Financing glossary

Agency Loan (Fannie Mae / Freddie Mac)

An agency loan is a multifamily mortgage made under Fannie Mae or Freddie Mac guidelines. The agencies do not lend directly. Approved l…

Bad Boy Carve-Outs

Bad boy carve-outs are exceptions in a non-recourse loan that make the borrower or guarantor personally liable if specific bad acts occ…

Break-Even Occupancy

Break-even occupancy is the occupancy rate at which a property's income exactly covers its operating expenses and debt service, with no…

Cap Rate

Cap rate is a property's net operating income divided by its price, expressed as a percentage. It answers one question: what unleverage…

Cash-on-Cash Return

Cash-on-cash return is your annual pre-tax cash flow after debt service divided by the cash you actually put into a deal. Unlike cap ra…

CMBS Loan

A CMBS loan is a commercial mortgage that the lender pools with hundreds of others and sells to bond investors as securities. Because t…

Commercial Bridge Loan

A commercial bridge loan is short-term financing, typically 12 to 36 months, used to buy, stabilize, or reposition a commercial propert…

Debt Yield

Debt yield is a property's net operating income divided by the loan amount, expressed as a percentage. It tells a lender what cash retu…

Defeasance

Defeasance is a way to release a property from a commercial mortgage without paying the loan off. You buy a portfolio of US government …

Equity Multiple

Equity multiple is total cash returned divided by total cash invested, ignoring time. A $500,000 investment that pays back $1,000,000 h…

Escrow and Impounds

Escrow, also called impounds, is money your lender collects each month on top of principal and interest and holds to pay property taxes…

Gross Rent Multiplier (GRM)

Gross rent multiplier is a property's price divided by its gross annual rental income. A building listed at $1,150,000 collecting $138,…

Internal Rate of Return (IRR)

Internal rate of return is the annualized rate at which a deal's cash flows, including the sale, grow your investment. It weights timin…

Loan Assumption

A loan assumption is when a buyer takes over the seller's existing mortgage, keeping the same rate, balance, and remaining term, instea…

Loan Constant

The loan constant is annual debt service divided by the original loan amount, expressed as a percentage. It folds interest and principa…

Loan-to-Cost (LTC)

Loan-to-cost (LTC) is the loan amount divided by the total cost of a project - acquisition, hard costs, soft costs, contingency and int…

Loan-to-Value (LTV)

Loan-to-value (LTV) is the loan amount divided by the property's value, expressed as a percentage. Lenders measure value as the lower o…

Net Operating Income (NOI)

Net operating income is a property's annual income after operating expenses but before debt payments, depreciation, and capital improve…

Non-Recourse Loan

A non-recourse loan is secured only by the property. If you default, the lender's remedy is to take the collateral; it cannot pursue yo…

Pro Forma

A pro forma is a projection of what a property will earn, not a record of what it has earned. It shows rents, occupancy and expenses th…

Rent Roll

A rent roll is a dated list of every unit or suite in a property showing who occupies it, what they pay, how much space they hold, and …

Yield Maintenance

Yield maintenance is a prepayment penalty designed to make the lender whole. If you pay off early, you owe the present value of the int…

ACH Deduction

ACH (Automated Clearing House) deduction means the provider automatically pulls a fixed amount (daily/weekly) from your business bank a…

Advance Rate

Advance rate describes how much capital you receive compared with a revenue measure (such as average monthly deposits or card sales). F…

APR (Annual Percentage Rate)

APR is a standardized way to express financing cost as an annual rate. With loans, APR includes interest and many fees spread over the …

Blanket Lien

A blanket lien means the creditor claims a security interest in most or all of the business’s assets (inventory, equipment, receivables…

Business Bank Statements

Business bank statements are a primary underwriting document because they show deposits, withdrawals, average daily balance, overdrafts…

Chargeback

A chargeback happens when a customer disputes a card transaction and the payment is reversed, often after the merchant temporarily lose…

