Small Business Funding Glossary

Accounts receivable represents a business's outstanding invoices — sales completed but not yet collected. Lenders may use A/R as collateral for secured lines of credit or finance the receivables directly through invoice factoring or invoice financing. Strong A/R management (low days sales outstanding, low concentration of risk in any single customer) improves a business's borrowing terms.

ACH is the electronic funds transfer system overseen by Nacha (the National Automated Clearing House Association) that handles trillions of dollars in transactions annually. In small business funding, ACH is the primary mechanism for both disbursing loan/MCA proceeds to your business account and for automatic repayment debits. ACH transfers typically settle within 1-3 business days.

In an amortizing loan, each periodic payment includes some principal repayment and some interest. Early payments are mostly interest; later payments are mostly principal. The total payment stays the same in a fixed-rate amortizing loan, but the proportion shifts over time. SBA loans, conventional bank term loans, and most equipment financing use amortization. MCAs and revenue-based financing typically don't.

APR includes the interest rate plus origination fees, servicing fees, and most other costs of borrowing — making it more useful for comparison than a simple interest rate. For products that don't quote APR (MCA factor rates, RBF revenue shares), an APR-equivalent can be calculated to enable comparison. Federal lending laws require APR disclosure on most consumer loans; small business loan APR disclosure varies by state and product type.

ARR equals MRR × 12 in steady state; it represents the value of all active subscription contracts annualized. RBF lenders for SaaS typically require minimum ARR thresholds (Capchase: $100K+ ARR; Lighter Capital: $200K+ ARR) and price advances as a percentage of ARR (often 20-60% of ARR available as upfront capital).

ABL is most common for businesses with $1M+ in revenue that have substantial accounts receivable and inventory. Lenders advance 80-85% of eligible AR plus 40-60% of eligible inventory. Rates run materially below unsecured products because the collateral protects the lender. The trade-off: monthly borrowing-base certificates and field exams add ongoing reporting overhead.

Balloon payments occur when a loan amortizes over a longer period than its term (e.g., a 25-year amortization with a 7-year term). The borrower makes lower monthly payments calculated on the longer amortization schedule, but owes the remaining balance as a single payment at term end. Balloon payments require the borrower to refinance, sell the asset, or pay from cash reserves at maturity.

BBB ratings range from A+ to F based on a complex algorithm including complaint volume relative to business size, complaint resolution rates, transparency of business practices, and time in business. BBB is a Tier 3 source — useful for synthesizing customer experience signals but not authoritative for product features or pricing.

A blanket lien (filed via UCC-1) gives the lender a security interest in essentially all business assets — equipment, inventory, accounts receivable, intellectual property, etc. — even though no specific asset was pledged. Multiple blanket liens from different lenders create stacking issues; many lenders won't fund if a prior blanket lien is active.

Bridge loans typically run 6-24 months at higher rates than the eventual permanent financing. They're common in commercial real estate (closing fast, then refinancing into SBA 504), business acquisitions, and inventory pre-buy scenarios. Bridge lenders prioritize speed of close over rate — the math justifies the higher cost when the deal would otherwise be lost.

Major business credit bureaus include Dun & Bradstreet (Paydex score, 0-100), Experian Business (Intelliscore Plus, 0-100), and Equifax Business (Business Credit Risk Score). Scores are built from trade payment history, public records, and business demographics. Strong business credit can occasionally substitute for personal guarantee requirements and meaningfully improves loan terms.

In broker-channel lending, the buy rate is what the lender quotes to the broker; the broker may pass through the same rate to the borrower or add a markup ("sell rate"). Reputable brokers disclose their commission structure and avoid hidden markups. The difference between buy rate and sell rate is one source of broker compensation, alongside lender-paid commissions.

RBF contracts specify a repayment cap as a multiple of the original advance. A $500,000 advance with a 1.8x cap means you repay a maximum of $900,000 total. Once the cap is reached, the obligation ends regardless of how much revenue your business generates. Cap multiples typically range 1.5x–3x. Faster-growing businesses hit the cap sooner, which counterintuitively means they pay a higher effective APR than slow-growing businesses on the same RBF terms.

A typical capital stack might include: senior secured debt (bank loan or SBA), mezzanine or subordinated debt, preferred equity, and common equity. Each layer has different risk and return characteristics. In default scenarios, repayment flows top-down: senior debt is paid first, then mezzanine, then equity holders receive whatever remains. Understanding the stack matters when adding new financing.

Cash flow lending evaluates revenue trends, profit margins, debt service coverage, and historical cash generation rather than physical collateral. Common in service businesses, professional practices, and software companies where assets are minimal. Underwriting often involves DSCR analysis (debt service coverage ratio) and trailing-12-month revenue review.

