formulas. Startup businesses with no tax liability can apply the credit against payroll taxes.

Real-Time Payments (RTP) / FedNow

Real-Time Payments (RTP) is The Clearing House's instant payment network (launched 2017); FedNow is the Federal Reserve's instant payment service (launched July 2023). Together, they form the U.S. instant payment infrastructure — enabling sub-15-second, 24/7/365, irrevocable fund settlement for businesses and consumers.

Recurring Revenue

Recurring revenue is revenue that repeats predictably from ongoing subscriptions, contracts, or memberships — as opposed to one-time transactional sales. Lenders value it because predictability reduces repayment risk.

Regulation B (Reg B)

Regulation B is the CFPB rule implementing ECOA. It sets the operational requirements for credit application data collection, adverse action notices, record retention, and — through Section 1071 — small-business lending data reporting.

Regulation CF (Equity Crowdfunding)

Regulation CF (Reg CF) is the SEC's crowdfunding exemption from Securities Act registration, enabling companies to raise up to $5 million per 12-month period from non-accredited investors through SEC-registered funding portals. Created by the JOBS Act (Title III, 2012) and effective since 2016, Reg CF is the only SEC exemption that democratizes equity investment to the general public. See sec.gov/cfportal and sec.gov/smallbusiness/exemptofferings/regcrowdfunding.

Regulation D (Rule 506(b) / 506(c)) — Private Placement

Regulation D Rules 506(b) and 506(c) are the most widely used SEC exemptions from Securities Act registration, allowing companies to raise unlimited capital from accredited investors without a public registration statement. Rule 506(b) permits up to 35 non-accredited investors with no general solicitation; Rule 506(c) allows general advertising but requires all investors to be verified accredited. All Reg D offerings require a Form D filing with the SEC within 15 days. See sec.gov/fast-answers/answersregdhtm.html.

Regulation Z (Reg Z)

Regulation Z is the CFPB rule implementing the Truth in Lending Act. It sets standardized disclosure requirements — including APR calculation methodology — for consumer credit products. It does not apply to commercial or business-purpose financing.

Repo (Repurchase Agreement)

A repurchase agreement (repo) is a short-term borrowing mechanism in which one party sells securities to another with a contractual agreement to repurchase them at a slightly higher price — typically overnight — making it the primary instrument of Federal Reserve open market operations.

Repo (Tri-Party)

A repurchase agreement (repo) is a short-term secured lending transaction in which one party sells securities and agrees to repurchase them at a higher price on a future date — the difference is the repo's implicit interest. In a tri-party repo, a third-party custodian (typically a clearing bank) manages collateral allocation and settlement between the two principals. The Federal Reserve Bank of New York operates the Tri-Party Repo Infrastructure as part of US money-market plumbing.

Reps & Warranties Insurance (RWI)

Representations and Warranties Insurance (RWI) is a specialized M&A indemnification insurance policy that covers losses arising from breaches of the seller's representations and warranties in a purchase agreement — allowing the seller to receive full deal proceeds at closing while insuring the buyer against post-close discoveries. The SEC's Regulation S-K (17 C.F.R. § 229.503, https://www.ecfr.gov/current/title-17/chapter-II/part-229/subpart-229.500/section-229.503) addresses material risk factor disclosure including indemnification obligations in public company M&A.

Reserve Requirements

Reserve requirements are Federal Reserve rules requiring banks to hold a minimum percentage of deposits as reserves (cash in vault or on deposit at the Fed). The requirement is currently 0% following the March 2020 emergency reduction. Reserve requirements affect bank lending capacity and the money supply.

Restricted Stock Unit (RSU)

A Restricted Stock Unit (RSU) is an employer's promise to deliver company shares (or cash equivalent) to an employee on a future vesting date. RSUs are taxed as ordinary income at vesting under IRC Section 83 — the employee receives taxable compensation equal to the fair market value of shares on the vesting date.

Retained Earnings

Retained earnings are the cumulative net income a business keeps rather than distributing to owners — an equity component on the balance sheet that signals profitability, reinvestment discipline, and growing business net worth.

Retainer (Professional Services)

A professional retainer is a prepaid fee paid to an attorney, CPA, or consultant that funds future services — the professional draws against the retainer as hours are billed, replenishing it when depleted, ensuring guaranteed access and priority service.

Return on Assets (ROA)

Return on assets (ROA) is net income divided by total assets, expressed as a percentage. It measures how efficiently a business uses its assets to generate profit. Higher ROA means more profit per dollar of assets deployed.

Return on Equity (ROE)

Return on equity (ROE) is net income divided by shareholder (owner) equity, expressed as a percentage. It measures the return generated for equity owners. Leverage amplifies ROE relative to ROA — a profitable use of debt increases ROE above ROA.

Return on Invested Capital (ROIC)

Return on Invested Capital (ROIC) measures how efficiently a business generates profit from every dollar of debt and equity invested — calculated as after-tax net operating profit (NOPAT) divided by invested capital. The SEC treats ROIC as a key non-GAAP efficiency metric for capital-intensive businesses.

Return on Investment (ROI)

Return on investment (ROI) is (gain from investment minus cost of investment) divided by cost of investment, expressed as a percentage. Used to evaluate whether a business decision — equipment purchase, marketing spend, financing — generates sufficient return relative to its cost.

Revenue-Based Financing (RBF)

Revenue-Based Financing (RBF) is a financing structure where repayment is a fixed percentage of monthly revenue — rather than a fixed daily ACH like an MCA or a fixed monthly installment like a term loan. Lower-cost than MCA for stable-revenue businesses; popular with SaaS and subscription companies.

Reverse Factoring

A buyer-initiated financing program where a financial institution pays a supplier's invoices early at a discount, with the buyer repaying the financier on the original due date—improving supplier cash flow without altering the buyer's payment terms.

