Plain-English definitions for business financing terms, written by a former commercial loan officer who spent years on the lender side before borrowing on a line of credit himself. No jargon, no spin — just what each term means and, where it matters, why lenders use it the way they do. Each entry links out to the guide, rates page, or comparison where you can go deeper.

This glossary is educational, not financial advice. Where a definition would normally carry a number — a typical APR, a credit-score cutoff, a draw-period length — we say “varies by lender” rather than hard-code a figure, because those change constantly and per applicant. Always confirm specifics on the lender’s own page before you apply.

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Annual percentage rate (APR)

The total yearly cost of borrowing expressed as a percentage, including interest plus certain required fees. APR is the honest yardstick for comparing offers because it folds fees into one number — unlike a factor rate or a plain interest rate, which can make an expensive product look cheap. When you get an offer, always ask for the all-in APR. Learn more: factor rate vs. APR. Related: Interest rate, Factor rate, Cost of capital.

Annual fee

A yearly charge some lenders bill simply for keeping the line available, whether or not you draw on it. Like a maintenance fee, it quietly raises your real cost of capital on an idle line — fold it into the APR. Learn more: average rates and fees. Related: Maintenance fee, Origination fee.

Annual review

A lender’s scheduled check-in on your financials to confirm you still meet the line’s terms — typically yearly. Have updated statements and tax returns ready; a clean review keeps your limit and rate intact. Learn more: how a line of credit works. Related: Renewal, Limit increase.

Annual revenue requirement

The minimum yearly (or monthly) revenue a lender wants to see before approving a line of credit. It varies by lender and product, but it exists because lenders price risk on cash flow first. If you’re early or thin on revenue, see revenue-based financing. Related: Time in business, DSCR.

Business line of credit

A revolving credit facility that lets a business draw cash up to a set limit, repay it, and draw again — paying interest only on what’s outstanding. It’s one of the more honest financing products: flexible, reusable, and usually cheaper than a card or a merchant cash advance. Learn more: how a business line of credit works. Related: Revolving credit, Credit limit, Draw period.

Business credit card

A revolving card tied to your business, often the simplest first credit product but typically more expensive for carried balances than a line of credit. Useful for everyday spend and rewards; weaker for large, longer-term draws. Compare: line of credit vs. business credit card. Related: Revolving credit, Business line of credit.

Business credit bureau

A reporting agency that tracks your business’s credit behavior separately from your personal file. The major ones are Dun & Bradstreet (which issues the PAYDEX score), Experian Business, and Equifax Business. Building a record with them widens your financing options over time. Learn more: business credit bureaus. Related: Business credit score, DUNS number, PAYDEX.

Business credit score

A score (from bureaus like Dun & Bradstreet, Experian Business, or Equifax) that rates your business’s creditworthiness, separate from your personal score. Strong business credit can widen your options and reduce reliance on a personal guarantee over time. Learn more: how to build business credit. Related: Personal credit score, FICO SBSS, Business credit bureau.

Business overdraft

An arrangement letting your business checking account go negative up to a set limit. Convenient for small, short gaps, but usually costlier per dollar than a line of credit. Compare: line of credit vs. overdraft. Related: Business line of credit, Cash flow gap.

Cash flow gap

The timing mismatch between when money goes out (payroll, inventory, rent) and when it comes in (customer payments, seasonal sales). A line of credit is purpose-built to bridge these gaps without locking you into a lump-sum loan. Learn more: using credit for seasonal cash flow. Related: Working capital, Draw period.

Collateral

An asset (equipment, receivables, real estate, or a general business-asset claim) a lender can seize if you default. A secured line is backed by collateral; an unsecured one isn’t, though it usually still carries a personal guarantee. Learn more: secured vs. unsecured lines of credit. Related: UCC lien, Secured line of credit.

Confession of judgment (COJ)

A clause — most associated with merchant cash advances — in which the borrower waives the right to contest a judgment if the lender claims default, letting the lender obtain a judgment without a court fight. It heavily favors the lender. Read any contract carefully and treat a COJ as a red flag. Learn more: line of credit vs. merchant cash advance. Related: Merchant cash advance, Default.

Cost of capital

The true, all-in price of borrowing — interest, fees, and the structure of repayment combined — measured against how long you actually keep the money. Two offers with the same headline rate can have very different costs of capital. Learn more: how borrowing costs are built. Related: APR, Factor rate.