CDCs partner with banks to deliver SBA 504 loans: the bank provides 50% senior debt, the CDC provides 40% via SBA-guaranteed debenture, and the borrower contributes 10-15% down. CDCs are mission-driven, focused on economic development in their region. Major CDCs include CDC Small Business Finance, TMC Financing, Pursuit Lending, and Liftfund. There are roughly 230 active CDCs nationwide.

CDFIs are mission-driven lenders that focus on low-income, minority-owned, women-owned, and rural small businesses. They often issue SBA Microloans, offer technical assistance alongside capital, and price below-market when supporting target communities. CDFIs receive Treasury support and often grant funding that allows them to take risks commercial lenders won't.

Closing costs vary by loan type and size. SBA loans typically run 1-3% of loan amount in closing costs. Conventional commercial loans often run higher (3-5%). Online term loans sometimes bundle most fees into a single origination fee. Most closing costs can be financed into the loan itself rather than paid out-of-pocket at closing.

Common business loan collateral includes commercial real estate, equipment, inventory, accounts receivable, vehicles, and (occasionally) personal real estate. Loans secured by collateral typically price meaningfully better than unsecured loans because the lender's downside risk is reduced. Collateral is filed publicly via UCC-1 statements (for personal property) or mortgages (for real estate).

Commercial mortgages typically have shorter terms than residential (5-10 years vs 30) and often include balloon payments at maturity that require refinancing. Pricing is based on debt service coverage ratio (DSCR), loan-to-value (LTV), property type, and borrower strength. Common products include SBA 504, conventional bank commercial, CMBS (commercial mortgage-backed securities), and bridge financing.

A confession of judgment is a pre-signed legal document that authorizes the lender to enter judgment against the borrower in court without notice if the borrower defaults — bypassing normal due process. Historically common in commercial lending, COJ became controversial when used against small business borrowers who didn't realize what they signed. New York banned COJ enforcement against out-of-state defendants in 2019; other states still permit them. Always verify whether a contract includes a COJ before signing.

The credit elsewhere test is fundamental to SBA loan eligibility — SBA's role is to fill gaps in private lending, not to compete with banks for prime borrowers. Lenders document the test by showing why conventional financing was unavailable, declined, or offered on terms substantially worse than SBA terms. The test is one reason highly creditworthy borrowers with abundant capital options sometimes get SBA loans declined despite strong financials.

Common in multi-property real estate financing and equipment fleet financing. Borrowers should carefully review cross-collateralization clauses because they extend lender remedies beyond what the loan size alone would suggest. Generally favorable to lenders, less so to borrowers.

Lenders evaluate customer concentration because losing a single major customer can be existentially threatening to a small business with concentrated revenue. Most lenders prefer no single customer represents more than 25% of revenue; some won't fund if any customer exceeds 50% concentration. Diversified revenue from many smaller customers signals lower risk and earns better pricing.

DSO is calculated as (Accounts Receivable ÷ Total Credit Sales) × Number of Days. A business with $100K in A/R and $1M in annual credit sales has a DSO of 36.5 days. Industries vary widely (retail near zero; B2B professional services 45-90 days). Businesses with high DSO are candidates for invoice factoring or A/R-secured lines of credit.

DBAs are required when an LLC, corporation, or sole proprietor wants to use a public-facing brand name different from the registered legal name. Lenders typically require both the legal entity name and any DBAs to be disclosed during underwriting. Operating under a DBA doesn't create a separate legal entity — the underlying entity remains liable.

Defeasance allows the borrower to release the original collateral by replacing the loan with a portfolio of Treasury bonds that produces the same cash flow as the remaining loan payments. Because Treasury yields are typically lower than commercial loan rates, the cost of buying enough Treasuries can be substantially more than the loan's remaining principal — making defeasance the most expensive prepayment penalty type.

When a business raises equity capital, new shares are issued, reducing existing shareholders' ownership percentages. Founders concerned about giving up control or future value often prefer non-dilutive financing options (RBF, venture debt, term loans) even at higher upfront cost. The math: if RBF costs you $500K extra interest over 3 years but preserves 20% equity in a $50M exit, you net $9.5M vs. equity dilution.

DIP loans receive super-priority status — they must be repaid before other creditors. This makes them safer for lenders than typical credit, despite the borrower being in bankruptcy. DIP financing rates run 6-12% above benchmark depending on collateral and reorganization plan strength. Generally available only to mid-sized to large businesses; small businesses in bankruptcy typically liquidate (Chapter 7) rather than reorganize.

A draw is a discrete withdrawal from your available credit limit. With a revolving line, repaying a draw refills your available credit. Online lenders often charge draw fees ranging from 1.6% to 8.99% per draw; bank LOCs typically don't. Draw fees can dramatically increase the effective cost of LOC borrowing — a 3% draw fee on a $20K draw repaid in 30 days is equivalent to a 36% APR on that draw alone.