Reverse Merger

A reverse merger (also called a reverse takeover or RTO) is a transaction in which a private operating company acquires a public shell company, inheriting its SEC-registered status and exchange listing without conducting a traditional IPO. The result is that the private company becomes public more quickly and at lower cost than a conventional IPO. See sec.gov/divisions/corpfin/guidance/spacs and sec.gov/cgi-bin/browse-edgar for SEC guidance and reverse merger shell company filings.

Reviewed Financial Statements

Reviewed financial statements have been examined by a CPA through analytical procedures and inquiries — not a full audit. The CPA provides limited assurance that no material modifications are needed.

Revolving Credit

Revolving credit is a credit structure where your available balance automatically restores as you repay — you borrow, repay, and borrow again up to your credit limit, paying interest only on the outstanding balance.

Revolving Credit Facility (Revolver)

A revolving credit facility (revolver) is a committed line of credit that allows a borrower to draw, repay, and redraw up to a maximum commitment amount over the facility's term — providing flexible, on-demand liquidity for working capital needs. Unlike term loans, revolvers have no fixed amortization. The Federal Reserve's G.19 Consumer Credit data and FDIC call reports track revolving credit usage. See federalreserve.gov/releases/g19 and fdic.gov.

Right of First Refusal (Corporate / Securities)

A corporate Right of First Refusal (ROFR) gives existing shareholders or the company the contractual right to purchase a selling shareholder's equity on the same terms offered by a third-party buyer — before the shareholder can transfer shares to the outsider.

Right of First Refusal (ROFR)

A right of first refusal (ROFR) gives existing investors or the company the contractual right to match any outside offer before a founder or shareholder can sell shares to a third party. ROFR provisions are standard in private company stockholders' agreements and are disclosed in SEC registration statements when companies go public. See sec.gov/edgar.

Risk-Based Pricing Model

A risk-based pricing model is a lender's framework for setting interest rates and fees based on a borrower's assessed credit risk — higher-risk borrowers pay higher rates to compensate the lender for expected losses. Required by Regulation B (12 CFR 1002) to provide risk-based pricing notices to borrowers who receive less favorable terms than others.

Risk-Weighted Assets (RWA)

Risk-weighted assets (RWA) are a bank's total assets weighted by their regulatory credit risk category under Basel III. RWA drives the amount of capital a bank must hold — higher-risk SMB loans get higher RWA weights, consume more bank capital, and are therefore priced higher than lower-risk assets like Treasury securities.

Routing Number

A routing number (formally ABA routing transit number) is the nine-digit code that identifies a U.S. bank or credit union in electronic transactions. It directs ACH payments, wire transfers, and check processing to the correct financial institution.

Runway

Runway is the number of months a business can continue operating at its current burn rate before exhausting its cash reserves: Runway = Cash Balance / Monthly Net Burn Rate. It is a survival metric used by startups, venture-backed companies, and early-stage businesses to plan fundraising timing and operational decisions. The SBA's small business financial management resources and FDIC's economic research both reference cash adequacy as a top small-business risk factor. See sba.gov and fdic.gov/bank/analytical/cfr for related guidance.

S

S Corporation Election (Sub-Chapter S)

An S Corporation election (IRS Form 2553) allows a qualifying corporation or LLC to be taxed as a pass-through entity — income and losses flow to shareholders' personal returns and are not taxed at the corporate level, avoiding double taxation.

S-Corp

An S-Corp is a pass-through tax election available to eligible C-Corps and LLCs that allows business income to pass through to owners' personal returns while splitting income between W-2 salary and distributions — the salary portion is subject to payroll tax; the distribution portion is not. Eligibility: ≤100 shareholders, all U.S. citizens or residents, one class of stock.

SAFE (Simple Agreement for Future Equity)

A SAFE (Simple Agreement for Future Equity) is a Y Combinator-pioneered instrument where an investor gives money today in exchange for the right to receive equity at a future priced financing round. Unlike a convertible note, a SAFE is not debt — no interest, no maturity date, no repayment obligation.

Sale-Leaseback

A sale-leaseback is a transaction where a business sells an owned asset (typically real estate or equipment) to an investor and simultaneously signs a long-term lease to continue using the asset as a tenant. It converts illiquid equity into cash while preserving operational use of the asset.

Same-Day ACH

Same-Day ACH is an ACH transfer that settles within the same business day rather than the standard 1-3 business day window. Available since 2016 (NACHA phased rollout), it carries a higher per-transaction fee but enables faster payroll funding, urgent vendor payments, and faster MCA disbursements.

Sarbanes-Oxley Act (SOX)

The Sarbanes-Oxley Act (SOX) is a 2002 federal law (Pub. L. 107-204) that established financial reporting, internal control, and corporate governance requirements for public companies following the Enron, WorldCom, and Tyco accounting scandals. Section 404 requires management and auditor attestation of internal control over financial reporting (ICFR).

SBA 504 Loan

The SBA 504 Loan Program is the U.S. Small Business Administration's fixed-asset financing program — long-term, fixed-rate loans up to $5 million per loan for purchasing commercial real estate or heavy equipment, structured through Certified Development Companies (CDCs).

SBA 7(a) Loan

The SBA 7(a) Loan Program is the U.S. Small Business Administration's flagship general-purpose business loan program — bank-originated loans up to $5 million per loan ($10 million cumulative across 7(a) + 504 effective July 4, 2026) with SBA guaranteeing 75-85% of the lender's risk.

SBA 8(a) Business Development Program

The SBA 8(a) Business Development Program is a 9-year certification program for socially and economically disadvantaged small businesses that provides access to federal sole-source and set-aside contracts, plus business development support.

SBA CAPLines

SBA CAPLines are four specialized SBA 7(a) line-of-credit structures designed for specific cash-flow shapes: Seasonal CAPLine (seasonal businesses), Contract CAPLine (contract-awarded businesses), Builder's CAPLine (construction/homebuilders), and Working Capital CAPLine (general-purpose revolving). Max $5M per line; terms up to 10 years.