Covenant

A condition written into the loan agreement that you must maintain — for example, a minimum cash balance or DSCR. Breaking a covenant can put you in technical default even if every payment is current, so read them before you sign. Learn more: how we evaluate lenders. Related: Default, DSCR.

Credit limit

The maximum amount you can have drawn on a line of credit at one time. Repaying what you’ve drawn frees the limit back up to use again. Your limit is set by your revenue, time in business, and credit profile. Learn more: how much you can get. Related: Revolving credit, Draw period, Limit increase.

Cross-collateralization

When one piece of collateral secures more than one loan or line from the same lender. Worth knowing about because paying off one debt may not release the asset if it’s also backing another. Learn more: secured vs. unsecured lines of credit. Related: Collateral, UCC lien.

Debt service coverage ratio (DSCR)

A measure of whether your cash flow can cover your debt payments, calculated as net operating income divided by total debt service. Lenders use it to gauge repayment capacity; a higher ratio is safer. Learn more: how we evaluate lenders. Related: Annual revenue requirement, Cash flow gap.

Default

Failing to meet the repayment terms of your agreement — typically missed payments past a stated grace period. Default can trigger collateral seizure, a personal guarantee claim, and damage to both personal and business credit. Learn more: how a line of credit works. Related: UCC lien, Confession of judgment.

Direct lender

A company that lends its own money and gives you one answer (approve/decline, on its terms). Contrast with a marketplace, which shops one application to many lenders. Learn more: how we evaluate lenders. Related: Lending marketplace, Loan broker.

Draw fee

A fee some lenders charge each time you pull funds from your line. A small per-draw fee can quietly raise your cost of capital if you draw often — read the fee schedule. Learn more: average rates and fees. Related: Maintenance fee, Origination fee.

Draw period

The window during which you can pull funds from a line of credit. During the draw period you typically make interest-only or minimum payments on what you’ve drawn; afterward the line may enter a repayment period. Length varies by lender. Learn more: understanding the draw period. Related: Repayment period, Revolving credit.

DUNS number

A unique nine-digit identifier assigned by Dun & Bradstreet to a business. It’s the key that ties your company to its D&B credit file and PAYDEX score, and it’s required for some programs and vendor relationships. Learn more: DUNS number. Related: PAYDEX, Business credit bureau, EIN.

Effective APR

The true annualized cost of borrowing once all fees, the repayment schedule, and the borrowing method (including factor-rate products) are accounted for. A product’s effective APR can be far higher than its stated rate — it’s the number that actually lets you compare. Learn more: average rates and fees. Related: APR, Factor rate, Cost of capital.

ECOA / Reg B (adverse action notice)

The Equal Credit Opportunity Act (implemented by Regulation B) bars credit discrimination and entitles you to an adverse action notice explaining why an application was declined. Reading that notice tells you exactly what to fix before reapplying. Learn more: applying with bad credit. Related: Hard credit pull, Personal credit score.

EIN (Employer Identification Number)

A federal tax ID for your business, issued by the IRS — the business equivalent of a Social Security number. Lenders use it to verify and underwrite your business, and it’s foundational to building business credit. Learn more: sole proprietor vs. LLC eligibility. Related: Sole proprietor, Business credit score.

Equipment financing

A loan or lease used specifically to buy equipment, where the equipment itself usually serves as collateral. Good for a one-time asset purchase; a line of credit is better for recurring or flexible needs. Compare: line of credit vs. alternatives. Related: Term loan, Collateral.

Factor rate

A way of quoting financing cost as a multiplier (for example, “1.2 times the amount borrowed”) instead of an interest rate. Factor rates are common with merchant cash advances, and they’re not APRs — they often hide a far higher true cost because they don’t account for how fast you repay. Lenders quote it this way because it makes an expensive product look cheap. Always convert it to an APR before you compare. Learn more: factor rate vs. APR. Related: APR, Merchant cash advance, Cost of capital.

FICO SBSS

The FICO Small Business Scoring Service — a blended score (combining personal and business credit and other data) lenders and the SBA use to screen small-business applicants. A higher SBSS can speed approval. Learn more: credit score needed for a line of credit. Related: Business credit score, Personal credit score.

Funding speed (time to funding)

How quickly money lands in your account after approval. Online lenders compete hard on speed — it’s the main reason to choose a fintech line over a bank line. Your actual timeline depends on how fast you provide documents and pass verification. Learn more: fastest-funding lines of credit. Related: Prequalification, Lending marketplace.

