Business & CRE Financing Glossary

Agency Loan (Fannie Mae / Freddie Mac)

An agency loan is a multifamily mortgage made under Fannie Mae or Freddie Mac guidelines. The agencies do not lend directly. Approved l…

As-Is vs. As-Stabilized Value

As-is value is a property's market value in its current condition, with the occupancy and income it has today. As-stabilized value is a…

Bad Boy Carve-Outs

Bad boy carve-outs are exceptions in a non-recourse loan that make the borrower or guarantor personally liable if specific bad acts occ…

Break-Even Occupancy

Break-even occupancy is the occupancy rate at which a property's income exactly covers its operating expenses and debt service, with no…

Cap Rate

Cap rate is a property's net operating income divided by its price, expressed as a percentage. It answers one question: what unleverage…

Capital Stack

A capital stack is the layered mix of debt and equity that pays for a commercial real estate deal, ordered by who gets repaid first whe…

Cash Sweep

A cash sweep is a loan provision that sends a property's surplus cash flow to the lender, instead of to the owner, when a performance t…

Cash-on-Cash Return

Cash-on-cash return is your annual pre-tax cash flow after debt service divided by the cash you actually put into a deal. Unlike cap ra…

CMBS Loan

A CMBS loan is a commercial mortgage that the lender pools with hundreds of others and sells to bond investors as securities. Because t…

Commercial Appraisal

A commercial appraisal is a written opinion of a property's market value, prepared by a licensed or certified appraiser and ordered by …

Commercial Bridge Loan

A commercial bridge loan is short-term financing, typically 12 to 36 months, used to buy, stabilize, or reposition a commercial propert…

Commitment Letter

A commitment letter is a lender's written agreement to make a commercial loan on stated terms, issued after underwriting and credit app…

Completion Guarantee

A completion guarantee is a promise, usually from the sponsor or a creditworthy affiliate, that a construction project will be finished…

Cross-Collateralization

Cross-collateralization means the same collateral secures more than one loan, or several properties secure a single loan. The lender ca…

Cross-Default

A cross-default clause makes a default on one loan an event of default on another loan, even if the second loan is current. It lets a l…

Debt Yield

Debt yield is a property's net operating income divided by the loan amount, expressed as a percentage. It tells a lender what cash retu…

Defeasance

Defeasance is a way to release a property from a commercial mortgage without paying the loan off. You buy a portfolio of US government …

Equity Multiple

Equity multiple is total cash returned divided by total cash invested, ignoring time. A $500,000 investment that pays back $1,000,000 h…

Escrow and Impounds

Escrow, also called impounds, is money your lender collects each month on top of principal and interest and holds to pay property taxes…

Exit Fee

An exit fee is a charge, usually a percentage of the loan, that a lender collects when a commercial loan is paid off. It is owed at pay…

Extension Option

An extension option is a right written into a commercial loan that lets the borrower push the maturity date out by a set period, usuall…

Fixed vs. Floating Rate

A fixed rate stays the same for a set period, so the principal-and-interest payment is known in advance. A floating rate is a benchmark…

Good-Faith Deposit

A good-faith deposit is money a party puts up to show it is serious about a deal and to cover costs if the deal fails. In commercial re…

Gross Rent Multiplier (GRM)

Gross rent multiplier is a property's price divided by its gross annual rental income. A building listed at $1,150,000 collecting $138,…

Guarantor (Key Principal)

A guarantor is the person or entity that signs a guaranty making itself liable for a commercial loan if the borrowing entity does not p…

Intercreditor Agreement

An intercreditor agreement is a contract between two lenders that have claims on the same borrower or property. It sets who gets paid f…

Interest Rate Cap

An interest rate cap is a derivative contract a borrower buys for an upfront premium to limit how high a floating-rate loan's index, su…

Interest-Only Period

An interest-only period is the stretch of a commercial loan, set in the loan agreement, when the borrower pays only interest and none o…

Internal Rate of Return (IRR)

Internal rate of return is the annualized rate at which a deal's cash flows, including the sale, grow your investment. It weights timin…

Lease-Up

Lease-up is the period after a property is completed, renovated or vacated when it is being filled with tenants, and its income rises f…

Letter of Intent (LOI)

A letter of intent is a short written outline of the main terms a buyer proposes for a deal, such as price, deposit, due diligence peri…