SBA Disaster Loan

SBA Disaster Loans provide low-interest financing up to $2 million to businesses, homeowners, and nonprofits in federally declared disaster areas — covering both physical damage and economic injury from disasters.

SBA Express Loan

The SBA Express Loan is a faster variant of the SBA 7(a) program — lenders use SBA-delegated credit-decision authority to approve without waiting on full SBA review, capped at $500K. Revolving credit lines available for up to 7 years.

SBA Form 1919 — Borrower Information Form

SBA Form 1919 is the required borrower disclosure and eligibility certification for all SBA 7(a) loans. Every principal owning 20% or more of the applicant business must complete a separate Form 1919 attesting to citizenship, criminal history, debarment status, and the accuracy of all information submitted.

SBA Microloan

SBA Microloans are loans up to $50,000 made through nonprofit CDFI intermediaries — not directly by the SBA — designed for early-stage businesses, underserved communities, and borrowers who may not qualify for conventional financing.

SBA Small Business Development Center (SBDC)

SBDCs are a nationwide network of ~1,000 federally-funded advisory centers that provide free one-on-one business counseling and low-cost training to small business owners — funded through a partnership of the SBA, state economic development agencies, and universities.

SBIR (Small Business Innovation Research)

SBIR is a federal competitive grant program funding R&D at small businesses across 11 federal agencies — including DOD, NIH, DOE, and NSF. Awards are non-dilutive (no equity given up). Three phases: feasibility ($50–$300K), R&D ($750K–$2M), commercialization (Phase III, no SBIR funds — commercial or agency revenue).

SBLF (Small Business Lending Fund)

The Small Business Lending Fund (SBLF) was a U.S. Treasury program (2010–2016) that provided low-cost capital to community banks and CDFIs in exchange for increased small business lending — now fully repaid and closed, but historically relevant as a model for community-bank-focused lending stimulus.

Schedule C (Sole Proprietor Profit and Loss)

Schedule C is the IRS tax form attached to Form 1040 on which sole proprietors and single-member LLCs report business income and expenses — lenders use it as the primary income document for self-employed borrowers.

Schedule K-1 (Partner's/Shareholder's Share of Income)

Schedule K-1 is the IRS form issued by partnerships, S-corporations, estates, and trusts to report each owner's or beneficiary's share of pass-through income, deductions, credits, and other tax items — which the recipient then reports on their personal tax return.

Schedule SE

Schedule SE is the IRS tax schedule filed with Form 1040 to calculate self-employment (SE) tax — the 15.3% levy (Social Security + Medicare) paid by sole proprietors, independent contractors, and single-member LLC owners on net self-employment income (irs.gov/forms-pubs/about-schedule-se-form-1040).

SCORE — Service Corps of Retired Executives

SCORE is the SBA's largest network of volunteer business mentors — more than 10,000 volunteers in 250+ chapters nationwide — offering free, confidential mentoring, workshops, and resources to small business owners at every stage from startup to exit.

Second Lien Loan

A second lien loan is a secured debt instrument with a second-priority lien on collateral, subordinate to a first-lien senior loan in recovery priority at default. Second lien lenders accept higher default risk and demand higher interest rates — typically SOFR + 500-800 bps in the leveraged market. Intercreditor agreements govern the relationship between first and second lien holders. See fdic.gov and federalreserve.gov for leveraged lending supervisory guidance.

Section 1071 (CFPB Small Business Data Collection Rule)

Section 1071 of the Dodd-Frank Act (15 U.S.C. § 1691c-2) requires financial institutions to collect and report data on credit applications from small businesses and minority- and women-owned businesses. The CFPB finalized its implementing rule in March 2023 (88 Fed. Reg. 35150) to support fair-lending oversight and community development analysis. See cfpb.gov/compliance-guidance/small-business-lending for current implementation timelines.

Section 174 R&D Capitalization

Section 174 of the Internal Revenue Code governs the tax treatment of research and experimental (R&E) expenditures. A TCJA 2017 change — effective for tax years beginning after December 31, 2021 — eliminated the longstanding option to immediately deduct R&E costs, requiring domestic R&D to be capitalized and amortized over 5 years (15 years for foreign R&D).

Section 179 Deduction

Section 179 lets businesses deduct the full purchase price of qualifying equipment or software in the year of purchase — up to $2,560,000 for the 2026 tax year — instead of spreading the cost over years of depreciation.

Section 263A UNICAP

Section 263A of the Internal Revenue Code — the Uniform Capitalization (UNICAP) rules — requires certain taxpayers (primarily manufacturers and resellers with inventory) to capitalize indirect costs that are allocable to inventory or self-constructed assets, rather than immediately deducting those costs. Most small businesses with average annual gross receipts under $29M (2024 inflation-adjusted threshold) are exempt.

Secured vs. Unsecured Loan

A secured loan is backed by collateral — an asset the lender can claim if you default. An unsecured loan has no specific collateral backing; the lender relies on creditworthiness and cash flow alone. Secured loans typically offer better rates and larger amounts; unsecured loans are faster and require no asset pledge.

Self-Employment Tax (IRC §1401)

Self-employment tax is the 15.3% federal tax imposed on net self-employment income under IRC Section 1401 — covering the employee and employer shares of Social Security (12.4%) and Medicare (2.9%) that a sole proprietor or independent contractor must pay themselves.

Senior Debt

Senior debt has first-priority claim to a borrower's assets in bankruptcy or liquidation — it is repaid before subordinated debt and equity holders, making it the lowest-risk (and lowest-cost) layer of a business's capital structure.

Senior Secured Loan Fund

A senior secured loan fund is a private credit vehicle — typically a BDC, closed-end fund, or separately managed account — that originates or purchases first-lien floating-rate loans to middle-market businesses. These funds are the dominant mechanism of 'direct lending,' bypassing banks to provide senior secured debt directly to borrowers.