Guaranteed approval

A phrase to distrust. No legitimate lender guarantees approval for a business line of credit before underwriting — it’s a hallmark of predatory or scam offers. We explain why, and what’s actually possible, in guaranteed approval. Related: No credit check, Underwriting.

Hard credit pull (hard inquiry)

A formal credit check that appears on your credit report and can shave a few points off your score temporarily. Lenders typically run one when you formally apply. Only proceed to a hard pull once you’re confident you meet the requirements — don’t spend one on a likely decline. Learn more: how to apply. Related: Soft credit pull, Prequalification.

HELOC (home equity line of credit)

A revolving line secured by the equity in your home, sometimes used to fund a business. It can be cheaper, but it puts your house on the line for business risk. Compare: line of credit vs. HELOC. Related: Revolving credit, Collateral, Personal guarantee.

Interest rate

The percentage a lender charges on the amount you’ve drawn, before fees. On its own it’s incomplete — fees and structure can make a low-rate offer more expensive than a higher-rate one. Compare the APR, not the rate. Learn more: average rates and fees. Related: APR, Prime rate, Variable vs. fixed rate.

Invoice factoring

Selling your unpaid invoices to a factoring company at a discount in exchange for immediate cash; the factor then collects from your customers. It’s financing against receivables, not a loan. Useful for B2B cash-flow gaps, but the discount is a real cost. Compare: line of credit vs. invoice factoring. Related: Invoice financing, Working capital.

Invoice financing

Borrowing against your unpaid invoices while you keep ownership of them and continue collecting yourself — distinct from factoring, where the factor buys and collects. Compare: line of credit vs. invoice factoring. Related: Invoice factoring, Cash flow gap.

Lending marketplace (aggregator)

A platform that takes one application and shops it to multiple lenders, so you can compare offers without filling out several forms. It’s the lowest-effort way to see the field before committing to a single direct lender. BizBee Funding is the marketplace we point readers to. Learn more: best business lines of credit. Related: Direct lender, Loan broker.

Limit increase

An approved raise to your credit limit, usually earned after a track record of on-time payments and improved financials. Asking at the right time — strong, current numbers in hand — improves your odds. Learn more: check & increase business credit. Related: Credit limit, Renewal.

Line freeze / line reduction

When a lender suspends new draws (freeze) or cuts your limit (reduction), often after a change in your credit, revenue, or the broader economy. It can happen even if you’ve never missed a payment — which is why it’s risky to treat an open line as guaranteed emergency cash. Learn more: how a line of credit works. Related: Credit limit, Renewal.

LLC (limited liability company)

A structure that legally separates owners from the business for liability purposes. It helps with liability protection but does not by itself remove the personal guarantee on a line of credit. Learn more: line of credit for an LLC. Related: Sole proprietor, EIN, Personal guarantee.

Loan broker

A middleman who matches borrowers to lenders, often for a fee or commission. A good broker saves you legwork; a bad one steers you toward whatever pays them most — so understand how yours is paid. Learn more: how we evaluate lenders. Related: Lending marketplace, Direct lender.

Loan stacking

Taking on multiple loans or advances at once, often layering a new advance on top of an existing one. It’s a common trap with merchant cash advances — each new advance compounds the cost and the daily repayment burden until cash flow buckles. Learn more: line of credit vs. merchant cash advance. Related: Merchant cash advance, Default.

Maintenance fee (monthly fee)

A recurring charge some lenders apply just to keep your line open, whether or not you draw on it. Even a modest monthly fee raises your effective cost if the line sits idle — factor it into the APR. Learn more: average rates and fees. Related: Draw fee, Origination fee.

Merchant cash advance (MCA)

A lump-sum advance repaid as a fixed percentage of your daily card sales, priced with a factor rate rather than an APR. It’s often the most expensive form of small-business financing, and the daily remittance can choke cash flow fast. If you’ve been quoted an MCA, price a line of credit first. Compare: line of credit vs. merchant cash advance. Related: Factor rate, Confession of judgment, Loan stacking.

No credit check

A red-flag phrase. Legitimate business lenders check something — personal credit, business credit, or bank-statement cash flow. “No credit check” financing tends to be extremely expensive or an outright scam. We explain the reality in no credit check. Related: Guaranteed approval, Hard credit pull.

