The money
- Amortization
- The schedule that splits each fixed payment between interest and principal so the balance reaches zero at the end of the term. Covered in depth in amortization explained.
- Annual service fee
- A periodic fee, set by the SBA, on the guaranteed portion of larger 7(a) loans and on 504 debentures. Disclosed in your closing documents.
- Base rate
- The index a variable-rate loan floats on; for most 7(a) loans, the prime rate. See how SBA rates are set.
- Balloon payment
- A large final payment due at maturity. Standard SBA 7(a) and 504 loans are fully amortizing and have none.
- Collateral
- Assets pledged to secure the loan: business equipment, receivables, real estate, sometimes personal property. Loans above $350,000 must be secured to the extent collateral is available.
- Debt service coverage ratio (DSCR)
- Cash flow available to pay debt divided by the annual debt payments. Many lenders look for roughly 1.25x or better.
- Equity injection
- The borrower’s own money in the project, the SBA term for a down payment. Typically about 10% on startup and acquisition deals; see what counts toward it.
- Guarantee fee
- The SBA’s upfront charge for guaranteeing a portion of the loan, tiered by size, paid at closing and usually financed. See how it works.
- Prime rate
- The published reference rate major US banks charge their best customers; the base for 7(a) pricing.
- Spread
- The lender’s margin added to the base rate, capped by the SBA at size-dependent maxima. The only part of your rate a lender negotiates.
- Term
- How long the loan runs. 7(a) terms run up to 10 years for working capital and most equipment, up to 25 for owner-occupied real estate.
- Working capital
- Money that funds operations: payroll, inventory, receivables timing. A core allowed use of 7(a) proceeds, generally not a 504 use.
The players
- Borrower
- You, and any co-borrowing entity on the note.
- CDC (Certified Development Company)
- A nonprofit licensed by the SBA to package and service 504 loans. Every 504 deal goes through one.
- Delegated lender (PLP)
- A lender with delegated SBA authority to approve loans under its own credit policy without sending each file to the SBA for review. Most active SBA banks hold this status, which is why decisions can come quickly.
- Intermediary
- The mission-driven nonprofit that makes SBA microloans, typically up to $50,000, and provides technical assistance alongside them.
- Lender
- The bank, credit union or non-bank making the loan. The SBA guarantees; the lender underwrites and decides.
- SBA (Small Business Administration)
- The federal agency whose guarantee makes the loan possible. It sets the program rules and collects the fees; it does not lend to borrowers directly.
The paperwork
- Form 413 (Personal Financial Statement)
- The SBA’s standard form listing your assets, liabilities and income. Owners of the business complete it; lenders use it to assess the personal guarantee.
- NAICS code
- The industry classification that determines which SBA size standard applies to your business.
- Note (promissory note)
- The loan contract itself: amount, rate, spread, term, collateral, guarantees. Its terms govern; everything else, including this site, is commentary.
- Personal guarantee
- The owners’ pledge of personal assets behind the business debt. Owners of 20% or more generally guarantee SBA loans.
- Size standard
- The SBA’s revenue or employee cap for a given industry. Being under it is a prerequisite for the programs; most small businesses clear it easily.
- Standby agreement
- Terms under which a debt, commonly a seller note in an acquisition, accepts no payments for a period, often required before it can count toward the buyer’s equity injection.
- Use of proceeds
- The itemized statement of what the loan buys. Eligibility rules attach to it; vague uses of funds slow files. See the documents page.
Where to go from a definition
The readiness check turns several of these terms (time in business, credit band, equity injection, collateral) into a two-minute self-assessment, and the cost calculator turns the money terms into actual numbers. Definitions are useful; your own figures are more so.