Servicing Rights (MSR / SSR)

Servicing rights are a separately tradable economic asset representing the contractual right and obligation to collect loan payments, manage escrows, handle defaults, and remit principal/interest to the loan owner — in exchange for a servicing fee (typically 0.25-0.50% annualized on UPB for mortgages). Mortgage Servicing Rights (MSRs) are the most traded form; commercial and SBA servicing rights follow similar economics.

Shareholders Agreement

A shareholders agreement is a contract among the shareholders of a corporation — typically a closely-held C-Corp or S-Corp — governing voting rights, transfer restrictions, drag-along and tag-along provisions, buyout mechanics, and dispute resolution. It supplements corporate bylaws and is required by lenders and investors before closing transactions.

Small Business Administration (SBA)

The U.S. Small Business Administration (SBA) is a federal agency, created in 1953, that expands small businesses' access to capital primarily by guaranteeing a portion of loans made by private banks and lenders — not by lending directly — alongside counseling, federal-contracting, and disaster-recovery programs.

Small Business Loan

A small business loan is financing extended to a business below SBA size-standard thresholds, spanning several distinct product families — term loans, SBA-guaranteed loans, lines of credit, working capital advances, equipment financing, and invoice factoring — each underwritten differently and priced differently.

SNDA Agreement

An SNDA (Subordination, Non-Disturbance, and Attornment) agreement is a three-part contract among a tenant, landlord, and the landlord's lender that: (1) subordinates the tenant's leasehold to the lender's mortgage, (2) commits the lender not to disturb the tenant's occupancy so long as the tenant is not in default, and (3) requires the tenant to attorn (recognize) a new landlord following a foreclosure. SNDA provisions in CMBS financings are governed by Freddie Mac Multifamily Seller/Servicer Guide standards (https://mf.freddiemac.com/docs/multifamily-seller-servicer-guide.pdf) and Fannie Mae DUS requirements (https://www.fanniemae.com/multifamily/lenders); for SBA 504 projects, SNDA recording requirements are addressed in SOP 50 10 8 (https://www.sba.gov/document/sop-50-10-standard-operating-procedure).

SOFR (Secured Overnight Financing Rate)

SOFR is the daily overnight interest rate based on U.S. Treasury repurchase agreement (repo) transactions. It replaced LIBOR as the benchmark rate anchoring most variable-rate commercial loans, adjustable-rate mortgages, and floating-rate bonds.

Soft Inquiry

A soft inquiry is a credit check that does not affect FICO or VantageScore and is not visible to other lenders on your credit report — used for pre-qualification, background checks, account reviews, and self-monitoring. Governed by the Fair Credit Reporting Act (15 U.S.C. § 1681 et seq., ftc.gov/legal-library/browse/statutes/fair-credit-reporting-act) and enforced by the CFPB (consumerfinance.gov) and FTC.

Sole Proprietorship

A sole proprietorship is the simplest business structure — a single owner with no legal separation between the business and the individual. All business income and liability pass directly to the owner. Sole proprietors cannot build business credit separate from personal credit.

Solvency

Solvency is a business's long-term ability to meet all financial obligations. A solvent business has total assets exceeding total liabilities. Insolvency is the legal and financial threshold for bankruptcy.

SPAC (Special Purpose Acquisition Company)

A SPAC (Special Purpose Acquisition Company) is a shell company that raises capital via an IPO — held in trust — for the sole purpose of acquiring a private company within a set timeframe (typically 18-24 months). The target company merges with the SPAC to become publicly traded without filing its own S-1. See sec.gov/divisions/corpfin/guidance/spacs and sec.gov/cgi-bin/browse-edgar for SEC SPAC guidance and filings.

Spread

In lending, a spread is the difference between a loan's interest rate and a benchmark rate (such as the Fed Funds Rate or SOFR). In credit markets, a credit spread is the yield difference between a corporate bond and a comparable Treasury. Spreads reflect the risk premium a borrower pays above the risk-free rate.

Springing Lien

A springing lien is a security interest that attaches and becomes perfected only upon the occurrence of a specified trigger event — such as a covenant breach, credit rating downgrade, or availability block — rather than at loan origination. The UCC Article 9 framework governs attachment and perfection timing for springing security interests (https://www.law.cornell.edu/ucc/9).

SSBCI (State Small Business Credit Initiative)

The State Small Business Credit Initiative (SSBCI) is a U.S. Treasury program allocating $10 billion to states, territories, and tribal governments (2022–2030) to fund small business lending and investment programs — particularly for businesses in underserved communities.

Stablecoin

A stablecoin is a digital asset designed to maintain a stable value relative to a reference asset — typically the U.S. dollar — through fiat reserves, overcollateralized crypto holdings, or algorithmic mechanisms. The U.S. Treasury Department has flagged stablecoins as potential systemic financial risks; the Federal Reserve (federalreserve.gov) and Financial Stability Oversight Council (treasury.gov/fsoc) have published guidance on stablecoin oversight.

Standby Letter of Credit (SBLC)

A standby letter of credit (SBLC) is a bank guarantee that pays the beneficiary if the applicant (borrower/contractor) fails to perform a specified obligation. Used in trade, construction performance, and lease security. Borrowers typically pay 1–3% per year in fees for SBLC issuance.

Standby Subordination

A standby subordination agreement allows a junior lienholder to retain its perfected lien position but contractually defers the right to collect payments until the senior lender is paid in full — or until the senior lender consents to payments resuming. The SBA requires standby agreements from all seller-financed notes in 7(a) transactions (SBA SOP 50 10 8, https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs-50-10).

Statement Balance

The statement balance is the total amount owed on a credit card at the end of a billing cycle — the amount shown on your monthly statement. Paying the full statement balance by the due date avoids all interest charges on those purchases.

Statement of Income — Form 1099-MISC vs. 1099-NEC

Form 1099-NEC reports nonemployee compensation (contractor and freelancer payments of $600+); Form 1099-MISC reports other miscellaneous income (rent, royalties, prizes, medical payments). These are separate IRS forms since 2020 — knowing the distinction matters for filing and self-employment tax.