DSCR equals (Net Operating Income ÷ Total Debt Service). A DSCR of 1.0 means cash flow exactly covers debt payments — no margin for error. SBA 7(a) requires 1.15x minimum; most banks prefer 1.25x+. Higher DSCR earns better rates, larger loan sizes, and more flexible underwriting. DSCR is the single most important metric for SBA loan approval after personal credit.

Lender due diligence on small business loans typically includes: business and personal credit reports, bank statement analysis, tax return verification, UCC search for existing liens, OFAC sanctions screening, fraud database checks, and sometimes site visits or customer reference calls. Larger loans or M&A transactions involve much more extensive diligence including legal opinions, financial audits, and quality of earnings reports.

When a product doesn't quote APR (MCA, RBF, factoring), calculating effective APR allows apples-to-apples comparison with traditional loans. For an MCA: ((Factor Rate − 1) × 365) ÷ Repayment Days = approximate effective APR. The same factor rate produces dramatically different effective APRs depending on repayment speed.

Every business loan applicant must provide their EIN. Sole proprietors can use their SSN instead, though EINs are recommended for separation between personal and business credit. EIN applications are free at IRS.gov and typically processed instantly online. The EIN format is 9 digits separated as XX-XXXXXXX.

Capital leases (FMV or $1 buyout) function like equipment financing — you own the equipment at end of term. Operating leases are pure rentals — equipment returns to the lessor at term end (or you pay residual to keep it). Tax treatment differs: equipment financing allows depreciation; operating leases are fully expensed. Equipment financing is typically cheaper over time if you keep the equipment past the term.

SBA 7(a) loans for business acquisition typically require 10% equity injection from the buyer. Until recently, this had to come from the buyer's cash. As of 2026, SBA permits seller-financed standby notes (where the seller's note is fully subordinated and on standby for 24+ months) to count toward the 10% — enabling some buyers to acquire businesses with 0% out-of-pocket cash if the seller is willing to standby-finance.

Lenders on commercial mortgages typically require escrow accounts for taxes and insurance to ensure these obligations are paid even if the borrower defaults. The borrower deposits 1/12 of the annual obligation each month, and the servicer pays the bills when due. Some loans waive escrow requirements for strong borrowers.

A factor rate of 1.30 on a $50,000 advance means you repay $65,000 total — period. Unlike an interest rate that compounds on remaining principal, factor rates produce a fixed total repayment amount determined at signing. This makes the effective APR depend entirely on repayment speed: 1.30 over 6 months ≈ 60% APR; 1.30 over 3 months ≈ 120% APR. Always convert factor rates to effective APR for comparison shopping.

The Federal Reserve sets a target range for the fed funds rate, currently 3.50%–3.75% (post-December 2025 cut). The rate influences virtually all US lending: prime rate sits ~3% above fed funds, mortgage rates and SBA loan rates derive from prime, even credit card APRs adjust to fed funds changes.

FICO (named for Fair Isaac Corporation) scores incorporate payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%). Score thresholds: 800+ exceptional, 740-799 very good, 670-739 good, 580-669 fair, below 580 poor. SBA loans typically require 680+; MCAs accept 500+.

First position is the most desirable lien position for a lender because it provides maximum protection in default. Senior bank debt and SBA loans typically require first-position lien on the financed assets. UCC filing dates determine priority for personal property liens; mortgage recording dates determine priority for real estate liens.

Fixed rates provide payment certainty — your payment never changes. Variable rates float with a benchmark; they go down when rates fall (saving you money) and up when rates rise (costing you more). In a falling-rate environment, variable wins. In a rising-rate environment, fixed wins. SBA 7(a) loans can be either; SBA 504 are fixed; most online lenders use fixed rates; most bank LOCs use variable.

When a dealer receives inventory from the manufacturer, the floor plan lender pays the manufacturer directly. The dealer pays interest on each unit until it sells, then repays principal at sale. Floor plans typically include curtailment payments (small principal payments) on aging inventory to incentivize quick sale. Major floor plan lenders include NextGear Capital, Westlake Financial, and manufacturer captives.

Forbearance is not loan forgiveness; missed or reduced payments are typically added to the loan balance and recovered later. Common during natural disasters, major health events, or pandemic-style disruptions. Lenders prefer forbearance over default because foreclosure is expensive and slow. Forbearance terms are negotiated case-by-case and rarely match across lenders.

Gross margin equals (Revenue − Cost of Goods Sold) ÷ Revenue. SaaS businesses typically have 70-85% gross margins (low marginal cost to serve additional customers). Restaurants typically have 20-35% (high food costs). Manufacturing varies 15-50%. Lenders use gross margin to assess whether a business has financial cushion to service debt.

For FY2026: 2% on loans up to $150K, 3% on $150K-$700K, 3.5% on $700K-$1M, 3.75% on guaranteed portions over $1M. NAICS sectors 31-33 (small manufacturers) had this fee waived in FY2026. Plus an annual servicing fee of 0.55% on outstanding guaranteed balance, which cannot be charged to the borrower.

