Plain-English definitions of common business debt terms.
A flexible borrowing option where a lender approves a maximum credit amount. You can draw funds as needed up to that limit and only pay interest on what you've borrowed. Think of it like a credit card for your business — but often with better terms and higher limits.
The money flowing in and out of your business over a given period. Positive cash flow means more money is coming in than going out. When debt payments eat into your cash flow, it becomes harder to cover everyday operating costs like payroll, rent, and inventory.
Any person or institution that your business owes money to. This includes banks, online lenders, equipment financers, and any other entity that has extended credit or a loan to your business.
The process of modifying the terms of your existing debt to make it more manageable. This can include extending repayment timelines, reducing interest rates, or consolidating multiple debts into a single payment. The goal is to align your obligations with your actual ability to pay.
Negotiating with creditors to accept a reduced lump sum as full payment of a debt. For example, a creditor might agree to accept $30,000 to settle a $60,000 debt. The creditor gets something rather than risk receiving nothing, and you pay less than you owe.
When a business fails to meet the terms of a loan agreement — most commonly by missing payments. Default can trigger late fees, higher interest rates, collection activity, and eventually legal action. It's often the point where businesses seek professional help.
A multiplier used by some lenders (especially for Merchant Cash Advances) to determine how much you'll repay. Unlike interest rates, factor rates are applied to the original amount. For example, a factor rate of 1.3 on a $50,000 advance means you repay $65,000 total.
A financing option where a business receives a lump sum in exchange for a percentage of future credit card sales or daily bank deposits. MCAs often carry high effective interest rates and can create a cycle of payments that severely impacts cash flow.
A personal commitment by a business owner to repay a business debt using personal assets if the business cannot. This puts your personal savings, home, or other assets at risk — even if your business is structured as an LLC or corporation.
A Uniform Commercial Code lien filed by a lender against your business assets as collateral for a loan. A UCC lien can prevent you from obtaining additional financing and gives the filing lender priority claims on your assets if you default.
A loan that isn't backed by specific collateral (like equipment or real estate). "Term" means it has a fixed repayment schedule with set payments over a defined period. Because there's no collateral, these loans often carry higher interest rates than secured loans.
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