Statement of Work (SOW)

A Statement of Work (SOW) is a project-specific document issued under a Master Services Agreement that defines deliverables, timelines, pricing, and acceptance criteria for a discrete engagement. The Federal Acquisition Regulation requires statements of work in most federal procurement contracts (FAR 48 C.F.R. § 37.602, https://www.acquisition.gov/far/37.602).

Stock Option (ISO vs. NSO)

Stock options give employees the right to buy company shares at a fixed price (exercise/strike price) in the future. ISOs (Incentive Stock Options, IRC Section 422) receive preferential tax treatment — no ordinary income at exercise, potential long-term capital gain. NSOs (Non-Qualified Stock Options, IRC Section 83) are taxed as ordinary income at exercise.

Stress Test (Banking)

A bank stress test is a federally-mandated simulation that measures whether a bank holds sufficient capital to survive a severe economic downturn. The two US programs are DFAST (Dodd-Frank Act Stress Testing) and CCAR (Comprehensive Capital Analysis and Review), both administered by the Federal Reserve for large banks.

Stripe Connect (Marketplace Payments)

Stripe Connect is a payment infrastructure product enabling platforms and marketplaces to process payments on behalf of their connected (third-party) merchants. It represents the broader 'payment facilitation' model where a platform handles card acceptance, funds flow, and onboarding — subject to Bank Secrecy Act / FinCEN requirements and card network rules. See fincen.gov for money-services-business registration guidance.

STTR (Small Business Technology Transfer)

STTR is a federal R&D grant program — sibling to SBIR — that requires a formal research partnership with a university or research institution. Five agencies participate: DOD, NIH, DOE, NASA, and NSF. Like SBIR, awards are non-dilutive grants.

Subordinated Debt

Subordinated debt is junior to senior debt in the repayment waterfall — paid only after senior creditors are satisfied in bankruptcy or liquidation. Higher risk means higher rates; it is common in M&A, recapitalizations, and SBA 504 structures.

Subordination Agreement

A subordination agreement is a contract reordering lien priority among multiple lenders — a junior (subordinated) lender contractually agrees to take a lower-priority position relative to a senior lender. Common in SBA 7(a) deals where multiple debt sources exist against the same collateral.

Subprime SMB Lending

Subprime SMB lending refers to business financing extended to small and medium businesses with below-prime credit profiles — typically personal FICO below 650, limited business credit history, or elevated default-risk indicators. The Federal Reserve's Small Business Credit Survey and FDIC Community Banking studies track subprime SMB credit access and associated pricing premiums.

Sunk Cost

A sunk cost is money already spent and non-recoverable. Because it cannot be changed by any future decision, it should not influence go-forward choices — though the 'sunk-cost fallacy' causes many people to let it.

Supply Chain Finance

A set of technology-enabled financing solutions that optimize cash flow by allowing businesses to extend payables, accelerate receivables, or unlock working capital trapped across the supply chain.

Surety Bond

A surety bond is a three-party guarantee among a principal (business), an obligee (project owner, government agency, or customer), and a surety (bonding company). The surety guarantees the principal will fulfill an obligation. Unlike insurance, the surety seeks full reimbursement from the principal after paying a claim.

Sustainability-Linked Loan (SLL)

A sustainability-linked loan (SLL) is a loan whose financial terms — typically the interest rate margin — adjust based on the borrower's performance against pre-agreed sustainability key performance indicators (KPIs). Unlike green loans, SLL proceeds can be used for any general corporate purpose; the pricing incentive is tied to measurable ESG outcomes. The ICMA/LMA Sustainability-Linked Loan Principles govern market practice. See federalreserve.gov/climaterisk and epa.gov for U.S. regulatory context.

Sweep Account

A sweep account is a bank service that automatically transfers excess funds from a business checking account into a higher-yield account (money market fund or MMA) at the end of each business day — then sweeps the funds back when needed to cover disbursements. Maximizes yield on idle cash with no manual action.

SWIFT MT103

SWIFT MT103 is the standardized financial messaging format used by banks worldwide to process international wire transfers (single customer credit transfers). Every international wire moves via a SWIFT MT103 message sent through the SWIFT network, carrying payment instructions, beneficiary details, and correspondent bank routing. The Federal Reserve and FDIC both reference SWIFT in BSA/AML compliance frameworks. See federalreserve.gov/releases/h3 and fdic.gov/bank/individual/bsamanual for regulatory context.

T

Tag-Along Rights

Tag-along rights (also called co-sale rights) give minority shareholders the contractual right to join a majority shareholder's sale of shares — receiving the same price per share and terms — so minorities are not left behind when the majority exits.

Tangible Asset

A tangible asset is a physical, touchable asset with economic value — equipment, vehicles, real estate, inventory, and cash. Tangible assets are depreciated over their useful life and are the primary collateral type in most business lending.

Tax-Exempt Bond

A tax-exempt bond is a debt obligation issued by a state, local government, or qualified nonprofit whose interest income is excluded from federal gross income under IRC §103 — lowering borrowing costs because investors accept lower yields in exchange for tax-free income.

Technical Default

A technical default (also called a covenant default or non-monetary default) occurs when a borrower violates a loan agreement's terms — a financial covenant, a reporting requirement, an insurance lapse — without missing a payment. It gives the lender the same remedies as a missed-payment default: acceleration, rate step-up, or collateral enforcement. See occ.gov's Comptroller's Handbook on Loan Portfolio Management for the regulatory framework banks use to classify covenant defaults.

Tenant Improvement Allowance (TI)

A Tenant Improvement Allowance (TI) is a landlord contribution — typically expressed as dollars per square foot — to fund a new tenant's build-out of leased commercial space. TI is a negotiated lease term and is treated as a lease incentive under FASB ASC 842.

