SBA 7a Loan Program Glossary of Terms

  • 401(k) Rollover Financing

    See Retirement Plan Rollover Financing.

  • Amortization

    The repayment of debt with a fixed schedule involving regular installments over the term of the loan.

  • Appraisal

    The process of determining the market value of a business or other asset.

  • Asking Price

    The price at which the business is offered for sale.

  • Asset

    Any resource with monetary value that an entity owns. Examples: cash, inventory, accounts receivable, and patents.

  • Balance Sheet

    A summary of a company’s assets, liabilities, and capital at a specific period of time.

  • Balloon Payment

    A payment due at the end of the loan that is greater than the payments made at the beginning of the loan. The SBA 7a Loan Program does not allow balloon payments.

  • Business Plan

    A comprehensive business document describing the business’s background, organization, goals, and strategy to reach those goals.

  • Business Valuation

    See Appraisal.

  • Cash Flow

    The movement of cash into and out of a business. It is calculated by taking a business’s net profit (before tax), and adding back interest, depreciation of assets, and payments made to the owner.

  • Collateral

    Anything of value that is pledged to support the repayment of a loan.

  • Credit Report

    A financial record of an individual or company’s borrowing and repayment history, including information pertaining to items such as credit cards, mortgages, and student loans.

  • Credit Score

    A number ranging from 300 (worst) to 850 (best) that estimates one’s ability to pay back a loan. There are no credit score requirements for the SBA 7a Loan Program.

  • Debt-Service Coverage Ratio

    Calculated by dividing a business’s cash flow by the business’s debt service payments; it represents the ratio of cash a business has available to cover its debt.

  • Down Payment

    The portion of the business price that is paid in cash up front, thus reducing the amount of the loan. A down payment for a SBA 7a loan can come from any of the following sources: cash, gift from family or friend, outside investor/business partner, home equity line of credit, and 401k or IRA. YourSBA.com can assist you in acquiring a 7a loan for working capital or a business expansion with 0% down, or a business acquisition with 10% down.

  • Earning Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

    Calculated by taking a business’s net earnings (revenues minus expenses), and adding back interest costs, taxes, depreciation, and amortization.

  • Employee Stock Ownership Plan (ESOP)

    An employee-owner program that provides a business’s employees with ownership interest in the company. YourSBA.com can you assist you in utilizing SBA 7a financing in coordination with an ESOP in order to provide an affordable shareholder exit strategy.

  • Entrepreneur

    An individual who operates and manages a business, with the confidence to accept the responsibility, risk, and rewards associated with doing so. YourSBA.com has helped secure funding for countless successful entrepreneurs across the country.

  • Equity Injection

    The amount of cash invested into a business by the borrower.

  • Escrow Account

    An account owned by a neutral, third party, used to hold money until a transaction is completed according to agreement between two parties.

  • Fixed Interest Rate

    An interest rate that remains the same throughout the entirety of a loan.

  • Furniture, Fixtures, and Equipment (FF&E)

    All of the furniture, fixtures, and equipment that will be included in the purchase of a business; some examples include computers, printers, desks, machines, dental equipment, etc.

  • Goodwill

    An intangible asset of a business; its value is related to the reputation the business has established for itself.

  • Gross Income (or Gross Profit)

    A business’s total revenue minus the cost of making a product or providing a service.

  • Guarantee Fee

    A guarantee fee is added to all SBA loans and may be paid by the lender or the borrower, depending on the situation.

    •    Loans up to 150,000: No fee
    •    Loans $150,001 – $750,000: 3% of the guaranteed portion of the loan
    •    Loans $750,001 – $5,000,000: 3.5% of the first $1,000,000 of the guaranteed portion of the loan, and 3.75% for the remainder of the guaranteed portion above $1,000,000
  • Guarantor

    A person who promises to carry out the agreement of the loan if the borrower is unable to.

  • Income Statement

    Also known as a profit and loss statement (P&L). An income statement provides information about a business’s financial performance, including net income, revenues, and expenses for a specific period of time.

  • Interest Rate

    The rate that is charged by a lender for the use of funds; it can be fixed or variable.

  • Inventory

    The raw materials, merchandise, and products that have not yet been sold.

  • IRA Rollover Financing

    See Retirement Plan Rollover Financing.

  • Leasehold Improvements

    See Tenant Improvements.

  • Letter of Intent

    A document stating an intention to carry out an act. For example, when buying a business using SBA financing, the buyer signs a Letter of Intent with the seller, stating his/her intention to buy the business under the condition that he/she is able to secure financing. A Letter of Intent can include components such as seller financing and estimated closing timeline. Contact us for a sample Letter of Intent to use in your negotiations.

  • Liabilities

    The debt owed by an individual or business, including loans, accounts payable, and mortgages.

  • Lien

    A lender’s right to keep possession of or to sell the collateral property of a borrower who fails to fulfill the agreements set forth in the loan contract.

  • Line of Credit

    A source of financing in which the borrower is provided with an amount of capital that they can borrow from as needed. As payments are made on the borrowed credit, the principal paid back in available to be borrowed again.