Hard inquiries occur when a lender pulls your credit specifically for an underwriting decision. They appear on your credit report for 24 months and impact FICO for ~12 months. Soft inquiries (pre-qualification, account monitoring) don't impact FICO. Most online lenders use a soft pull for initial offers and convert to hard pull only when you accept.

HELOCs typically offer the lowest interest rates available to small business owners (currently 8-9% APR vs. SBA's 9.75%-13.25%) because they're secured by real estate. The tradeoff: defaulting on a HELOC used for business purposes can cost you your home.

Holdback rate is the percentage of daily card sales (in MCA Split arrangements) or daily ACH deposits (in ACH-based MCAs) that automatically routes to the MCA provider until the advance is fully repaid. A 15% holdback on a business doing $10K daily means $1,500 per day to the MCA. Holdback rates are negotiable in some contracts; lower holdback extends repayment timeline but improves daily cash flow.

Lenders typically advance 40-70% of inventory value depending on type (raw materials < WIP < finished goods, retail < specialty). Common in retail, eCommerce, manufacturing, and distribution businesses. Inventory financing converts illiquid stock into working capital but requires regular reporting and field exams to verify inventory levels match the borrowing base.

In factoring, the factor advances 70-95% of an invoice's value upfront, then collects from your customer when the invoice is paid. Once collected, the factor pays the remaining percentage minus their discount fee (typically 1-5% of invoice value per month outstanding). Recourse factoring requires you to buy back uncollectable invoices; non-recourse factoring transfers default risk to the factor.

ISOs aggregate small business funding applications and route them to lenders best matched to the borrower's profile. Lenders pay ISOs commissions on placed deals (typically 1-8% depending on product). The ISO model exists because no single lender serves all credit profiles or product types.

Mezzanine financing is common in larger transactions ($5M+) that want more leverage than senior debt alone provides. Pricing typically runs 12-18% interest plus warrants for 2-8% of equity. Junior to senior bank debt but senior to common equity. Used by growing businesses that aren't ready for equity financing but need more capital than senior lenders will provide.

SBA 7(a) interest equals base rate (typically WSJ Prime, 6.75%) + lender markup. SBA caps the markup: maximum 3.0% for loans over $350K (so max rate 9.75% currently); 4.5% for $250K-$350K (max 11.25%); 6.0% for $50K-$250K (max 12.75%); 6.5% for under $50K (max 13.25%).

Letters of credit shift performance risk from one trading party to a bank. The buyer's bank guarantees payment to the seller upon document presentation; the seller can ship goods knowing payment is bank-backed. Common types: commercial L/C (trade payments), standby L/C (security deposits, performance bonds). Standby L/Cs are typical for landlord deposits and bonding requirements.

Cash and cash equivalents are most liquid. AR is fairly liquid. Inventory is moderately liquid. Equipment and real estate are illiquid. Lenders evaluate liquidity using current ratio (current assets ÷ current liabilities) and quick ratio (current assets minus inventory ÷ current liabilities). Strong liquidity reserves (3-6 months of operating expenses) signal underwriting strength.

Common loan covenants: maintain debt service coverage ratio above 1.20x, keep total debt below specified ratio of EBITDA, limit dividend payments, require regular financial reporting, restrict new debt without lender consent, prohibit major asset sales. Covenant violations can trigger default even without missed payments. Larger and longer-term loans typically include more covenants.

Common LTV thresholds: SBA 504 typically allows up to 90% (50% bank + 40% CDC, 10% buyer equity). Conventional commercial mortgages typically cap at 75-80%. Bridge loans go higher (80-85% LTV) at higher rates. Equipment financing typically allows 80-100% of equipment cost. Lower LTV (more buyer equity) typically unlocks better pricing.

MAC clauses appear in commitment letters and loan agreements as a lender protection. Definitions vary widely: some are tightly defined (specific revenue or asset thresholds), others are vague ("any change that materially affects the lender's position"). Vague MAC clauses provide lender flexibility but can create deal uncertainty for borrowers.

For amortizing loans, the maturity date is when the final scheduled payment fully retires the loan. For balloon loans, the maturity date is when the large remaining balance becomes due (often requiring refinancing). Bridge loans, balloon mortgages, and many commercial loans have shorter maturity dates than their amortization schedule, requiring refinancing or sale at maturity.

MRR includes all recurring subscription revenue normalized to a monthly basis (annual contracts ÷ 12). RBF lenders use MRR as the primary qualification signal: Founderpath accepts $10K+ MRR; Capchase requires $100K+ ARR; Lighter Capital requires $200K+ ARR.