Term Credit vs. Revolving Credit

Term credit delivers a lump sum repaid on a fixed schedule of equal payments over a set period. Revolving credit gives access to a credit limit that replenishes as you repay — draw, repay, draw again. Term products are best for one-time capital needs; revolving products are best for recurring working-capital gaps.

Term Life Insurance

Term life insurance covers you for a set period — usually 10, 20, or 30 years — and pays a death benefit to your beneficiaries if you die during that term. The premium is fixed for the term, there's no cash value, and the policy simply ends when the term expires. It's the lowest-cost way to get a large death benefit during the years people depend on your income.

Term Loan

A term loan is a business loan with a fixed amount, fixed APR (or floating tied to prime), fixed repayment schedule over a defined term — typically 1-10 years for working capital, up to 25 years for SBA real estate. Repayment via fully-amortizing monthly payments.

Term Loan B (TLB)

Term Loan B (TLB) is an institutional syndicated loan tranche designed for non-bank lenders (insurance companies, CLOs, hedge funds), characterized by minimal amortization (1% annually), floating rate pricing (SOFR + spread), and maturity of 5-7 years. TLBs are a core instrument in leveraged buyout (LBO) capital structures. The Federal Reserve's Y-14 capital stress test data and SEC filings track TLB issuance. See federalreserve.gov and sec.gov/edgar.

Term Sheet

A term sheet is a non-binding document outlining the key economic and governance terms of a proposed deal — an acquisition, investment, or loan — before the parties invest in full legal documentation. The SEC requires disclosure of material non-binding term sheets in 8-K filings for public companies. See sec.gov/cgi-bin/browse-edgar and the SBA's loan term guidance at sba.gov.

Thin Credit File

A thin credit file is a credit report with too few accounts or too little history for lenders to assess reliably — and sometimes too little for a credit score to even generate. CFPB research has found tens of millions of Americans are 'credit invisible' or have unscorable thin files.

Tier 1 Capital

Tier 1 capital is a bank's core equity capital — primarily common stock and retained earnings. Under Basel III, banks must maintain a minimum Tier 1 capital ratio of 6% of risk-weighted assets (RWA). Tier 1 capital directly determines a bank's capacity to absorb losses and extend credit.

Tier 1 Leverage Ratio

The Tier 1 Leverage Ratio is Tier 1 capital divided by average total consolidated assets — a non-risk-weighted capital adequacy measure under Basel III. The minimum requirement is 4% for adequately capitalized banks; well-capitalized banks must maintain 5%+.

Tier 2 Capital

Tier 2 capital is a bank's supplementary capital — subordinated debt, hybrid instruments, and general loan-loss provisions that absorb losses primarily in liquidation (gone-concern), rather than during ongoing operations. Under Basel III, Tier 2 is limited to 100% of Tier 1 capital in the Total Capital calculation.

Tier Pricing

Tier pricing is a risk-based lending model where borrowers are sorted into credit tiers — typically A through D or similar grades — with interest rates, fees, and terms assigned by tier. Stronger credit profiles qualify for Tier A (lowest cost); weaker profiles fall into Tier C or D (highest cost or decline).

Time in Business

Time in business is how long a company has been operating — one of the core factors lenders use to judge financing risk. Most products set a minimum: revenue-based financing often accepts 4–6 months, lines of credit typically want 12+ months, and bank term loans and SBA loans usually expect 24+ months. Newer businesses aren't shut out — they're routed to the products built for them.

Title Insurance

Title insurance is a one-time-premium policy, purchased at closing, that protects against covered defects in a property's title discovered after closing — undisclosed liens, forged deeds, missing heirs, or recording errors. A lender's policy is required by nearly every mortgage or real-estate-secured business lender and covers only the lender's interest; an owner's policy is optional and protects the buyer's equity.

Tokenization (Payments)

Payment tokenization replaces a cardholder's Primary Account Number (PAN — the 16-digit card number) with a unique, non-sensitive token that can be used for transactions but is useless if intercepted. Mandated or strongly incentivized by Visa and Mastercard network standards and PCI DSS Requirement 3 (pcisecuritystandards.org); reduces PCI scope and eliminates breach liability for the merchant.

Total Loss-Absorbing Capacity (TLAC)

Total Loss-Absorbing Capacity (TLAC) is a global requirement for the largest systemically important banks (G-SIBs) to maintain a minimum combined buffer of regulatory capital and long-term debt that can be written down or converted to equity to recapitalize the bank in resolution — without a taxpayer bailout.

TRAC Lease

A TRAC Lease (Terminal Rental Adjustment Clause lease) is a type of open-end motor vehicle or transportation equipment lease in which the lessee guarantees the residual value of the leased asset at lease end — bearing the risk that the equipment will be worth less than the projected residual (and receiving the benefit if it is worth more). TRAC leases are specifically exempted from consumer credit regulations under 15 U.S.C. § 1667(b) (Consumer Leasing Act carve-out, https://www.consumerfinance.gov/rules-policy/regulations/1013/) and are governed as commercial transactions; FASB ASC 842 requires lessees to classify TRAC leases as finance leases when the lessee's residual value guarantee meets the finance lease criteria (https://www.fasb.org/standards/accounting-standards-updates).

Trade Finance

Trade finance is the set of financial instruments and facilities — letters of credit, export working capital lines, bonded-warehouse duty deferral, and FX hedges — that reduce payment and currency risk in cross-border buying and selling. It bridges the gap between when an importer or exporter pays and when goods or cash actually change hands. EXIM Bank (exim.gov) and the SBA jointly back the Export Working Capital Program; see exim.gov and sba.gov/funding-programs/loans/sba-express-bridge-loan-program for program details.

Tradeline

A single credit account listed on a credit report, including its type, balance, payment history, credit limit, and status—the primary data unit lenders use to evaluate creditworthiness.

