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15 Key Terms to Know When Choosing a Business Loan

By StreetShares on September 24, 2015

By Madhur Grover

While comparing loan options can be a confusing task, finding the right loan for your small business doesn’t have to give you a headache. In the second installment of this three-week blog series, I want to give you a crash course in the most commonly used industry terms you may encounter in your decision-making process. Translating loan jargon into plain English can help you wrap your mind around your loan options, enabling you to make a well-informed decision for your growing business—and give you peace of mind:

1. Loan Amount

The amount of money a small business owner borrows from a lender

2. Type of loan

The type of financing you choose for your business, such as a term loan, Merchant Cash Advance, or others

3. Loan Term

The amount of time you have to pay off your loan, such as 6 months, 1 or 2 years

4. Total Interest Charge

The total amount of interest you will pay over the lifetime of the loan

5. Total Fees Charged

The total amount of fees you will pay over the lifetime of the loan, including origination and servicing fees

6. Total cost

The total amount of money you will pay over the lifetime of the loan, including interest and fees

7. Interest Rate

The amount of money charged by a lender to a borrower, as a percentage rate

8. Cash received in hand

The loan amount you receive from the lender, excluding money taken out in fees

9. APR (Annual Percentage Rate)

The APR provides a more complete picture by taking the interest rate as a starting point and accounting for lender fees. It’s a great normalizing metric to compare cost of the loan.

10. Prepayment penalty

A fee charged if you pay off your loan early, such as with a Merchant Cash Advance

11. Reserve increases

When sales are down the lender will take a larger percentage of your sales to compensate for your business’s risk

12. Customer feedback

What past borrowers have said about working with the lender

13. BBB rating

The lender’s rating on the Better Business Bureau

14. Personal guarantee

What you are personally liable to pay if your business can’t meet the terms of the loan

15. Secured loan

A loan where you provide assets or collateral to be held if you can’t pay back the loan in full

Knowing what loan lingo means, why it’s being used, and how it affects your business is an important step toward understanding what you’re getting before you make a commitment. Next week I’ll show how to use these terms in a table that clearly breaks down your loan options side by side.

Cheers,

Madhur Grover, CFA
Chief Credit Officer

© 2015, StreetShares Inc. All rights reserved.

Topics: Growing Your Savings, Veteran Small Business, Funding Your Business

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