Commercial Lending Glossary

A revolving credit facility secured by accounts receivable, inventory, equipment, or other business assets. Borrowing base is calculated based on eligible collateral values.

Short-term financing used to bridge a gap between immediate capital needs and permanent financing. Common in real estate acquisitions and business transitions.

Commercial Property Assessed Clean Energy financing. Long-term, low-cost capital for energy efficiency and renewable energy improvements, repaid through property tax assessments.

The layered structure of financing in a transaction, from senior debt at the bottom to equity at the top. Each layer has different risk, return, and priority characteristics.

Commercial Mortgage-Backed Securities. Loans pooled and securitized for sale to institutional investors. Non-recourse, fixed-rate, typically 10-year terms.

Net operating income divided by total debt service. Measures a property or business's ability to cover debt payments. Most lenders require minimum 1.20x to 1.25x DSCR.

Rental property loan underwritten based on property cash flow rather than borrower income. No tax returns or W-2s required. Common for real estate investors.

Short-term financing for purchasing and renovating residential properties for resale. Includes acquisition cost plus rehab budget with draws tied to construction milestones.

The intangible value of a business above its tangible assets. In SBA lending, goodwill treatment varies by loan program and affects maximum loan amounts.

The ratio of loan amount to total project cost in construction and development financing. Typical LTC ranges from 75% to 85% depending on project type and borrower experience.

The ratio of loan amount to appraised property value or purchase price. Lower LTV means more equity and less risk for the lender.

Subordinated debt that sits between senior debt and equity in the capital stack. Higher cost than senior debt, often includes equity participation or warrants.

Net Asset Value facility. Fund-level credit line secured by the net asset value of a private equity or credit fund. Used for capital calls, bridge financing, and liquidity management.

Loan structure where the lender's only remedy in default is foreclosure on the collateral. Borrower has no personal liability beyond the pledged asset.

Upfront fee charged by lender to process and fund a loan. Typically 1% to 3% of loan amount, paid at closing.

Legal commitment by business owner to repay debt if the business cannot. Required on most business loans. Can be full or limited (capped at specific percentage).

Fee charged if loan is paid off before maturity. Common structures include yield maintenance, defeasance, or step-down schedules.

Non-bank lending provided by institutional investors including private credit funds, family offices, and insurance companies. Flexible structures, faster execution than traditional banks.

Loan structure where borrower has personal liability beyond the collateral. Lender can pursue borrower's other assets if collateral is insufficient.

Credit line that can be drawn, repaid, and redrawn during the term. Common for working capital needs. Interest charged only on outstanding balance.

Small Business Administration's primary loan program. Up to $5M, 10-25 year terms, government guarantee reduces lender risk. Used for acquisitions, working capital, equipment, and real estate.

SBA program for owner-occupied commercial real estate and equipment. Fixed-rate, 20-25 year terms. Requires 10% down, 50% first mortgage, 40% CDC/SBA portion.

SBA Contract and Purchase Order financing. Provides working capital to fulfill government contracts or large purchase orders. Guarantee up to 90%.

Financing provided by business seller to buyer as part of acquisition. Subordinated to bank debt. Typical terms: 5-10 years, interest-only or amortizing.

First-priority debt in the capital stack. Lowest cost, lowest risk, first claim on assets and cash flow in default.

Fee charged on unused portion of a revolving credit line. Typically 0.25% to 0.50% annually on undrawn commitment.

Fixed amount borrowed upfront with scheduled principal and interest payments over defined term. Cannot be redrawn once repaid.

Credit facility for specialty finance originators to fund loans before selling them to institutional buyers. Secured by loan portfolio.

Short-term financing for day-to-day operations including payroll, inventory, and accounts payable. Can be term loan or revolving line.