Online lender / fintech lender

A non-bank lender that originates and services financing largely online, usually faster and with looser minimums than a bank — often at higher cost. The speed is the trade-off you’re paying for. Compare: big banks vs. online lenders. Related: Direct lender, Funding speed.

Origination fee

An upfront fee for setting up the financing, usually a percentage of the credit line or each draw. Because it’s charged at the start, it weighs heavily on the true cost of short-term borrowing — always include it in the APR. Learn more: average rates and fees. Related: Maintenance fee, Draw fee.

PAYDEX

Dun & Bradstreet’s business credit score (a 1–100 scale, per Dun & Bradstreet, 2026) that measures how promptly a business pays its suppliers and creditors. A higher PAYDEX signals on-time payment history; it’s tied to your DUNS number. Learn more: how to build business credit. Related: DUNS number, Business credit bureau, Trade line.

Personal credit score

Your individual FICO or VantageScore, which most small-business lenders still check because owner and business finances are intertwined — especially for younger businesses. It influences approval, limit, and rate. Learn more: credit score needed for a line of credit. Related: Business credit score, FICO SBSS.

Personal guarantee

A promise that makes you personally liable for the debt if your business can’t repay — meaning the lender can pursue your personal assets. Most small-business lines, even “unsecured” ones, require one. It’s not a reason to avoid borrowing, but it’s a reason to borrow only what you can repay. Learn more: no personal guarantee. Related: UCC lien, Collateral, Default.

Personal loan (for business use)

A consumer loan used for business purposes, underwritten entirely on your personal credit. An option for very new businesses that can’t yet qualify on their own — with trade-offs, since the debt and risk sit squarely on you. Compare: line of credit vs. personal loan. Related: Personal credit score, Term loan.

Prepayment penalty

A fee some lenders charge for paying off a balance early, designed to protect the interest they expected to earn. On a flexible product like a line of credit it’s worth confirming none applies, so paying down a draw early actually saves you money. Learn more: average rates and fees. Related: Cost of capital, Maintenance fee.

Prequalification

An early, lighter-touch estimate of what you might qualify for — often using a soft credit pull — before a full application. It signals likely terms without the commitment of a hard inquiry, but it isn’t a binding offer. Learn more: how to apply. Related: Soft credit pull, Hard credit pull.

Prime rate

A benchmark interest rate banks use as a starting point for pricing many loans; it moves with the Federal Reserve’s policy rate. Variable-rate lines are often quoted as “prime plus” a margin, so your rate shifts when prime does. See the Federal Reserve for benchmark context. Learn more: average rates and fees. Related: Variable vs. fixed rate, Interest rate.

Renewal

The process of extending or re-approving a line of credit when its term ends, often after a fresh look at your financials. A clean repayment history can earn a higher limit or better rate at renewal. Learn more: how a line of credit works. Related: Draw period, Credit limit.

Repayment period

The phase — on lines that have one — after the draw period ends, when you can no longer draw and must repay the outstanding balance on a set schedule. Many revolving lines instead repay each draw on its own term. Learn more: understanding the draw period. Related: Draw period, Revolving credit.

Revolving credit

Credit you can draw, repay, and draw again up to a limit — the defining feature of a line of credit and a credit card. You pay interest only on the outstanding balance, and repaying restores your available room. Contrast with installment credit, where you get one lump sum and pay it down. Learn more: how a line of credit works. Related: Revolving vs. installment, Credit limit, Draw period.

Revolving vs. installment

The core distinction between a line of credit (revolving: reusable, interest on what’s drawn) and a term loan (installment: one lump sum, fixed payments). Revolving suits recurring or unpredictable needs; installment suits a single planned purchase. Compare: line of credit vs. term loan. Related: Revolving credit, Term loan.

SBA CAPLines

An SBA program that provides revolving lines of credit (backed partly by the Small Business Administration) for working capital and seasonal needs. Often cheaper than fintech lines but slower and more paperwork-heavy. Compare: line of credit vs. SBA loan. Related: SBA loan, Working capital.

SBA loan

A loan partly guaranteed by the U.S. Small Business Administration, which lowers lender risk and can mean better rates and terms — in exchange for stricter eligibility and a longer process. See the SBA for program details. Compare: line of credit vs. SBA loan. Related: SBA CAPLines, Term loan.

Secured line of credit

A line of credit backed by collateral — equipment, receivables, or a general business-asset claim. Pledging collateral can mean a higher limit or lower rate, but the lender can seize the asset on default. Learn more: secured vs. unsecured lines of credit. Related: Unsecured line of credit, UCC lien.

