As a business owner looking for financing options, deciphering financial jargon can be a daunting task. Terms like APR, collateral, and credit score may leave you scratching your head. To help you navigate the complex world of business loans, we’ve put together a glossary of commonly used terms. With this guide, you’ll be better equipped to understand the language of business loans.
APR
APR stands for Annual Percentage Rate. It’s the total cost of borrowing over a year, including interest and fees. APRs vary depending on the type of loan, the lender, and your creditworthiness. Comparing APRs can help you find the best loan option for your business.
Collateral
Collateral is an asset that’s pledged as security for a loan. It could be real estate, equipment, inventory, or any other valuable property that the lender can seize if you default on the loan. Collateral requirements vary among lenders, but they’re often required for secured loans.
Credit Score
Your credit score is a numerical representation of your creditworthiness. It’s calculated based on your credit history, including payment history, length of credit, and types of credit used. Lenders use credit scores to evaluate your risk as a borrower. A higher credit score usually means lower interest rates and better loan terms.
Debt-to-Income Ratio
Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward debt payments. Lenders use DTI to assess your ability to repay a loan. A lower DTI indicates that you have more disposable income to put toward loan payments and other expenses. Some lenders may require a specific DTI to qualify for a loan.
Secured vs. Unsecured Loans
A secured loan is backed by collateral, while an unsecured loan doesn’t require collateral. Secured loans are usually easier to qualify for, have lower interest rates, and higher borrowing limits than unsecured loans. However, unsecured loans may be a better option for businesses that don’t have valuable assets to pledge as collateral.
Wrapping It Up
The world of business loans can be overwhelming, but understanding the language is the first step to finding the right financing option for your business. We hope this glossary has helped to demystify some of the most commonly used terms in the industry. Keep in mind that every lender has its unique lending criteria, so it’s essential to do your research and compare loan options carefully. Happy borrowing!
Gellyfish: Certainty of Execution in Commercial Loans
At Gellyfish Commercial, we offer commercial financing solutions with the certainty of execution you need to take your business to the next level.
We are located in Riverside, and work with clients all over California and beyond. Contact us today by email (info@gellyfishcommercial.com), telephone (877-800-4493), social media (Facebook, Twitter, LinkedIn), or through the live chat on our home page to schedule a free consultation.
