FUNDING GLOSSARY
Business Funding Terms, Explained Clearly
A plain-English reference for common words and phrases used in business financing.
Funding agreements can use unfamiliar language. This glossary explains the terms business owners are most likely to encounter when comparing products, reviewing offers, and evaluating repayment obligations.
Plain-English Definitions
Educational Resource
No Obligation
Definitions are general. Actual meanings, calculations, and obligations are controlled by the applicable agreement and provider.
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Four Terms to Review Before Accepting Funding
These four items often have the greatest practical effect on the business and its cash flow.
Funding Amount
The amount made available or disbursed to the business, which may differ from the amount requested.
Total Cost
The full amount the business may pay above the funds received, including applicable interest, financing charges, and fees.
Payment Frequency
How often payments are due, such as daily, weekly, or monthly. Frequency can materially affect cash flow.
Repayment Term
The period over which the obligation is scheduled to be repaid or the date by which it matures.
A-C
Funding Terms: A Through C
Amortization
The process of paying an obligation down over time through scheduled payments. In a traditional amortizing loan, each payment generally includes both principal and interest.
Annual Percentage Rate (APR)
A standardized annualized measure that may include interest and certain finance charges. APR can help compare some credit products, but it may not be presented or calculated for every type of commercial financing.
Annual Gross Revenue
The total revenue a business generates before subtracting operating expenses, taxes, debt payments, and other costs.
Asset-Based Financing
Financing in which approval, amount, or security is connected to business assets such as receivables, inventory, equipment, or other eligible property.
Business Credit
A business’s credit history and profile. Providers may review business credit, personal credit, or both depending on the product and applicant.
Cash Flow
The movement of money into and out of a business. Providers may review deposits, operating expenses, balances, seasonality, and the business’s ability to support additional payments.
Collateral
Property or assets pledged to secure an obligation. If the borrower defaults, the secured party may have rights in the collateral under the agreement and applicable law.
Credit Limit
The maximum amount available under a revolving credit account, subject to draw rules, account status, provider review, and continued eligibility.
Credit Pull or Credit Inquiry
A review of a personal or business credit report. A soft inquiry generally does not affect a consumer credit score, while a hard inquiry may. Authorization and inquiry type vary by provider and stage of review.
D-L
Funding Terms: D Through L
Daily Payment
A repayment structure requiring payments on each business day or another defined daily schedule. Businesses should evaluate how frequent withdrawals affect operating cash flow.
Default
A failure to meet an obligation under the agreement, such as missing payments or violating another required condition. The agreement defines the events of default and available remedies.
Draw
An amount taken from an available line of credit. A draw may have its own minimum amount, fee, repayment schedule, or other requirements.
Factor Rate
A decimal multiplier sometimes used to calculate a fixed repayment amount. Multiplying the funded amount by the factor rate may produce the stated repayment amount before additional fees. A factor rate is not the same as an interest rate or APR.
Fixed Rate
A rate that generally does not change during the stated period, subject to the agreement. A fixed rate does not necessarily mean every fee or payment feature is fixed.
Gross Revenue
Business income before deducting expenses. Providers may use gross revenue as one factor when evaluating eligibility or potential funding amounts.
Interest Rate
The percentage charged for borrowing principal, usually expressed over a stated period. The interest rate alone may not include origination fees, closing costs, or other charges.
Line of Credit
A revolving credit structure that may allow the business to draw funds up to an approved limit, repay outstanding balances, and potentially access available credit again under the provider’s terms.
Loan Term
The scheduled length of the loan or financing agreement, often measured in months or years. The term influences payment amount, total cost, and maturity date.
M-R
Funding Terms: M Through R
Maturity Date
The date by which the remaining balance or obligation is scheduled to be fully paid, unless the agreement is renewed, extended, refinanced, or otherwise modified.
Minimum Draw
The smallest amount that may be taken from a line of credit in one transaction. A provider may also impose minimum balance, usage, or fee requirements.
Origination Fee
A fee charged for processing, underwriting, arranging, or opening a loan or financing account. It may be deducted from proceeds or added to the amount owed, depending on the agreement.
Personal Guarantee
A contractual promise by an individual to be personally responsible for some or all of a business obligation if the business does not pay as agreed.
Prepayment Penalty or Prepayment Provision
A term governing early payoff. Some agreements may impose a fee, require a minimum financing charge, provide a discount, or offer no cost reduction for early repayment.
Principal
The amount borrowed or financed before interest and certain fees. Payments may reduce principal, interest, fees, or a combination depending on the agreement.