Loan Assumption

A loan assumption is when a buyer takes over the seller's existing mortgage, keeping the same rate, balance, and remaining term, instea…

Loan Constant

The loan constant is annual debt service divided by the original loan amount, expressed as a percentage. It folds interest and principa…

Loan Covenant

A loan covenant is a binding promise in a loan agreement that the borrower must keep for as long as the loan is outstanding. Covenants …

Loan Term vs. Amortization Period

The loan term is how long the loan agreement lasts before the entire remaining balance comes due at maturity. The amortization period i…

Loan-to-Cost (LTC)

Loan-to-cost (LTC) is the loan amount divided by the total cost of a project - acquisition, hard costs, soft costs, contingency and int…

Loan-to-Value (LTV)

Loan-to-value (LTV) is the loan amount divided by the property's value, expressed as a percentage. Lenders measure value as the lower o…

Lockbox (Cash Management)

In a commercial real estate loan, a lockbox is a bank account that the lender controls and that receives the property's rent, so the le…

Lockout Period

A lockout period is a stretch at the start of a commercial loan, typically one to five years, during which the borrower is not allowed …

Maturity Date

The maturity date is the date in a loan agreement when the loan term ends and the entire unpaid principal balance, accrued interest and…

Net Operating Income (NOI)

Net operating income is a property's annual income after operating expenses but before debt payments, depreciation, and capital improve…

Non-Recourse Loan

A non-recourse loan is secured only by the property. If you default, the lender's remedy is to take the collateral; it cannot pursue yo…

Points (Loan Points)

A point is a fee equal to 1% of the loan amount, paid to the lender at closing. Points come in two kinds: discount points, which buy a …

Preferred Equity

Preferred equity is an ownership investment in the entity that owns a commercial property, paid a priority return ahead of the common o…

Pro Forma

A pro forma is a projection of what a property will earn, not a record of what it has earned. It shows rents, occupancy and expenses th…

Rate Lock

A rate lock is a lender's commitment to hold a loan's interest rate, or the pricing formula behind it, for a set period before closing.…

Rent Roll

A rent roll is a dated list of every unit or suite in a property showing who occupies it, what they pay, how much space they hold, and …

Replacement Reserves

Replacement reserves are money set aside every year, usually as a fixed amount per unit or per square foot, to pay for the roofs, HVAC …

Second Lien (Second Mortgage)

A second lien is a loan secured by a property that already carries a first mortgage. It is recorded behind the first lien, so in a sale…

Senior Debt

Senior debt is the loan that holds the first claim on a commercial property: it is secured by a first-position lien and is repaid befor…

SOFR (Secured Overnight Financing Rate)

SOFR, the Secured Overnight Financing Rate, is a benchmark interest rate published each business day by the Federal Reserve Bank of New…

Spread (Loan Margin)

The spread is the fixed number of percentage points a lender adds to a benchmark such as SOFR, Prime or a Treasury yield to arrive at y…

Springing Recourse

Springing recourse is a clause in a non-recourse commercial loan that converts it to full personal recourse when a specified trigger oc…

Stabilized Property

A stabilized property is a commercial or multifamily property whose occupancy, rents and expenses have settled at normal, sustainable l…

Term Sheet

A term sheet is a lender's written, non-binding outline of the loan it is willing to consider: amount, rate, term, amortization, fees, …

TI/LC Reserves

A TI/LC reserve is money a commercial lender sets aside, or deducts in its underwriting, to pay for tenant improvements (the build-out …

Value-Add Property

A value-add property is an income-producing building that is underperforming because of below-market rents, excess vacancy, dated finis…

Yield Maintenance

Yield maintenance is a prepayment penalty designed to make the lender whole. If you pay off early, you owe the present value of the int…

ACH Deduction

ACH (Automated Clearing House) deduction means the provider automatically pulls a fixed amount (daily/weekly) from your business bank a…

Advance Rate

Advance rate describes how much capital you receive compared with a revenue measure (such as average monthly deposits or card sales). F…

APR (Annual Percentage Rate)

APR is a standardized way to express financing cost as an annual rate. With loans, APR includes interest and many fees spread over the …

Blanket Lien

A blanket lien means the creditor claims a security interest in most or all of the business’s assets (inventory, equipment, receivables…