Tranching

Tranching is the process of dividing a securitization pool's cash flows into layers (tranches) with different risk, yield, and priority — senior tranches receive payments first and absorb the least risk; equity/junior tranches receive payments last and absorb losses first.

Treasury Bill (T-Bill)

A Treasury bill (T-bill) is a short-term U.S. government debt obligation issued by the U.S. Department of the Treasury with maturities of 4, 8, 13, 17, 26, or 52 weeks — sold at a discount to face value and redeemed at par, making the difference the investor's return.

Treasury Management

Treasury management is the set of bank services that help a business control, move, and protect its cash — ACH origination, wire transfers, sweep and zero-balance accounts, lockbox processing, and fraud-prevention tools like positive pay. Banks typically offer treasury management to established, higher-balance or higher-transaction-volume business customers as part of a full banking relationship, often alongside deposit accounts and lending.

Triple Net Lease (NNN)

A triple net lease (NNN) requires the tenant to pay base rent plus all three major property expenses: property taxes, building insurance, and maintenance/repairs. The landlord receives a 'net' rent with minimal operating expense risk. NNN leases are standard in single-tenant commercial real estate. The IRS governs NNN rent deductibility under IRC Section 162. See irs.gov/publications/p535 and fdic.gov/resources/supervision-and-examinations for commercial real estate lending context.

True Lease vs. Operating Lease

A true lease (also called a tax lease or operating lease for accounting purposes) is an equipment lease where the lessor retains tax ownership and residual-value risk — distinct from a finance lease (capital lease) where the lessee effectively owns the asset. FASB ASC 842 (2019+) changed how both are reported on the balance sheet.

Trust Receipt

A trust receipt is an import-financing instrument in which a bank releases imported goods to a buyer/importer before the buyer pays the bank — the buyer holds the goods in trust for the bank, and the bank retains a security interest until the goods are sold and payment remitted. Governed by UCC Article 9.

Truth in Lending Act (TILA)

The Truth in Lending Act (15 USC 1601 et seq.) is a federal law requiring clear disclosure of credit terms — including APR — on consumer credit products. Most commercial and small-business financing is explicitly excluded, which is why MCAs and other business products use factor rates instead of APR.

TVPI (Total Value to Paid-In Capital)

TVPI is a private fund performance metric that sums distributions already returned to investors plus the residual unrealized value of remaining holdings, divided by total capital called — the most comprehensive 'where-things-stand-today' multiple in private markets reporting.

U

UCC Continuation Statement

A UCC Continuation Statement (filed on Form UCC-3, checking the 'Continuation' box) extends the effectiveness of a UCC-1 financing statement for an additional 5-year period — maintaining the secured party's perfected first-priority lien on the collateral. Under UCC § 9-515, a continuation must be filed within the 6-month window before the original 5-year expiration; a filing outside this window is ineffective and the lien lapses (https://www.uniformlaws.org/committees/community-home?CommunityKey=60b580f4-0527-4445-97cc-168e9e339cdc). The SBA's SOP 50 10 8 requires lenders to maintain perfected liens for the life of SBA-guaranteed loans, including timely continuation filings (https://www.sba.gov/document/sop-50-10-standard-operating-procedure).

UCC Lien

A UCC lien (UCC-1 financing statement) is a public filing under the Uniform Commercial Code that gives a lender a secured claim on named business assets — equipment, receivables, inventory, or all assets ('blanket lien'). Filed with the secretary of state; stays active 5 years; visible to every subsequent lender.

UCC Search

A UCC Search is a pre-lending due diligence inquiry conducted at the Secretary of State's office (or equivalent filing office) to identify all active UCC-1 financing statements filed against a borrower — revealing existing secured creditors who hold priority liens on the borrower's assets. The Uniform Commercial Code Article 9 governs UCC filings and search procedures (UCC § 9-519 through § 9-528, https://www.uniformlaws.org/committees/community-home?CommunityKey=60b580f4-0527-4445-97cc-168e9e339cdc); SBA's SOP 50 10 8 requires lenders to conduct UCC searches on all SBA loan applicants (https://www.sba.gov/document/sop-50-10-standard-operating-procedure).

UCC Termination Statement

A UCC Termination Statement (filed on Form UCC-3) is the official document filed with the Secretary of State to release a UCC-1 financing statement — removing the secured party's perfected lien from the public record and restoring the debtor's assets to unencumbered status. UCC § 9-513 governs the secured party's duty to file a termination statement within 20 days of a debtor demand following full satisfaction of the secured obligation (https://www.uniformlaws.org/committees/community-home?CommunityKey=60b580f4-0527-4445-97cc-168e9e339cdc); the Federal Reserve's Commercial Credit Guide references UCC lien termination in the context of loan payoff mechanics (https://www.federalreserve.gov/releases/g19/).

UDAAP (Unfair, Deceptive, or Abusive Acts or Practices)

UDAAP stands for Unfair, Deceptive, or Abusive Acts or Practices — the federal consumer protection standard enforced by the CFPB under Sections 1031 and 1036 of the Dodd-Frank Act (12 U.S.C. §§ 5531, 5536) and by the FTC under Section 5 of the FTC Act (15 U.S.C. § 45). CFPB Bulletin 2013-07 established the examination framework. See consumerfinance.gov/compliance/supervision-examinations/udaap-examination-procedures for current examination procedures.

Underwriting (Business Lending)

Underwriting is the lender's process of evaluating a financing application to decide whether to approve it — and at what amount, rate, and terms. For business lending, underwriters weigh creditworthiness, cash flow, time in business, existing debt, and collateral. How heavy and manual the process is varies by product, from minutes (revenue-based) to weeks (SBA).

Unitranche Loan

A unitranche loan combines senior and subordinated debt into a single instrument with a blended interest rate, simplifying capital structure for middle-market borrowers. Common in the Business Development Company (BDC) and direct lending market. The SEC regulates BDC lenders under the Investment Company Act of 1940; see sec.gov/divisions/investment for BDC regulatory guidance.

