{"id":5196,"date":"2016-04-04T10:47:58","date_gmt":"2016-04-04T15:47:58","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/smallbusiness\/starting-a-business\/glossary-typical-loan-documents-and-terms.html"},"modified":"2026-05-08T15:10:00","modified_gmt":"2026-05-08T20:10:00","slug":"glossary-typical-loan-documents-and-terms","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/smallbusiness\/starting-a-business\/glossary-typical-loan-documents-and-terms.html","title":{"rendered":"Glossary: Typical Loan Documents and Terms"},"content":{"rendered":"\n
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Glossary: Typical Loan Documents and Terms<\/h1>\n\n
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\n By Amber Sheppard, Esq.<\/a> | Legally reviewed by Catherine Hodder, Esq.<\/a>\n | Last reviewed\n
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Editorial Note: We earn a commission from affiliate partner links on FindLaw. Commissions do not affect the editorial integrity of our legal content.<\/p>\n\n <\/div>\n \n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n

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There are certain small business loan terms, especially when it comes to loans and financing. These business loan terms cover the application, underwriting, and due diligence of different types of business loans.<\/p>\n\n <\/div>\n\n\n\n

You want to submit a loan application for a small business loan. You\u2019re confident that\u00a0you\u2019ll qualify. You\u2019ve done some research but don\u2019t understand the terms used. Whether it\u2019s an application from the Small Business Administration or a loan program<\/span> from a\u00a0bank, these terms\u00a0remain the same no matter where you apply for a small business loan.<\/p>\n

Let FindLaw help you better understand the loan application process. Below is a glossary of typical loan documents and loan requirements terminology you should know.<\/p>\n

We make business formation EASY.\u00a0Learn about our DIY business formation services here<\/a>.<\/b><\/i><\/p>\n

Glossary<\/h2>\n

These loan package terms are similar for most types of loans<\/span> from all\u00a0types of lenders<\/span><\/u><\/a>.<\/p>\n

Amortization\u00a0<\/strong>\u2013\u00a0Amortization<\/u><\/a>\u00a0is repaying a debt\u00a0with scheduled repayments<\/span> of principal and interest.<\/p>\n

Articles of incorporation<\/strong>\u00a0\u2013 Business formation document that sets up the organization and states what type of business it is. Often\u00a0filed with the\u00a0secretary of state<\/u><\/a>\u00a0where the business operates. The secretary of state issues a\u00a0certificate of incorporation<\/u><\/a>\u00a0once accepted.<\/p>\n

Balance sheet<\/strong>\u00a0\u2013 A\u00a0balance sheet<\/u><\/a>\u00a0lists the\u00a0assets and liabilities (debts) of a business. This includes accounts receivable, accounts payable, profits, and expenses for a certain period. A balance sheet is sometimes called a financial statement.<\/p>\n

Bank statements<\/strong>\u00a0\u2013 Documents from your financial institution<\/span>, like a bank or credit union, that show your business\u2019 debits and credits for the previous month.<\/p>\n

Business credit report<\/strong>\u00a0\u2013 A third-party\u00a0report, often from\u00a0a credit bureau, that shows a\u00a0business\u2019 credit<\/u><\/a>\u00a0for the last seven years. The credit report will show a\u00a0business credit score<\/span><\/u><\/a>\u00a0to help determine your eligibility<\/span> for getting a loan.<\/p>\n

Business line of credit<\/span><\/strong>\u00a0\u2013 The maximum amount a business can borrow from that lender<\/span>.<\/p>\n

Business plan <\/strong>\u2013\u00a0A\u00a0business plan<\/u><\/a>\u00a0is a document that details an overview of your business, financial projections, operating budget, target markets, cash flow<\/span>,\u00a0marketing plan, and products or services.<\/p>\n

Credit score<\/span><\/strong>\u00a0\u2013 A\u00a0credit score<\/span><\/u><\/a>\u00a0is a number assigned to a person or business. It looks at your credit history, credit card<\/span> repayments<\/span>, bankruptcies, liens, and any defaults. You can have a business credit score<\/span> for your business and a separate personal credit score<\/span> for yourself as an individual.<\/p>\n

Collateral\u00a0<\/strong>\u2013 This is property to secure a loan that can be seized upon failure to repay.<\/p>\n