Receivables-Based Financing
A financing structure in which eligibility, repayment, or the amount provided is connected to business receivables or sales activity. Structures and legal terms vary significantly.
Renewal
A new or extended funding arrangement offered after or during an existing relationship. A renewal is not guaranteed and may involve a new review, new agreement, fees, or different terms.
Repayment Amount
The amount the business is obligated to repay under the agreement. It may include principal, interest, fixed financing charges, and applicable fees.
S-W
Funding Terms: S Through W
SBA Guaranty
A guaranty provided by the U.S. Small Business Administration to an eligible participating lender under an applicable SBA program. It does not eliminate the borrower’s repayment obligation or guarantee borrower approval.
Secured Financing
Financing supported by collateral or a security interest in specified assets. The agreement identifies the collateral and the secured party’s rights.
Soft Credit Inquiry
A credit inquiry that generally does not affect a consumer credit score. A later hard inquiry may still be requested if the applicant chooses to continue.
Stacking
Having multiple business financing obligations at the same time, particularly when a new obligation is added before an existing one is repaid. This can increase payment pressure and may violate some agreements.
Term Loan
A financing structure that generally provides one lump sum and requires repayment over an established period according to the agreement.
Total Repayment Amount
The total amount scheduled to be repaid under the agreement, including principal and applicable interest, financing charges, and fees identified in the terms.
Underwriting
The provider’s process for reviewing the business, owners, financial information, credit, bank activity, funding purpose, collateral, and other factors before making a decision.
Unsecured Financing
Financing that is not secured by specifically pledged collateral. A personal guarantee, general lien, or other contractual protection may still apply.
Variable Rate
A rate that may change according to an index, benchmark, formula, or other provision in the agreement. Changes may affect payment amount or total cost.
Working Capital
Money available for everyday business operations and near-term expenses. Working capital describes the business need and may be provided through several different financing structures.
COMMONLY CONFUSED
Terms That Sound Similar but Mean Different Things
Small wording differences can have a major effect on cost, access, or legal responsibility.
Rate vs. Total Cost
- Interest rate: The percentage charged for borrowing principal.
- APR: An annualized measure that may include certain finance charges.
- Factor rate: A multiplier used to calculate a stated repayment amount.
- Total repayment: The complete amount scheduled to be paid under the agreement.
Prequalification vs. Approval
- Prequalification: An early indication based on limited information.
- Conditional approval: A preliminary decision subject to documents or conditions.
- Final approval: A completed decision under the provider’s requirements.
- Funding: The actual disbursement or availability of funds after closing conditions are met.
What Is the Total Cost?
Ask for the complete repayment amount and every applicable fee.
How Often Are Payments Due?
Confirm the payment amount, frequency, start date, and method.
What Secures the Obligation?
Understand collateral, liens, guarantees, insurance, and default provisions.
Funding Glossary FAQs
Why can the same term mean different things?
Commercial funding products and agreements vary. A general definition can explain the concept, but the applicable agreement controls how a term is calculated, applied, or enforced in a specific transaction.
Is a factor rate the same as an interest rate?
No. A factor rate is generally a multiplier used to calculate a stated repayment amount. An interest rate is a percentage applied to principal under the agreement. Neither should be compared without also reviewing fees, payment frequency, term, and total repayment.
Does unsecured financing mean there is no personal guarantee?
Not necessarily. Unsecured generally means no specific collateral is pledged, but a personal guarantee, general lien, or other contractual protection may still apply.
Does prequalification guarantee approval?
No. Prequalification is generally an early indication based on limited information. Final approval may depend on verification, underwriting, documents, credit review, collateral, and other conditions.
Should I compare only the monthly or weekly payment?
No. Compare the payment amount, payment frequency, total repayment, term length, fees, early-payoff provisions, collateral, guarantees, and the effect on business cash flow.
Does VeriPoint Funding define or set the final terms?
No. VeriPoint Funding is not a direct lender and does not make credit decisions or set provider terms. The applicable funding partner or lender determines product availability, eligibility, approval, pricing, fees, and agreement terms.
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Educational definitions only. Review the complete agreement.
This glossary provides general educational information and does not constitute financial, legal, tax, or accounting advice, an approval, prequalification, or an offer of credit. Definitions, calculations, rights, and obligations may vary by product, provider, jurisdiction, and agreement. The applicable agreement controls the terms of any transaction. VeriPoint Funding does not guarantee eligibility, approval, funding availability, amounts, rates, fees, or terms. VeriPoint Funding is not a direct lender and does not make credit decisions.