Key Takeaways
- APR (Annual Percentage Rate): the annualized cost of borrowing — not typically quoted for revenue-based advances
- Working capital: money for daily operations (payroll, inventory, supplies) — not for major purchases
- Bridge loan: short-term capital to cover a gap — between seasons, between invoices, between equity rounds
- Collateral: assets pledged to secure a loan — Bankable uses UCC-1 general lien, not specific collateral
- Personal guarantee: you personally promise to repay if the business cannot — review carefully before signing
Business financing has its own language, and non-citizen entrepreneurs who didn't grow up in the US financial system may encounter terms that are unfamiliar. This guide explains 20 of the most important business funding terms in plain language with practical examples relevant to immigrant business owners.
Money and Cost Terms
- Annual Percentage Rate (APR)
- Plain language: The total yearly cost of borrowing money, expressed as a percentage. If you borrow $10,000 at 12% APR for one year, you pay $1,200 in interest. Revenue-based advances don't have a formal APR — they use factor rates instead. If someone quotes you "our APR is X%," they're approximating based on an assumed repayment timeline.
- Factor Rate
- Plain language: A simple multiplier that tells you the total you'll repay. If your factor rate is 1.25 and you borrow $50,000, you repay $62,500 total ($50,000 × 1.25). You always know your exact total cost before signing — unlike interest rates that depend on the balance and time.
- Interest Rate
- Plain language: The cost of borrowing per year, calculated on the remaining balance. If you have a $50,000 loan at 10% interest and pay $2,000/month, each month's interest is calculated on the amount still owed. Different from factor rate — interest rates change as you pay down the balance.
- Principal
- Plain language: The original amount borrowed, before any interest or fees. If you borrow $100,000, $100,000 is the principal. When you make payments, some goes to principal (reducing what you owe) and some goes to interest (the cost of borrowing).
Security and Legal Terms
- Collateral
- Plain language: Something valuable you pledge to the lender as security. If you can't repay, the lender takes the collateral. Example: If you take a truck loan and can't repay, the lender takes the truck. Revenue-based advances from Bankable use a UCC-1 lien rather than specific collateral.
- Personal Guarantee
- Plain language: Your personal promise to repay the business loan even if the business fails. If your LLC can't pay back the loan, you personally pay back the loan. This means your personal savings, home, and assets can be at risk. Always understand whether an agreement includes a personal guarantee before signing.
- UCC-1
- Plain language: A public record filed in your state showing that a lender has a security interest in your business assets. It's like putting a sign on your business that says "this lender has a claim here." It doesn't affect your business operations — it's just paperwork that protects the lender. It's removed after you repay.
- Lien
- Plain language: A legal claim against an asset or business. A UCC-1 creates a lien on your business. Multiple liens from multiple lenders is called "stacking" and is dangerous — each lender has competing claims on your revenue.
Cash Flow and Operations Terms
- Working Capital
- Plain language: Money for your everyday business operations — paying employees, buying inventory, paying rent and utilities. Working capital is NOT for buying equipment or expanding — it's for keeping the lights on and the business running. When Bankable provides working capital, you use it for these operational expenses.
- Bridge Loan/Bridge Funding
- Plain language: Short-term money to fill a gap until something else happens. "I need bridge funding to cover payroll while I wait for a big invoice to be paid." A bridge loan is designed to be temporary — you repay it when the thing you were waiting for comes through.
- Accounts Receivable
- Plain language: Money that clients owe you for work already done but not yet paid. If you installed a roof last week and the client hasn't paid yet, that unpaid invoice is accounts receivable. Invoice financing lets you borrow against accounts receivable before clients pay.
- Cash Flow
- Plain language: The movement of money in and out of your business. Positive cash flow = more money coming in than going out. Negative cash flow = more going out than coming in. Revenue-based funding improves cash flow by providing a lump sum when you need it, repaid gradually from future revenue.
Product Type Terms
- Line of Credit
- Plain language: A maximum amount you can borrow at any time, like a business credit card. You draw what you need, repay it, and the available amount resets. You only pay interest on what you've drawn. Good for irregular cash needs.
- Equipment Financing
- Plain language: A loan specifically to buy business equipment. The equipment itself is the collateral. If you stop paying, the lender takes the equipment. Lower rates than unsecured loans because the lender has specific collateral.
- Invoice Factoring
- Plain language: Selling your unpaid client invoices to a factoring company for immediate cash. The factor pays you 80–90% of the invoice immediately, then collects the full amount from your client and keeps the remaining 10–20% as their fee. You get fast cash; they take the collection risk.
Frequently Asked Questions
Secured funding has specific assets pledged as collateral (the lender can take those assets if you default). Unsecured funding has no specific asset pledge — but a UCC-1 general lien on all business assets is standard. 'Unsecured' doesn't mean the lender has no recourse — it means no specific asset is pledged.
A balloon payment is a large final payment at the end of a loan term. Example: a 3-year loan with small monthly payments and a $50,000 balloon at month 36. Revenue-based advances from Bankable don't have balloon payments — repayment continues at the holdback percentage until the factor amount is fully paid.
Being in default means you've failed to meet the terms of your agreement — typically by missing payments or violating covenants. Default gives the lender the right to accelerate (demand full immediate repayment) and enforce their security interest. Contact your lender immediately if you're struggling to make payments — proactive communication often prevents formal default.
Dilution means reducing your ownership percentage by giving equity to investors. If you own 100% of your business and give an investor 20%, you're diluted to 80% ownership. Revenue-based funding from Bankable involves zero dilution — you give no equity, only a portion of future revenue as repayment.
DSCR measures whether your business generates enough income to cover debt payments. DSCR = annual net operating income ÷ annual debt payments. A ratio above 1.25 is generally considered healthy. Traditional banks use DSCR heavily; revenue-based lenders focus more on gross revenue than DSCR.
The 'term' is the length of time to repay. A 24-month term means repayment is due over 2 years. Revenue-based advances have no fixed term — repayment takes as long as it takes based on your holdback percentage and revenue levels.
Covenants are conditions you agree to maintain as long as the loan is outstanding. Typical covenants: maintain minimum revenue levels, don't take additional loans without lender approval, don't change business ownership without notification. Bankable's agreements contain covenants — read them carefully.