11 business finance terms you need to understand

By Madison Crader

The language of finance is an essential tool for anyone interested in running a business. It doesn’t matter whether you’re a veteran small-business owner or an up-and-coming entrepreneur—you need to be able to articulate your needs, your progress, and your accomplishments to potential partners and investors to be successful. Mastering these business finance terms will help your business thrive.

Business loans

Every business, small and large, hinges on their ability to raise initial capital. A small-business loan can get you the capital you need to turn your idea into a successful venture. Business loans from banks may also be offered as Small Business Administration (SBA) products, with standard rates and requirements.

Loan terms

The word “terms” has a specific meaning in the context of a small-business loan; it refers to, among other things, the amount of time the borrower has to pay the loan back and the interest rate you will be charged. There are several different programs for small-business loans, and the most popular SBA loans have repayment periods between five and 25 years.


Collateral refers to the physical assets your lender is able to seize if you fail to repay your small-business loan. This commonly includes equipment, vehicles, or real estate. Offering collateral can often help you get a loan with more favorable terms, and equipment financing loans are low risk for lenders since the equipment can be used as collateral.

Interest rate

Your loan’s interest rate is a small additional cost that accrues over the time it takes you to repay the loan. Interests rates can be fixed or variable: a fixed interest rate is the same over the course of the loan, while a variable interest rate fluctuates with market interest rates.


Lenders will make an assessment of your risk before giving you a loan. This process is referred to as an underwriting process, and the requirements and time vary depending on the loan or SBA product you’re applying for. You can tailor your application to the underwriting requirements to increase your likelihood of approval at the rates you want.


Investors are another small-business finance option that can help you get your idea off the ground. The right language can give investors confidence in your ability to generate revenue. The right investment can help you establish a strong foundation for future growth.

Angel investors

Angel investors are individuals seeking to back a new business venture at an early-but-strong stage, often in exchange for partial ownership in the company. Angel investors care about original or creative business ideas, valuable intellectual property, and well-thought-out business plans with clearly articulated potential.

Peer-to-peer lending

Peer-to-peer or P2P lending allows small businesses to crowdfund their starting capital through websites that cater to investors and borrowers outside the regulations and limitations of traditional bank loans. With P2P lending, you can leverage your good credit for a very competitive lending interest rate.

Direct lending

Increasingly, small-business loan terms are less competitive than those offered by direct lenders. A direct lender conducts their own investigation into a business venture and acts as a lending alternative to traditional banks. Direct lenders often loan from hedge funds, company assets, or private-equity funds.

Other finance terminology

The daily challenges of expenses, income, and inventory management are one of the most challenging aspects of running a small business. Organizing these flows of cash and capital assets into manageable categories is especially important when you’re seeking investments or reporting to your shareholders.

Accounts payable and accounts receivable

These terms might sound technical, but their meaning is simple: they refer to money you owe and money you’re owed. Accounts payable includes any debts your company intends to pay off (usually over a short-term period). Accounts receivable includes all money owed to your business that hasn’t yet been collected.

Income statement

Whether you’re pitching your business to a lender or seeking new investors, an income statement is an essential metric of your business’s success. This document is a snapshot of your business’s cash flow, with the intention of demonstrating your ability to make a profit. This statement includes your net income, expenses, depreciation, interest, and taxes.

Balance sheet

Balance sheets are similar to income statements and focus specifically on the equity and liability of your company and any assets your company owns. It gives a simple, but close, look at what your company’s money is going toward and your progress on returning any investments. If you’re looking to form a long-term relationship with an angel investor, this document is essential.

Fixed assets

Fixed assets or capital assets refers to the equipment or machinery your business uses to operate. These assets are perfect for providing collateral for very favorable loan terms since they give banks or shareholders a high-value item they can seize to mitigate their risk. You might see fixed assets referred to as property, plant, and equipment (PP&E).


Madison Crader specializes in content related to small businesses building brand awareness and gaining access to capital to grow their business. She has a passion for helping entrepreneurs understand their finance needs and set long-term goals by sharing tips and tricks.

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