  • Loan-to-Value Ratio

    A measure of financial risk that compares the loan amount to the value of asset that the loan is being used to acquired; it is calculated by dividing the loan amount by the value of the asset.

  • Net Cash Flow

    The difference between the amount of money that a company has generated versus lost over a specified period of time.

  • Net Income (or Net Profit)

    The total earnings or profit of a company. It is calculated by subtracting all of a company’s expenses from the company’s gross revenues.

  • Net Worth

    Calculated by subtracting one’s liabilities from one’s assets.

  • Prepayment Penalty

    The fee charged to a borrower if a loan before a specified period of time. For SBA 7a loans with a maturity of 15 or more years, a prepayment penalty is charged to the borrower if the loan is paid off during the first three years:

    • 5% if paid off in year 1
    • 3% if paid off in year 2
    • 1% if paid off in year 3
  • Prequalify (or Pre-approval)

    YourSBA.com can prequalify a potential buyer for SBA financing within 24-48 hours. If we pre-qualify a borrower and business to move forward, we have a near-100% success rate, compared to the 15% success rate of a typical bank. Get pre-qualified now.

  • Prime Rate

    The lowest interest rate that banks are offering to their customers. This rate is usually reserved for rare instances for customers with the highest credit ratings and for short term lending.

  • Profit and Loss (P&L)

    See Income Statement.

  • Refinance

    The act of paying off a loan by obtaining a new loan. A SBA 7a loan can often be used to refinance existing debt to obtain a lower interest rate, longer loan term, lower monthly payments, and increased cash flow.

  • Retirement Plan Rollover Financing (or 401(k) Rollover Financing, or IRA Rollover Financing)

    The use of one’s retirement savings as a source of down payment. YourSBA.com can assist you in this.

  • SCORE

    A nonprofit association sponsored by the SBA and dedicated to helping small businesses.

  • SBA 504 Loan Program

    Previously referred to as SBA Grow Loan Program. The SBA 504 Loan Program can be used for real estate and equipment purchases, construction, and renovation.

  • SBA 7a Loan Program

    Previously referred to as SBA Advantage Loan Program. The SBA 7a Loan Program is the SBA’s most common and versatile loan program. It can be used for a variety of purposes including business acquisition, business expansion, debt refinancing, partner buyout, and working capital funding. The US Government guarantees 75-85% of the loan to lending agents; as a result, an SBA Advantage loan offers easier qualification, lower down payments, lower interest rates, and longer terms than conventional business financing.

  • SBA Advantage Loan Program

    See SBA 7a Loan Program.

  • SBA Grow Loan Program

    See SBA 504 Loan Program.

  • SBA Guaranty

    Instead of lending the money, the Small Business Administration (SBA) guarantees 75-85% of the loan for lenders, thus decreasing the risk to the lender. This means that if the borrower defaults on the loan, the SBA will pay the lender the guaranteed portion.

  • SBA Standard Operating Procedures (SOP)

    A document containing nearly 400 pages describing the regulations of the SBA loan program.

  • Seller Financing (or Seller Equity)

    A seller can agree to finance a portion of the purchase as an incentive for a potential buyer who may not be qualified to purchase the business otherwise. In order for seller financing to count toward the equity injection, it must be on full or partial standby for at least 48 months.

  • Small Business

    According to the SBA, a business can be classified as “small” based on a couple different standards: (1) SBA-defined standards specific to the business’s industry, or (2) the business’s net income.

  • Small Business Administration (SBA)

    The Small Business Administration (SBA) is a federal agency dedicated to strengthening America’s small businesses through initiatives such as the SBA loan program.

  • Tenant Improvements (or Leasehold Improvements)

    Changes made to a property to meet the needs of the tenant.

  • Term

    In the case of a loan, the term represents the amount of time given to repay the debt. The typical loan term for an SBA 7a loan is up to 10 years for equipment, refinancing, leasehold improvements, or business acquisition, and up to 25 years if real estate is involved in the loan project. Please use our Loan Scenario Calculator to automatically estimate your loan term.

  • Underwriting Process

    The analysis of the borrower and the business in order to help ensure the borrower’s success in business and in paying back the loan. The analysis includes components such as credit score, personal finances, business finances, business plan, and industry analysis.

  • Variable Interest Rate

    An interest rate that changes during the life of a loan.

  • Working Capital

    The money available to purchase inventory and continue operating. Working capital can be included in a SBA 7a loan; in fact, some clients even close the loan with more money in working capital than they put down toward their down payment.

  • YourSBA.com

    YourSBA.com has set out to revolutionize SBA lending, with a focus on client experience, maximizing your chance of financing, and getting you the best terms possible. At YourSBA.com, we have made significant changes that allow us to be over 95% successful in securing our clients’ loans, compared to the 15% success rate of a bank. Our strength lies in our ability to elegantly prepare your application and successfully match your loan with a lender eager to lend you financing.

    Your surest way to financing starts here: YourEdge