Default\u00a0<\/strong>\u2013 A default<\/u><\/a>\u00a0is failing to perform your duty under a business loan or line of credit. This includes failing to repay your loan amount<\/span>, failing to repay on time, or anything else listed in your loan agreement.<\/p>\n

Income statement<\/strong>\u00a0\u2013 A statement of all income for the business during a period. This includes sales of services and products or referral fees. It should show net income and gross income.<\/p>\n

Income tax returns<\/strong>\u00a0\u2013 An income tax return is filed with a tax authority such as the IRS that reports pertinent tax information such as income, expenses, and deductions.<\/p>\n

Interest rate<\/span><\/strong>\u00a0\u2013 An interest rate<\/span> is a percentage rate charged on the loan amount<\/span> each month. There are\u00a0state interest rate<\/span> laws<\/u><\/a>\u00a0that you should know before agreeing to a loan agreement.<\/p>\n

Loan or credit agreement<\/strong> \u2013\u00a0A\u00a0loan or credit agreement<\/u><\/a>\u00a0is the document you sign to receive loan funds<\/span>. It lists the terms and conditions of your loan.<\/p>\n

Microloan<\/span>\u00a0<\/strong>\u2013 A\u00a0microloan<\/span><\/u><\/a>\u00a0is an SBA loan<\/span> for less than $50,000.<\/p>\n

Mortgage<\/strong>\u200b\u00a0\u2013\u00a0A mortgage<\/u><\/a>\u00a0gives the lender<\/span> a security interest in real property owned by your company.<\/p>\n

Personal guarantee<\/strong>\u00a0\u2013\u00a0A personal guarantee is an individual\u2019s promise to repay the loan. Suppose the individual does not repay the full loan amount<\/span>. In that case, their personal assets or their collateral can be forfeited.<\/p>\n

Prepayment penalty<\/span><\/strong> \u2013 A fee a lender<\/span> charges if the loan is paid off before the end of the agreed term. It typically is calculated as a percentage of the remaining balance to compensate for the lender<\/span>\u2019s lost interest income.<\/p>\n

Principal\u00a0<\/strong>\u2013\u00a0The original borrowed amount for a loan is the principal amount of that loan.<\/p>\n

Promissory note<\/strong> \u2013\u00a0A\u00a0promissory note<\/u><\/a>\u00a0is a contract promising to repay your loan amount<\/span>. Your company must repay at a certain time and according to certain terms and conditions. Promissory notes are either unsecured or\u00a0secured.<\/p>\n

Security agreement<\/strong> \u2013\u00a0A\u00a0security agreement<\/u><\/a> gives the lender<\/span> a\u00a0security interest\u00a0in specific\u00a0personal property\u00a0owned by your company. For example, in equipment financing<\/span>, a lender<\/span> will take a security interest in the equipment until the loan is repaid.<\/p>\n

Term loan<\/strong>\u00a0\u2013 A business loan for a period of time, usually one to fifteen years, with an amortization schedule.<\/p>\n

Underwriting\u00a0<\/strong>\u2013 Underwriting is a lender<\/span>\u2019s\u00a0process of reviewing a loan application to determine the amount of risk in approving it. Underwriting considers the borrower<\/span>\u2019s credit score<\/span>, credit history, and asset valuations.<\/p>\n

Working capital<\/span><\/strong>\u00a0\u2013 A business\u2019 current assets after deducting its current liabilities (debts). This includes funds in bank accounts<\/span>.<\/p>\n

It does not matter if you are a new business or an existing business. Before signing a loan document, talk with a CPA and a\u00a0business law attorney<\/u><\/a>.<\/p>\n

Get Help With Business Financing<\/span><\/h2>\n

If you\u2019re a small business owner<\/span> or a startup<\/span> hoping to be one,\u00a0you may\u00a0still have legal questions about loans, mortgages,\u00a0or the\u00a0required documents\u00a0needed to secure a small business loan. Almost all business lenders<\/span> have\u00a0attorneys, so you should, too.\u00a0<\/p>\n

Entrepreneurs should meet with an experienced\u00a0business law attorney<\/u><\/a>\u00a0about financing options<\/span> before signing any paperwork with a traditional lender<\/span>, credit union, or SBA loan<\/span>. They can check your financial situation against your business needs to find the best move possible.<\/p>\n\n\n

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