Longer net terms shift working capital burden from buyer to seller. Sellers offering net-30+ terms often need invoice factoring or AR financing to bridge the cash flow gap. Some industries have de facto standards: net-30 for most B2B services, net-45 to net-60 for construction (against progress payments), net-60 to net-90 for staffing services and government contracting.

NDR equals (starting MRR + expansion − churn − contraction) ÷ starting MRR, measured over a 12-month cohort. NDR > 100% means existing customers are net-expanding even accounting for churn. Best-in-class SaaS shows 110-130% NDR.

Recourse loans (which include essentially all small business loans with personal guarantees) allow lenders to pursue the owner's personal assets — bank accounts, real estate, future earnings — if business assets don't satisfy the debt. Non-recourse arrangements limit lender collection to the specifically pledged collateral.

NSFs are red flags in lender underwriting. Most lenders tolerate 1-3 NSFs in a 90-day period; 4+ tightens or declines the file. MCAs are typically more tolerant (5-8 NSFs acceptable). Frequent NSFs signal cash flow stress and elevate default risk. Borrowers preparing for loans should minimize NSFs by managing balances carefully in the months before applying.

Common origination fee ranges: bank loans 0-1%, online term loans 1-6%, MCAs typically wrapped into the factor rate, SBA loans capped at 2-3.5% by regulation. The origination fee is the most common reason "stated APR" understates true cost — a 12% APR with 4% origination has a real APR closer to 13.5% on a typical 4-year term loan.

A personal guarantee makes the business owner personally liable for business debt — meaning a default can result in collection against personal assets, wage garnishment, and personal bankruptcy. Spousal guarantees may be required in community-property states. PGs survive business closure: even if you shut down the business, the obligation continues.

PLP lenders have demonstrated track records with SBA and earned authority to make SBA loan decisions independently. A standard SBA 7(a) goes to SBA for separate review (adding 2-4 weeks); a PLP-approved 7(a) skips that step (saving weeks). Choosing a PLP lender is one of the highest-leverage decisions for SBA loan timeline.

Used by businesses with confirmed orders that exceed working capital. Lender pays supplier; supplier ships to your customer; customer pays the resulting invoice; lender clears the loan. Common in import/export, contract manufacturing, government contracting. Rates are higher than traditional financing because the lender takes on supplier and customer risk simultaneously.

Common in SBA loans, commercial mortgages, and bridge financing. Origination points are paid as a fee with no rate reduction. Discount points pay down the interest rate (typical 1 point = 0.25% rate reduction). The economics depend on how long you hold the loan: discount points pay off if you hold past the breakeven period (typically 3-5 years).

SBA 7(a) loans have prepayment penalties only in the first 3 years if maturity is 15+ years (5%/3%/1% in years 1/2/3). Conventional commercial loans often have step-down schedules (5%/4%/3%/2%/1%). CMBS loans use defeasance. Many online term loans have no prepayment penalty — verify before assuming.

WSJ Prime Rate is currently 6.75% (effective December 10, 2025, after the Fed's Q4 2025 rate cut). Most variable-rate small business loans price as Prime + a markup. SBA 7(a) maximum rates are pegged to Prime.

The promissory note is the primary contract between borrower and lender. Other loan documents (security agreements, UCC filings, personal guarantees, mortgage instruments) supplement it. Notes can be amended by formal modification but not by oral agreement. In default, the note is the lender's primary basis for collection action.

Approximately 80% of MCA contracts include reconciliation clauses. The clause obligates the MCA provider to adjust the holdback rate downward if revenue drops below specified thresholds — preserving the legal characterization of the transaction as a "purchase of receivables" rather than a "loan." Knowing how to invoke reconciliation can save businesses in slow seasons.

Common refinance scenarios: lowering rate (rate-and-term refi), pulling out equity (cash-out refi), switching from variable to fixed (rate type refi), consolidating multiple loans into one. Refinancing typically incurs new closing costs, so the math has to work over the time horizon. SBA loans can refinance non-SBA debt if the new loan reduces debt service by 10%+.

MCA renewals are the lender's primary business model: they fund a borrower, see good repayment behavior, and offer a renewal at higher amount and (sometimes) better rate. Borrowers should compare renewal economics against external alternatives because lender economics aren't always borrower-favorable. Many MCAs require 50-70% of original advance to be paid down before renewal eligibility.

Reverse consolidations are pitched as relief for businesses suffocating under multiple stacked MCAs. The new MCA is typically smaller daily payment but extends total cost meaningfully. Often a slow-motion problem if used to mask underlying business deterioration. Used appropriately, can buy time for genuine recovery; used inappropriately, accelerates eventual failure.

Most business LOCs are revolving — your available credit refills as you repay. Some specialized LOCs (particularly some SBA Lines of Credit) are non-revolving: once drawn and repaid, the line is closed.

