Confusing Lending Acronyms: What the Heck Do They Mean?

The world of small business lending is filled with acronyms—it can make your head spin. Whether you’re researching funding options, applying for a business loan, or signing documents after being approved, it’s important to know what all those lending acronyms mean. Here’s a rundown of some lending acronyms you might come across.

ACH

Automated Clearing House. This electronic network processes financial transactions by transferring funds from one account to another. You can set up your loan payments to be made by ACH transactions to make sure you don’t miss a payment.

APR

Annual Percentage Rate. You’re probably familiar with this lending acronym from your credit card accounts. APR is important because compiles your loan’s yearly interest rate with any fees or additional charges you’d have to pay for that cash. It’s the “true cost” of a loan, in other words.

Ideally, using the APR is a good way to compare apples to apples when deciding between business loans. If only: not all lenders reveal the APRs of their loans, so you might have to calculate it yourself (or use our handy APR calculators).

ABL

Asset-Based Loan. An ABL is secured by business assets: most often inventory or receivables. Lenders make these loans based on a formula that calculates a percentage of those assets’ value. The percentage can vary depending on the type of collateral.

CDC

Certified Development Company. The Small Business Administration certifies and regulates these nonprofit organizations, which work with participating lenders nationwide to lend to small businesses under the SBA’s 504 Loan Program. SBA 504 loans provide financing for the purchase of major fixed assets like real estate or equipment.

CDFI

Community Development Financial Institution. These financial institutions, generally banks, credit unions, or loan funds, are government-certified organizations that offer financial services to underserved markets and individuals, like people in low-income communities. CDFIs might offer business loans to entrepreneurs who can’t get traditional financing, too.

CPLTD

Current Portion Of Long-Term Debt. This figure represents the amount of long-term debt that you need to repay within one year.

DSCR

Debt Service Coverage Ratio. This ratio tells lenders how much cash you have available to service the debt you’re considering taking on. Lenders arrive at this figure by dividing your company’s net operating income by the amount you’ll need for debt service. This is an important number, because if you don’t have adequate cash to service your debt, lenders won’t front you the money you’re looking for.

EBITDA

Earnings Before Interest, Tax, Depreciation, and Amortization. This is a measurement lenders use to assess your company’s creditworthiness and your ability to service the debt.

FICO

Individual credit scores (the lending acronym comes from their originator, the Fair Isaac Corporation).  FICO doesn’t reveal the specific formula they use to calculate your credit score, but we do know that they take into account your current level of debt, the length of your credit history, the type of credit you use, and your payment history. Individual FICO scores range from 300 to 850.

GAAP

Generally Accepted Accounting Principles. If a lender requires you to submit financial statements as part of the loan application process, they’ll need to comply with these standards set by the Financial Accounting Standards Board (FASB).

LO

Loan Officer. The person at the lending organization who handles your loan.

LOC

Line of Credit. A line of credit is a type of financing where a lender extends you credit for a certain amount that you can draw on whenever you need—like with a credit card. You don’t have to start repaying the credit line until you actually draw from it, and once you repay all the money, you’ll again have access to the full amount of the credit line.

LTD

Long-Term Debt. Long-term debt is any loan that has a maturity date of more than one year in the future.

LTV Ratio

Loan-to-Value Ratio. This is the ratio of outstanding debt to the value of the collateral for the loan. Lenders will have a maximum loan-to-value ratio they’re willing to accept, depending on the type of collateral you’re putting up for the loan. For example, past-due receivables will typically have a much lower LTV than receivables under 30 days old.

P&I

Principal and Interest. Loan officers combine these figures to calculate your scheduled loan payment amounts.

PP&E

Property, Plant, and Equipment. This term describes business assets or property that is not liquid—in other words, it can’t be quickly turned into cash. PP&E is also sometimes known as fixed assets or tangible assets. This is in contrast to liquid or current assets, like cash or money in the bank.

SBA

The U. S. Small Business Administration. The SBA provides a wide variety of resources and services to small business owners. Most importantly for borrowers, it guarantees small business loans—known as SBA loans.

The SBA doesn’t actually make loans: Instead, it works with approved lenders and guarantees a certain percentage of the money they lend to small businesses via SBA loans, typically 80-90%. This makes banks more willing to take the time and risk involved in lending to small businesses. The SBA’s main guaranteed loan program is the 7(a) loan.

SBSS

Small Business Scoring Service. The SBA’s loan guaranty processing center uses SBSS scores when screening small businesses loan applicants. The SBSS score, generated by FICO, is based on factors like the business’s credit history and the business owner’s individual FICO score. The SBSS score can range from 0 to 300, and in 2014, the SBA set a minimum score of 140 to be considered for its 7(a) loan program.

USDA Loan or B&I Loan

United States Department of Agriculture loans, offered through the agency’s Rural Department of Business and Industry, help to develop or finance businesses with a goal to improve the economic and environmental climate of rural communities. Like SBA loans, many of these loans programs provide guarantees to lenders to encourage lending.

Even with all these lending acronyms under your belt, you might still come across a term you don’t understand. Don’t be shy:  When in doubt, always ask the lender what something acronym means before you agree to anything! Plus, check out our Small Business Financing Glossary for even more.

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from Fundera Ledger https://www.fundera.com/blog/2015/12/09/lending-acronyms/