Basic Dictionary of SBA Loan Terms
SBA (Small Business Administration)
A U.S. government agency that provides support to entrepreneurs and small businesses through loan guarantees, advisory services, and other resources.
7(a) Loan
The most common SBA loan program, used for a variety of purposes, including working capital, inventory purchases, furniture and equipment acquisition, and real estate purchases.
504 Loan
A program that provides long-term, fixed-rate financing for acquiring fixed assets such as real estate and high-value equipment.
CAPLines
A line of credit provided by the SBA to help small businesses meet short-term working capital needs.
Microloan
A loan of up to $50,000 granted to small businesses and nonprofit childcare centers to finance working capital, inventory, supplies, furniture, equipment, or real estate.
Guarantor
A person or entity that guarantees loan repayment in case the borrower is unable to fulfill their loan obligations.
Collateral
An asset or property that the borrower offers to the lender as security for the loan. If the borrower fails to pay, the lender can seize the collateral.
Loan Term
The period during which the loan must be repaid.
Interest Rate
The percentage charged by the lender on the loan amount as the cost of borrowing.
Amortization
The process of repaying the loan through periodic payments that include both principal and interest.
Borrower
The individual or entity that receives the loan and is responsible for its repayment.
Pre-Approval
A preliminary evaluation by the lender of the borrower's ability to qualify for a loan, based on financial and credit information.
Working Capital
Funds needed for the daily operations of a business, including expenses such as payroll, rent, and supplies.
Business Plan
A document that outlines a company’s objectives, strategies for achieving them, and financial data supporting the business's viability.
Repayment Ability
The borrower's capacity to make loan payments as agreed.
Personal Financial Statement
A document detailing an individual’s assets, liabilities, income, and expenses, used to assess the financial strength of the loan applicant.
Personal Guarantee
A personal commitment to repay the loan if the borrowing business is unable to do so.
Disbursement
The act of providing loan funds to the borrower.
Microloan Intermediary
A nonprofit organization that acts as an intermediary between the SBA and small businesses to facilitate microloans.
CDC (Community Development Financial Institution)
An organization involved in SBA 504 loans that lends a portion of the loan within a program aimed at the geographic development of communities.
Equity Injection
The amount required from the borrower as a contribution to the loan. This is typically needed for:
Partner Buyout
Commercial Real Estate Acquisition
Business Acquisition
Business Acquisition
A transaction where a borrower purchases a business using an SBA loan.
Partner Buyout
A transaction where one business partner buys out another partner’s share using an SBA loan.
LOI (Letter of Interest)
A document in which a lender expresses interest in reviewing your transaction and outlines potential loan terms in advance.
Commitment Letter
A formal document issued by the lender (such as a bank or financial institution) detailing the terms and conditions under which the SBA loan has been approved. This letter is essentially a promise from the lender to provide financing to the borrower, provided that certain requirements and pre-closing conditions are met.