Risk-based pricing is universal in modern small business lending. Models incorporate FICO score, time in business, revenue, profitability, debt service coverage, industry, and dozens of other variables. Two borrowers applying for the same product can receive materially different offers based on risk-tier classification. Building credit and operating history is the borrower's primary lever to access better-priced tiers.

504 loans combine 50% from a bank lender, 40% from a CDC at fixed debenture rate, and 10-15% buyer down payment. The 40% CDC portion is fixed-rate for 10, 20, or 25 years — among the cheapest fixed-rate small business financing available. Cannot be used for working capital or inventory. Funding takes 60-120 days due to dual-loan coordination.

SBA 7(a) is the workhorse of SBA lending. Loans up to $5M with terms up to 10 years for working capital and equipment, 25 years for real estate. Variable or fixed rates tied to WSJ Prime + a regulated spread. Personal guarantee from 20%+ owners. SBA guarantees 75-85% of the loan to the lender, allowing more flexible underwriting than conventional bank loans.

SBA Express trades higher rate cap (Prime + 6.5% vs Prime + 4.75%) and lower SBA guarantee (50% vs 75-85%) for dramatically faster underwriting. Best for amounts under $500K where speed matters. Often the right balance between speed of online lenders and cost of standard SBA.

Microloans are designed for businesses too small for traditional 7(a) programs. Average microloan size is around $13K. Common uses: startup capital, working capital, inventory, equipment. Rates 8-13%. Often paired with technical assistance and business coaching from the nonprofit intermediary. Top intermediaries: Accion, LiftFund, Justine PETERSEN, ACCION USA.

SBA SOPs are dense regulatory documents (1,000+ pages) that lenders must follow. SOP 50 10 governs the 7(a) program; SOP 50 30 governs SBA Microloans. When SBA announces new rules, the SOP is the authoritative source.

Secured loans typically price 200-500 basis points below comparable unsecured loans because the collateral reduces lender risk. Common collateral: commercial real estate, equipment, vehicles, inventory, AR. The trade-off: lender remedies are stronger and the asset can be lost in default. Secured loans typically allow larger amounts and longer terms than unsecured equivalents.

Senior debt typically takes first-position lien on key collateral and includes the most restrictive covenants. Bank loans, SBA loans, and senior secured commercial mortgages are typical senior debt. The "senior" designation comes via subordination agreements with junior creditors; without subordination, lien priority defaults to filing date order.

SOFR is published daily by the New York Fed and reflects the cost of overnight borrowing collateralized by US Treasuries. It replaced LIBOR as the primary benchmark for variable-rate commercial lending. As of March 1, 2026, SBA permits 30-Day SOFR as an alternative to WSJ Prime as the base rate for variable 7(a) loans.

Soft pulls don't appear on credit reports visible to other lenders and don't reduce FICO. Used for pre-qualification offers, identity verification, and lender screening. Hard pulls (full credit checks) do appear on reports and can temporarily reduce FICO by 5-10 points. Most reputable lenders allow rate quotes via soft pull and only do hard pulls at final approval.

When a business takes a second or third MCA while a first is still outstanding, the daily holdback debits compound — sometimes consuming 40-60% of daily revenue. Most modern MCA contracts include "no additional debt" clauses; stacking can trigger default acceleration on existing positions. Stacking is a sign of distress, not strategy.

When acquiring a business, SBA traditionally required 10% equity injection from the buyer's cash. Recent SBA rule changes allow seller-financed standby notes to count: the seller takes back a note from the buyer that pays nothing for 24+ months and is fully subordinated to SBA debt. This effectively allows acquisition with 0% out-of-pocket if the seller is willing.

Subordination is required when adding new senior debt to a capital stack with existing creditors. Junior creditors (often original lenders or seller-financing) sign subordination agreements acknowledging the new senior position. Subordination is permanent unless the senior debt is repaid; junior creditors lose negotiating leverage upon signing.

Common in lender relationships: a borrower's operating account is "swept" daily into a debt service account, optimizing cash management. Some asset-based loans require sweep arrangements that automatically reduce loan balances when cash accumulates. Trade-off: less direct cash control but better debt service automation.

Lenders measure TIB from incorporation/formation date. SBA prefers 2+ years; bank term loans typically 2+ years; online term loans 1+ year; LOCs 1-2 years; MCAs 6+ months. Newer businesses face higher denial rates and worse pricing where they qualify at all.

TCC is more useful than APR for comparing structurally different products. A $100K MCA at 1.32 factor has a $32K TCC over its term. A $100K term loan at 14% APR over 24 months has roughly $14K TCC. TCC strips out timing differences (which APR captures) but is more intuitive for comparing dollar-for-dollar costs across products.

As of April 2026: 5-year Treasury 4.02%, 10-year Treasury 4.40%, both up roughly 10 basis points from start of year. SBA 504 rates are tied to 10-year Treasury plus spreads. Commercial mortgages often price as Treasury + spread.

