This business funding glossary from Rockstone Lending, a small-business funding broker in Yuma, Arizona, defines the terms owners see in offers and agreements, including UCC lien, collateral, personal guarantee, factor rate, holdback, amortization, APR, covenant and debt service coverage ratio. Each entry says where the term appears and links to a fuller guide. It is general information, not legal advice. Questions: (928) 436-5545.
Terms on this page
APR vs. interest rate · Amortization · Balloon payment · Collateral · Confession of judgment · Covenant · Debt service coverage ratio · Draw period · Factor rate · Holdback and remittance · Lease buyout · Origination fee · Personal guarantee · Prepayment · Principal · Reconciliation · Secured vs. unsecured · Stacking · Term · UCC lien · Working capital · ACC filing · TPT license
Cost terms
Principal
The amount actually borrowed on a loan, before interest and fees. Each payment on an amortizing loan reduces it. Where you'll see it: the loan agreement and payment schedule. A merchant cash advance has no principal; it has a purchase price and a purchased amount.
APR vs. interest rate
The interest rate is what a loan charges on the balance owed. The annual percentage rate (APR) expresses the cost of credit, including certain fees, as a yearly rate, so offers with different fees can be compared. Where: the cost section of an offer. A business loan offer may not state an APR; you can ask for one.
Origination fee
A fee for setting up a loan, paid at closing or deducted from the money you receive. When it is deducted, you receive less than the loan amount but owe all of it. Where: the fee list. Ask what will actually land in your account; it is one of the questions to ask before you sign.
Factor rate
A multiplier a merchant cash advance funder applies to the amount advanced to set the total it will collect. It is fixed at signing and is not an interest rate, because it says nothing about time. Where: MCA offers. The MCA cost calculator turns it into a total.
Repayment terms
Term
How long you have to pay back a loan or make lease payments. A longer term usually lowers each payment and raises total interest. "Loan terms" in the plural often means the whole package: amount, cost, schedule, collateral and guarantees. Where: the first page of most agreements. See business term loans.
Amortization
Paying a loan down with scheduled payments that each cover the interest due plus part of the principal, so the balance reaches zero at the end. Early payments are mostly interest; later ones mostly principal. Where: the payment schedule. The business loan calculator shows the arithmetic.
Balloon payment
A large final payment due because the regular payments did not pay the balance off in full. It keeps earlier payments lower, but you must pay, refinance or sell something when it falls due. Where: the payment terms of some term and commercial loans.
Prepayment
Paying a loan off, or down, before the schedule requires. Whether it saves interest depends on the agreement: some loans charge a prepayment fee, and some are priced so early payoff saves little. With an MCA the total is usually fixed, so delivering it sooner rarely lowers the cost.
Draw period
On a line of credit, the time during which you can take money up to the limit. Some lines then move into a repayment period with no new draws; revolving lines let repaid amounts be drawn again while the line stays open. See business lines of credit.
Security, liens and guarantees
Collateral
An asset pledged to secure financing, such as equipment, vehicles, receivables, inventory or real estate, which the lender can act against under the agreement if the obligation is not paid. See our guide to business loan collateral and liens.
Secured vs. unsecured
Secured financing is backed by specific collateral. Unsecured financing is not tied to one asset, but lenders often ask for a personal guarantee and may still file a general lien. Where: the security or collateral section.
UCC lien
A UCC financing statement is a public filing that records a creditor's security interest in business assets. In Arizona, most are filed with the Secretary of State (A.R.S. 47-9501). A blanket filing covers all business assets; lien position describes whose claim on the same asset ranks first.
Personal guarantee
An owner's promise to pay a business obligation personally if the business does not. It may be unlimited or limited and, with several owners, joint and several. In Arizona, community-property rules can make a spouse's signature relevant. Read our guide to personal guarantees.
Confession of judgment
A document, signed in advance, in which a business or guarantor agrees that a creditor may obtain a court judgment without the usual lawsuit if a default occurs. Whether one can be used, and where, depends on state law and its wording. If an agreement includes one, have an attorney review it before you sign. This is general information, not legal advice.
Agreement terms and measures
Covenant
A promise in a loan agreement about what the business will or won't do while the loan is outstanding: keep insurance, send financial statements, stay above a financial ratio, or take on no other debt without consent. Breaking one can be a default even when payments are current.
Debt service coverage ratio (DSCR)
Cash available to pay debts divided by the debt payments due over the same period. Above one means cash flow covers the payments with room to spare. Partners set their own standards, and some don't use it. See what sets how much funding you can get.
Working capital
Current assets (cash, receivables, inventory) minus current liabilities (bills and debts due soon). A working capital loan adds to that cushion for a defined period, to bridge the gap between paying costs and getting paid.
Lease buyout
The option to buy leased equipment at the end of the term, for a nominal amount ($1 buyout), a fixed price or fair market value. It decides what the lease really costs. See $1 buyout vs. fair market value leases.
Merchant cash advance terms
A merchant cash advance is not a loan. These terms describe how a funder collects the receivables it has bought.
Holdback and remittance
The holdback is the share of sales the funder collects; each collection is a remittance. Funders take it as a split of card settlements or as fixed daily or weekly debits meant to approximate that share. Where: the payment section of the agreement. See how merchant cash advances work.
Reconciliation
A provision in many MCA agreements that lets the business ask the funder to adjust fixed debits to match actual sales. Whether it exists, how to request it and what records are needed depend on the contract.
Stacking
Taking a new advance or loan while existing ones are still being collected or paid. Each brings its own debits or payments, which can add up to more than cash flow can carry, and many agreements restrict it.
Arizona registrations partners ask about
ACC filing
Arizona LLCs file articles of organization, and corporations articles of incorporation, with the Arizona Corporation Commission. Partners often ask for them to confirm who owns and can sign for the business. See funding for LLCs and sole proprietors.
TPT license
Arizona's transaction privilege tax (TPT) is the state's tax on business activity, often thought of as sales tax. The City of Yuma requires an Arizona TPT license before it issues a city business license for taxable activity. See how to get a business loan in Arizona.
By Rockstone Lending · Updated
