Loan Financing Glossary
APR
The total cost of borrowing, including interest and fees, expressed as a yearly percentage.
Amortization
The process of paying off a debt over time through regular payments of principal and interest.
Balloon Payment
A large, lump-sum payment due at the end of a loan term after smaller periodic payments have been made.
Bridge Loan
Temporary financing used until permanent funding is secured or an existing obligation is paid off.
Cap Rate
The yield of an investment property based on its expected annual net operating income.
Cash Flow
The net amount of cash being transferred into and out of a business or investment.
Collateral
An asset pledged by a borrower as security for a loan, which can be seized upon default.
Covenant
A formal agreement or restriction in a loan contract that the borrower must adhere to.
DSCR
Debt Service Coverage Ratio; measures available cash flow to pay current debt obligations.
DTI Ratio
Debt-to-Income ratio; the percentage of gross monthly income spent on debt payments.
Equity
The difference between the market value of an asset and the debt owed on it.
Escrow
A financial arrangement where a third party holds funds during a transaction process.
LTV Ratio
Loan-to-Value; the ratio of a loan to the value of an asset purchased.
NOI
Net Operating Income; income generated by a property after all operating expenses are paid.
SBA Loans
Small Business Administration loans partially guaranteed by the government to foster business growth.
Underwriting
The process by which a lender determines the creditworthiness and risk of a prospective borrower.