UCC-1 filings are public records visible to any other lender researching your business. They establish priority — first to file generally has first claim on the secured assets in default. Multiple UCC filings make new lenders nervous (existing lenders have first claim on assets). UCC-1 filings expire after 5 years unless extended.

UDAP standards require lenders to provide accurate disclosures, avoid deceptive marketing, and refrain from abusive practices. The CFPB enforces UDAP in consumer lending; FTC enforces in commercial. UDAP enforcement actions against MCA providers since 2020 have addressed misleading APR disclosures, hidden fees, and aggressive collection practices.

Common in SBA lending: the SBA SOP allows certain borrowers, but individual SBA lenders apply overlays (higher minimum FICO, longer time-in-business requirements, industry restrictions) reflecting their risk appetite. This is why one SBA lender may decline a file that another SBA lender approves — same SBA program, different overlays. Working with multiple lenders simultaneously surfaces overlay differences.

Usury laws vary dramatically by state. Some states (Delaware, South Dakota) effectively have no commercial usury limits — which is why many lenders incorporate there. MCAs are typically structured to fall outside loan classifications and thus outside usury limits — but courts in NY, CA, NJ have ruled that some MCA contracts function as disguised loans subject to usury law when they bear minimal repayment risk.

Venture debt is typically issued by specialty lenders (Hercules Capital, Western Technology Investment, TriplePoint Capital) to companies that have raised institutional equity. Structure: 2-4 year term, interest rates 8-15%, plus warrants (rights to buy equity at preset price) as additional lender compensation. Used primarily to extend runway between equity rounds at higher valuations.

Working capital = current assets (cash, AR, inventory) minus current liabilities (AP, short-term debt, accrued expenses). Positive working capital is operationally healthy. Negative working capital signals stress. Working capital lending products (LOC, factoring, MCA, working capital loans) all aim to bridge gaps in working capital cycles. The right product depends on which side of the cycle is creating the gap.

Workouts are negotiated when a borrower can't meet original terms but the lender prefers modification over foreclosure (which is expensive and slow). Common workout outcomes: term extension, rate reduction, principal forgiveness, asset surrender, or chapter 11 reorganization. Workout teams are specialized within larger lenders. Borrowers in trouble should engage early — workout flexibility narrows as the situation deteriorates.

Yield maintenance penalties make the lender "whole" by charging a premium that, when invested at current Treasury rates, produces the same yield as continuing the loan to maturity. In a falling-rate environment, yield maintenance penalties are larger. In rising-rate environments, yield maintenance can be near zero. Less expensive than defeasance but more variable.

The 504 debenture rate is set at the time of bond issuance, typically tracking the 10-year Treasury plus a spread. As of mid-2025, rates ran in the 7.5-9.5% range. Once funded, the rate is fixed for the entire 10, 20, or 25-year term. This makes 504 loans the cheapest available fixed-rate small business real estate financing in most market conditions.

A-paper merchants typically have 700+ FICO, 24+ months in business, and consistent monthly deposits with no NSFs. B-paper sits in the 600-680 FICO band; C-paper 540-600; D-paper below 540 or with significant defects (frequent NSFs, prior defaults, deep stacks). Pricing tightens by tier — A-paper deals price near the floor of a lender's factor range, D-paper near the ceiling. The grading is informal: each lender applies its own thresholds, and the same merchant may be A-paper to one lender and B-paper to another based on industry or stack tolerance.

When a merchant has accumulated multiple MCA positions (a "stack"), the cumulative daily debits can exceed cash flow capacity. A consolidation product pays off the existing positions at the time of new funding, so the merchant exits the day with one new position instead of the pile they walked in with. Standard MCA consolidations cover 1-3 existing positions; deep-stack consolidations cover more. Pricing on consolidations is typically higher than first-position pricing because the new lender takes on the aggregate risk of the prior positions.

Deep-stack underwriting addresses merchants in genuine cash flow distress — but the structural pattern of stacking position after position frequently destroys the underlying business. Pricing on deep-stack advances reflects the risk: factor rates run 1.30-1.49+ and terms compress, creating aggressive daily debits. Deep-stack lending serves a real need (bridge financing for borrowers with documented payoff plans) but is structurally dangerous when used to delay an inevitable workout. A reasonable rule of thumb: if the deep-stack advance is the bridge to a refinance or consolidation that exists, it can serve. If it's just one more position on the pile, it's a debt spiral.

RBF differs structurally from both term loans (fixed-dollar payments) and traditional MCAs (fixed daily debits). Repayment scales with actual revenue: a slow month means a smaller payment, a strong month means a larger one. Pricing is typically expressed as a flat fee or "cap" (e.g., 1.10x means repay $110K against a $100K advance, regardless of how long it takes). RBF is dominant in SaaS (Capchase, Pipe) and eCommerce (Clearco) where revenue metrics are clean and high-frequency. The model fits high-margin recurring-revenue businesses better than it fits services or retail.

NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR. NRR over 100% means existing customers grew their spend faster than churn took it away — a strong indicator of product-market fit. NRR is the primary metric SaaS RBF lenders (Capchase, Pipe) underwrite to: an NRR of 110% or higher reduces required collateral and improves pricing dramatically. NRR below 90% signals shrinking customer cohorts and tightens RBF availability across the category.

Logo churn counts customers who left; revenue churn weights each loss by the customer's MRR. A SaaS business with 5% monthly logo churn loses about half its customers in a year before any new acquisition. RBF and venture debt lenders evaluate churn carefully: a churn rate above 5% monthly typically disqualifies a business from cheaper RBF pricing, regardless of growth. Stable churn under 2-3% monthly with NRR over 100% is the metric profile that unlocks the cheapest non-equity capital available to SaaS businesses.

SBA 7(a) loans are capped at $5M, but pari passu structures allow a bank to fund alongside the SBA-guaranteed portion under a shared lien. The SBA portion guarantees up to $5M; the bank's pari passu portion adds funding above that, secured at the same collateral seniority. Total financing in pari passu structures typically reaches $10-15M. Live Oak Bank, Newtek, and Celtic Bank all execute pari passu deals on larger acquisitions and real estate purchases. The structure is borrower-friendly because it keeps the SBA guarantee on the first $5M and the bank's pari passu portion at SBA-comparable rates rather than at conventional commercial pricing.

Platform-embedded capital underwrites against the seller's processing history on the platform — no FICO, no separate application, often invitation-based. Funding lands directly in the platform balance and repayment is automatically deducted from future processing volume. The trade-off: capital is sized exclusively to platform-specific sales, so a seller diversified across processors gets only a slice of their true capacity at each platform. Effective APR varies widely with payback velocity (the fixed-fee structure obscures true cost). Best fit: platform-heavy sellers who want speed and simplicity; worst fit: multi-channel sellers who'd be better served by traditional working capital evaluating total deposits.

Cross-reference. The full definition is filed under NRR.

Backdooring violates the merchant's expectation that their application is being shopped on their behalf, and frequently violates broker-lender agreements and confidentiality terms in the application. Common patterns: a broker who can't fund a deal sells the file to another broker without merchant consent, or a broker submits a deal to a lender after the merchant has already accepted a competing offer. The merchant ends up with multiple lender pulls, multiple stacking offers, and exposure to lenders they never authorized. Reputable brokers don't backdoor; merchants who suspect it should ask the broker for the lender list and submit-channel disclosures in writing.

Hard blocks are categorical and non-negotiable: bankruptcy within the past 12-24 months at most lenders, federal tax liens above program-specific thresholds, certain high-risk industries (gambling, MLM, adult), and missing documents that can't be substituted. Soft flags trigger additional review and may require a higher credit score, larger down payment, or smaller advance, but don't end the application. Knowing which conditions are hard blocks for which lenders saves time on submissions; soft flags often resolve with a phone call to the underwriter.

Soft pulls let a lender check creditworthiness without pulling the score down. Pre-qualifications, soft offers, and "check your rate" tools all use soft pulls. Hard pulls happen at formal application or final underwriting. Multiple hard pulls within 14-45 days for the same loan type often count as one inquiry under FICO rate-shopping rules — useful when comparing offers. Apply funnels at reputable brokerages should perform soft pulls only until the merchant chooses an offer; hard pulls should be disclosed before they happen.

PPP loans were forgivable if used for payroll, rent, and utilities under specific guidelines; EIDL loans were 30-year, low-interest disaster loans with a separate forgivable advance. Both programs ended in 2021 but their balance sheet effects persist: outstanding EIDL balances, PPP forgiveness disputes, and eligibility records continue to affect credit profiles and SBA underwriting eligibility today. A current SBA loan applicant with an unresolved EIDL or pending PPP forgiveness review may face approval delays or required certifications. The programs are no longer accepting new applications.

Lockboxes appear in invoice factoring (where the factor takes assignment of receivables), some asset-based lending facilities, and structured commercial real estate loans. The borrower's customers send payments to a P.O. box or DDA owned by the lender; the lender takes its payment and remits the balance. Lockboxes are unusual in standard MCA and term lending — if a lender requires one, the structure has shifted toward asset-based or factoring territory and the borrower should understand the cash flow implications.

Daily remit = (Total payback amount) / (Number of business days in the term). On a $50K advance with a 1.30 factor and a 6-month term (~120 business days), the daily remit is roughly $542. Daily remits are technically fixed dollar amounts, not percentages of revenue — this is the structural difference between an MCA and revenue-based financing. Some MCA contracts allow merchants to request "true-up" or pause provisions during slow periods, though these are negotiated case-by-case rather than guaranteed.