Business Bank Statements

Business bank statements are a primary underwriting document because they show deposits, withdrawals, average daily balance, overdrafts…

Chargeback

A chargeback happens when a customer disputes a card transaction and the payment is reversed, often after the merchant temporarily lose…

Confession of Judgment (COJ)

A Confession of Judgment (COJ) is a legal provision where the borrower pre-authorizes the creditor to enter a judgment against them upo…

Debt Service Coverage Ratio (DSCR)

DSCR measures whether a business generates enough cash flow to cover required debt payments. A DSCR of 1.00 means cash flow exactly equ…

Default

Default is the point at which the provider considers the agreement violated. Common triggers include repeated NSF returns, missed requi…

Effective Annual Rate (EAR)

Effective Annual Rate (EAR) expresses the true annual cost of financing when compounding is considered. While APR is often used as a st…

Exit Strategy

An exit strategy is your plan for how you’ll end the obligation in a healthy way. For short-term products like MCAs, this usually means…

Factor Rate

A factor rate is how most MCAs price cost. You multiply the amount funded by the factor rate to get the total amount you must repay (th…

Holdback Rate

The holdback rate is the portion of your daily sales the provider takes to collect the purchased receivables. A common range is around …

MCA vs Business Loan

An MCA and a business loan are different products with different risks and costs. With an MCA, you sell a fixed amount of future receiv…

Merchant Cash Advance (MCA)

A Merchant Cash Advance (MCA) is not a traditional loan. Instead of borrowing a principal amount with an interest rate, the business se…

Minimum Monthly Volume

Minimum monthly volume is an underwriting threshold—often based on total deposits, card sales, or gross revenue. Providers use it to en…

Modification Agreement

A modification agreement updates the terms of an existing contract—such as changing the payment amount, payment schedule, remittal rate…

NSF (Non-Sufficient Funds)

NSF occurs when an automatic withdrawal (such as an ACH deduction) is attempted but your bank account doesn’t have enough money to cove…

Origination Fee

An origination fee is charged for underwriting and processing a financing product. It may be paid upfront or deducted from the disburse…

Personal Guarantee

A personal guarantee (PG) makes the business owner (or another guarantor) personally liable for repayment if the business defaults. In …

Pre-Payment Penalty

A pre-payment penalty is a charge applied if you repay a financing product before the agreed term. Many MCAs do not have traditional in…

Prime Rate

The Prime Rate is the base rate U.S. banks post for their most creditworthy business borrowers, and the index that variable-rate busine…

Reconciliation

Reconciliation is intended to align payments with actual receivables when your agreement is based on a percentage of sales. If you’re o…

Remittal Rate

Remittal rate is the portion of revenue you remit to the provider during repayment, typically expressed as a percentage of daily card s…

Renewal

A renewal is when a provider offers additional funding based on your payment history and remaining balance. Many providers consider ren…

Revenue-Based Financing (RBF)

Revenue-Based Financing (RBF) is a broad category of funding where repayment is tied to revenue, usually as a percentage of monthly rev…

Seasoning

Seasoning refers to how much operating history a business has—often measured in months since launch—or how long a bank account, merchan…

Soft Credit Check

A soft credit check allows a lender/provider to review certain credit information without recording a hard inquiry that can affect your…

Specified Purchased Amount

In an MCA, the purchased amount is the fixed dollar amount of receivables the provider buys from you. It is the total target collection…

Split Withholding

Split withholding is common for card-based MCAs. Instead of a daily ACH pull from your bank, your payment processor automatically split…

Stack Position

Stack position describes priority when multiple funding products are being repaid from the same cash flow. A “first position” provider …

Stacking

Stacking happens when a business has more than one MCA (or similar daily/weekly repayment product) outstanding simultaneously. While it…

Time in Business

Time in business is one of the most common eligibility requirements because it correlates with business stability. Many lenders/provide…

Trailing 12 Months

Trailing 12 months (TTM) is a way to measure business performance over the most recent 12-month period, updating each month. Underwrite…

UCC Filing

A UCC filing is typically a Uniform Commercial Code (UCC-1) financing statement filed with the state to publicly record a creditor’s cl…

Weekly Remittance

Weekly remittance means payments are collected once per week instead of daily. This schedule can help businesses with predictable weekl…