Stated income / low-doc

Products that ask for minimal paperwork — sometimes leaning on recent business bank statements to judge cash flow in place of tax returns. Genuinely “no-doc” business financing for a line of credit is largely a myth; there’s almost always some verification. Read the reality in no-doc financing. Related: Underwriting, Prequalification.

Soft credit pull (soft inquiry)

A credit check that does not affect your credit score — used for prequalification, rate estimates, and background checks. A hard pull, by contrast, can ding your score and shows when you formally apply. Important caveat: whether checking your options affects your credit depends on the specific lender — always confirm on the lender’s own application page before you apply, because not every “check your rate” flow is a soft pull. Learn more: how to apply. Related: Hard credit pull, Prequalification.

Sole proprietor

The simplest business structure, where you and the business are legally the same entity — meaning your personal credit and assets are fully on the line. Many lenders will work with sole props, but forming an LLC and getting an EIN can separate finances and broaden options. Learn more: sole proprietor vs. LLC eligibility. Related: EIN, Personal guarantee.

Term loan

A lump sum you borrow once and repay on a fixed schedule over a set term — installment, not revolving. Better for a single planned purchase; a line of credit is better for recurring or flexible needs. Compare: line of credit vs. term loan. Related: Revolving vs. installment, SBA loan.

Thin file

A credit profile (personal or business) with little reported history — common for new businesses and a frequent reason for declines or higher pricing. Building trade lines over time thickens the file. Learn more: how to build business credit. Related: Trade line, Business credit score.

Time in business

How long your business has operated — one of the first things a lender checks, because longevity signals stability. Younger businesses face tighter options; many online lenders want to see a minimum operating history, though it varies by lender. If you’re early, see eligibility for startups and new businesses. Related: Annual revenue requirement, Business credit score.

Trade line / trade reference

A record of a credit relationship with a vendor or lender that reports to a business bureau. Net-30 vendor accounts that report are a common way to build PAYDEX and business credit history. Learn more: how to build business credit. Related: Thin file, PAYDEX, Business credit bureau.

Underwriting

The lender’s process of evaluating your application — credit, revenue, time in business, cash flow, collateral — to decide whether and on what terms to approve. Knowing what underwriters look at is most of the battle. Learn more: eligibility requirements. Related: DSCR, Cash flow gap, Annual revenue requirement.

UCC lien (blanket lien)

A claim a lender files under the Uniform Commercial Code to secure its interest in your business assets. A blanket UCC lien covers essentially all business assets, not just one item — which can complicate getting additional financing later, since other lenders see it on a public filing. Common, but worth understanding before you sign. Learn more: secured vs. unsecured lines of credit. Related: Collateral, Secured line of credit, Personal guarantee.

Unsecured line of credit

A line of credit not backed by specific collateral — though it almost always still carries a personal guarantee, and the lender may still file a UCC lien. “Unsecured” is about pledged assets, not about risk to you personally. Learn more: secured vs. unsecured lines of credit. Related: Secured line of credit, Personal guarantee.

Variable vs. fixed rate

A variable rate moves with a benchmark like the prime rate, so your cost rises or falls over time; a fixed rate stays the same for the term. Many business lines are variable — predictable budgeting is the trade-off. Learn more: average rates and fees. Related: Prime rate, Interest rate.

Working capital

The cash a business needs to cover day-to-day operations — payroll, inventory, rent — calculated as current assets minus current liabilities. A line of credit is one of the most flexible ways to cover working-capital needs and bridge a cash flow gap. Compare with a dedicated working capital loan. Learn more: using credit for seasonal cash flow. Related: Cash flow gap, Revolving credit.

Working capital loan

Short-term financing aimed specifically at covering operating costs rather than long-term investment. Where a line of credit gives you reusable access, a working capital loan is a one-time lump sum. Compare: line of credit vs. working capital loan. Related: Working capital, Term loan.

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Advertiser disclosure: BizBee earns a commission if you apply or get funded through some of the links on the pages this glossary points to, at no extra cost to you. It doesn’t change what we write here — these definitions carry no affiliate links. See How We Make Money and How We Evaluate Lenders.

Definitions by Marcus Delaney, former commercial loan officer. Reviewed by Elaine Vasquez for accuracy. BizBee is informational and independent — not a lender and not a broker. This glossary is educational and does not constitute financial advice.