Confession of Judgment (COJ)

A Confession of Judgment (COJ) is a legal provision where the borrower pre-authorizes the creditor to enter a judgment against them upo…

Debt Service Coverage Ratio (DSCR)

DSCR measures whether a business generates enough cash flow to cover required debt payments. A DSCR of 1.00 means cash flow exactly equ…

Default

Default is the point at which the provider considers the agreement violated. Common triggers include repeated NSF returns, missed requi…

Effective Annual Rate (EAR)

Effective Annual Rate (EAR) expresses the true annual cost of financing when compounding is considered. While APR is often used as a st…

Exit Strategy

An exit strategy is your plan for how you’ll end the obligation in a healthy way. For short-term products like MCAs, this usually means…

Factor Rate

A factor rate is how most MCAs price cost. You multiply the amount funded by the factor rate to get the total amount you must repay (th…

Holdback Rate

The holdback rate is the portion of your daily sales the provider takes to collect the purchased receivables. A common range is around …

MCA vs Business Loan

An MCA and a business loan are different products with different risks and costs. With an MCA, you sell a fixed amount of future receiv…

Merchant Cash Advance (MCA)

A Merchant Cash Advance (MCA) is not a traditional loan. Instead of borrowing a principal amount with an interest rate, the business se…

Minimum Monthly Volume

Minimum monthly volume is an underwriting threshold—often based on total deposits, card sales, or gross revenue. Providers use it to en…

Modification Agreement

A modification agreement updates the terms of an existing contract—such as changing the payment amount, payment schedule, remittal rate…

NSF (Non-Sufficient Funds)

NSF occurs when an automatic withdrawal (such as an ACH deduction) is attempted but your bank account doesn’t have enough money to cove…

Origination Fee

An origination fee is charged for underwriting and processing a financing product. It may be paid upfront or deducted from the disburse…

Personal Guarantee

A personal guarantee (PG) makes the business owner (or another guarantor) personally liable for repayment if the business defaults. In …

Pre-Payment Penalty

A pre-payment penalty is a charge applied if you repay a financing product before the agreed term. Many MCAs do not have traditional in…

Reconciliation

Reconciliation is intended to align payments with actual receivables when your agreement is based on a percentage of sales. If you’re o…

Remittal Rate

Remittal rate is the portion of revenue you remit to the provider during repayment, typically expressed as a percentage of daily card s…

Renewal

A renewal is when a provider offers additional funding based on your payment history and remaining balance. Many providers consider ren…

Revenue-Based Financing (RBF)

Revenue-Based Financing (RBF) is a broad category of funding where repayment is tied to revenue, usually as a percentage of monthly rev…

Seasoning

Seasoning refers to how much operating history a business has—often measured in months since launch—or how long a bank account, merchan…

Soft Credit Check

A soft credit check allows a lender/provider to review certain credit information without recording a hard inquiry that can affect your…

Specified Purchased Amount

In an MCA, the purchased amount is the fixed dollar amount of receivables the provider buys from you. It is the total target collection…

Split Withholding

Split withholding is common for card-based MCAs. Instead of a daily ACH pull from your bank, your payment processor automatically split…

Stack Position

Stack position describes priority when multiple funding products are being repaid from the same cash flow. A “first position” provider …

Stacking

Stacking happens when a business has more than one MCA (or similar daily/weekly repayment product) outstanding simultaneously. While it…

Time in Business

Time in business is one of the most common eligibility requirements because it correlates with business stability. Many lenders/provide…

Trailing 12 Months

Trailing 12 months (TTM) is a way to measure business performance over the most recent 12-month period, updating each month. Underwrite…

UCC Filing

A UCC filing is typically a Uniform Commercial Code (UCC-1) financing statement filed with the state to publicly record a creditor’s cl…

Weekly Remittance

Weekly remittance means payments are collected once per week instead of daily. This schedule can help businesses with predictable weekl…