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Common Lending Terminologies to Know Before Applying for a Business Loan

Updated on: 14 Dec 2021 // 22 min read // Business Loans
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Loans have become the most convenient option for anyone to start their own business or take care of their personal needs. Taking a loan is easy, but finding out the right type of loan for your requirement can be a tricky process. You will often come across complicated language while Applying for a Business Loan. During the process even the most common loan terminologies can cause confusion. It is always advisable to learn common lending terminologies as it will not only increase your financial knowledge but will help you in demonstrating your needs to the loan officer and will also help in improving your chances of loan approval.

Let’s take a look on all the lending terminologies that are widely used for Business Loan terms.

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1. Accounts Payable

It is also known as current liability. It refers to a short term debt that should be paid off soon. It basically denotes what your business owes.

2. Account Receivable

This refers to those payments that your business owed. They are nothing but outstanding invoices, which essentially means what your business is owed.

3. Amortization

It refers to paying down of the principal amount over the time. The way in which a borrower pays off the loan by making regular payments that are of equal amount scheduled every time until the principal amount and the interest is paid off.

4. APR

APR stands for Annual Percentage Rate. It is an exact measurement of how expensive borrowing money will be. It takes into account all the fees that the business loan will inculcate over the year.

5. ARM

ARM stands for Adjustable Rate Mortgage. The interest rate of the mortgage loan is subject to change over the term of the loam. The rate of interest is dependent on the performance of the specified market rate.

6. Average Hourly Earnings

It refers to the monthly reading of the readings of non-supervisory workers and the hourly plant in the private sector. These readings are done by the Bureau of Labour Statistics.

7. Cash Flow Statement

It is a statement which tells about all the cash inflows and outflows that the business performs over a certain period of time. A statement which shows all the profits your business had long with all the expenses your business had to incur.

8. Collateral

All the valuable things that a person or their business owns are called collaterals example vehicles, equipment’s, real estate, financial accounts, and so on. It refers to any property that you can offer to the lender if you are unable to pay off your debt.

9. Consolidation

Consolidating your debts means paying off multiple loans with the help of funds that you acquire from a single loan. It helps in saving money in avoided interest and also helps you from the hassle of paying multiple loans.

10. Credit Cards Receivables

The term Credit Card receivables is also known as Credit Card factoring, which refers to the amount of money your business will earn from future credit card sales. It is considered as an asset for the firm. This term usually comes up when you are signing on a merchant cash advance agreement.

11. Credit Report

A credit report is a report which shows the borrowing and repayment history of the individual.

12. Credit Score

It is a three-digit number which indicates credit risk of an individual and is based on an individual’s credit report.

13. Debt Financing

The Business Loan that you take to grow your company is known as debt financing. It is a loan or a way of financing your business that will require you to repay a principal amount plus interest over time.

14. DSCR

DSCR means debt service coverage ratio. It tells us whether a business has the cash available to pay a debt. When DCSR is above 1, it indicates that your business has enough cash to pay off its current debt.

15. EBITDA

It stands for Earnings Before Interest, Taxes, Debt, and Amortization. The term in itself is very clear. It refers to all the earnings before interests, taxes and debts of the business. It clearly indicates the financial health of the business and measures your income without taking into account accounting decisions.

16. Insolvency

It a state where the business cannot repay its debts.

17. Fixed Interest Rate

It is the opposite of the variable interest rate. It stays the same during the entire life of the loan.

18. Grace Period

After the payment’s due date is over; a grace period is given which is pre-determined in which an individual will be able to do the payment without incurring any late fees.

A brief on the above will certainly help you in making an informed decision thus proving to be of great help when it comes to taking the right loan that can help you meet your financial obligations in a cost-effective manner.

Also Read: Top 5 Types of Business Loans in India and How to Apply for Them

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

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