USDA Business & Industry (B&I) Loan Guarantee

The USDA Business & Industry (B&I) Loan Guarantee program provides federal guarantees (up to 80% of principal and interest) on loans made by private lenders to rural businesses, enabling access to capital in communities of 50,000 or fewer residents that lack conventional financing options. Authorized under 7 U.S.C. § 1932(a), administered by USDA Rural Development. See rd.usda.gov/programs-services/business-programs/business-industry-loan-guarantees.

USDA Rural Development

USDA Rural Development administers several federal loan and grant programs for rural businesses, communities, and infrastructure — including the Business & Industry (B&I) Guaranteed Loan Program, Community Facilities (CF) direct loans, and Rural Energy for America Program (REAP) — all subject to rural-area eligibility (typically communities under 50,000 population).

Use of Funds Memo

A use of funds memo is a borrower-prepared narrative explaining exactly how loan proceeds will be spent — itemized by category and amount — required for SBA loan applications and standard practice for most bank commercial loans.

USPAP (Uniform Standards of Professional Appraisal Practice)

USPAP is the nationally recognized set of appraisal standards developed by the Appraisal Standards Board of The Appraisal Foundation — federal law requires USPAP compliance for all appraisals used in federally related real estate transactions.

V

VA Loan

A VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs — available to qualifying active-duty service members, veterans, and surviving spouses. Key benefits: 0% down payment, no PMI, competitive rates.

VantageScore

VantageScore is a credit-scoring model developed by Equifax, Experian, and TransUnion — used by free credit-monitoring services (Credit Karma, Credit Sesame, Capital One CreditWise). Different from FICO; tracks closely but differs by 20-50 points typically.

Variable Cost

Variable costs change directly with production or sales volume — raw materials, hourly labor, commissions, and shipping are typical examples. They scale proportionally with revenue.

VBOC — Veterans Business Outreach Center

VBOCs are SBA-funded resource centers that provide free entrepreneurship training, mentoring, and business development services exclusively to veteran-owned and transitioning service member small businesses — part of the SBA's Office of Veterans Business Development (OVBD).

Vesting Cliff

A vesting cliff is the minimum time period — typically one year — an employee or co-founder must remain with the company before any equity begins to vest. After the cliff, vesting continues incrementally (monthly or quarterly) over the remaining schedule.

Volcker Rule

The Volcker Rule (Dodd-Frank Section 619) prohibits banking entities from engaging in proprietary trading (trading for their own account) and from owning or sponsoring hedge funds or private equity funds ('covered funds'), with limited exceptions. The rule is jointly enforced by the Federal Reserve, OCC, FDIC, SEC, and CFTC.

Voting Trust

A voting trust is a legal arrangement in which shareholders transfer voting rights on their shares to a designated trustee for a fixed period — concentrating voting control without changing economic ownership of the underlying stock.

W

W-2 vs. 1099 Worker Classification

W-2 employees have taxes withheld by the employer and receive benefits; 1099 independent contractors are self-employed and pay their own taxes. Misclassification — treating employees as contractors — is an IRS audit trigger with significant penalties.

WBC — Women's Business Center

Women's Business Centers are SBA-funded resource centers that provide free and low-cost training, mentoring, and business development services to women entrepreneurs — with a focus on economically disadvantaged women, underserved markets, and barriers unique to women-owned businesses.

Weighted Average Cost of Capital (WACC)

WACC is the blended cost of a business's debt and equity capital, weighted by each component's share of total capital. It serves as the minimum return hurdle — investments must return more than WACC to create value.

Wire Transfer

A wire transfer is an electronic bank-to-bank transfer that processes in near-real-time through Fedwire (domestic) or SWIFT (international). Faster and more final than ACH — but costs $25-50 for outgoing domestic wires. Used for large, time-sensitive, or international payments.

Workers' Compensation Insurance

Workers' compensation insurance covers medical expenses and lost wages for employees injured on the job. It is state-mandated in all 50 states for businesses with employees (thresholds vary by state) and is a prerequisite for operating legally as an employer.

Working Capital

Working capital is the difference between a business's current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt) — the buffer of liquid resources that funds day-to-day operations.

Working Capital Ratio

The working capital ratio (current assets / current liabilities) measures short-term liquidity. Above 1.0 means positive working capital; below 1.0 means current liabilities exceed liquid assets. It is mathematically identical to the current ratio.

Y

Yield Curve

The yield curve plots U.S. Treasury interest rates across maturities from 3 months to 30 years. A normal (upward-sloping) curve means long rates exceed short rates. An inverted curve — where short rates exceed long rates — has historically preceded recessions and signals tighter lending conditions for businesses.

Yield Curve Inversion

A yield curve inversion occurs when short-term Treasury yields rise above long-term Treasury yields — most commonly when the 2-year yield exceeds the 10-year yield. The Federal Reserve Bank of New York tracks the 10y-2y spread as a historically reliable recession predictor, with every U.S. recession since 1955 preceded by an inversion.

Yield Maintenance

Yield maintenance is a prepayment penalty on fixed-rate commercial mortgages — typically CMBS loans — calculated to compensate the lender for the interest income lost when a loan is repaid before maturity, preserving ('maintaining') the lender's yield as if the loan had run to term.

Yield to Maturity (YTM)

Yield to Maturity (YTM) is the total annualized return an investor earns if a bond is purchased today and held until maturity, assuming all coupon payments are reinvested at the same rate. YTM is the standard metric for comparing fixed-income instruments and underlies the pricing of long-term business loans tied to Treasury benchmarks.

Z

Zero-Coupon Bond

A zero-coupon bond pays no periodic interest; instead, it is issued at a deep discount to face value and matures at par, with the investor's return being the difference. The IRS requires holders to accrue and pay tax on 'phantom income' (original issue discount, OID) annually under IRC Section 1272, even though no cash is received until maturity. See irs.gov/pub/irs-pdf/p1212.pdf for OID tax rules.