Glossary of Credit Terms

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

Adjustable interest rate

An interest rate that is tied to an index, such as The Wall Street Journal Prime Rate, and may fluctuate during the term.


The process of paying off a debt (interest and principal) with a fixed repayment schedule in regular installments over a period of time.

Annual fees

The yearly fees charged by lenders. Most common annual fees are credit card annual fees to keep the customer's card active.

Annual percentage rate (APR)

A term representing the total cost of consumer credit. The APR of a loan is the total finance charge, including interest and fees, expressed as a yearly rate.


A report made by a qualified person setting forth an opinion or estimate of property value. The term also refers to the process by which this estimate is obtained.


Balloon payment

Repayment of the unamortized portion of the outstanding balance at the end of a loan period.



An interest rate cap limits the maximum amount the interest rate can change during a specified period, while a payment cap limits the dollar amount or percentage the monthly payment may increase during a specified period.


The ability to repay the loan, measured as the probability and timing of repayment, after consideration of pre-existing loans or payment obligations, profitability and cash flow.


The money an owner invests in the business. The more of the owner’s money that is invested in the business, the more comfortable a lender will feel that the business owner is committed to succeeding.

Cash flow statement

A periodic financial report that shows the cash inflows that a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period. Also known as the statement of cash flows. It is useful in determining the short-term viability of a company, particularly its ability to cover expenses.


Community Development Financial Institution (CDFI) is a financial organization that provides credit and financial services to low-income, disadvantaged individuals and businesses.


Lenders may require the borrower to provide collateral, also known as security, to provide additional assurance of repayment. If the borrower is unable to pay back the loan, for any reason, lenders may recover unpaid amounts by liquidating the collateral.

Commercial real estate loan

A real estate loan secured by a lien on commercial, rather than residential, real estate. Commercial real estate (CRE) refers to any income-producing real estate that is used for business purposes, such as retail centers, office complexes, hotels and apartments.


A legal entity through which a group will conduct business. The owners of a corporation, known as shareholders, usually are not liable for the debts of the corporation, unless they provide a personal guaranty.


The internal and external economic factors affecting the ability of a business to repay a loan, as well as the intended use of the loan.


Someone who is willing to be liable for a credit obligation along with a primary borrower and agrees that if the borrower cannot pay back the loan, the cosigner will pay back the unpaid loan balance. The co-signer goes through the same loan process as the original signer for approval.

Credit agencies (or Credit bureaus)

Organizations that collect credit information about businesses and/or individuals and provide credit reports to potential lenders, for the purpose of aiding in the lenders' decision-making process.

Credit history

A record of a customer's financial health and habits, and track record of paying bills. If the customer has a history of paying their loans on time and not taking out more money than it can afford to pay back, lenders will view them as a more responsible borrower.

Credit report

A detailed report of an individual's or business's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's or guarantor's creditworthiness.

Credit score

Credit score is a number, calculated based on information in a credit report, that lenders use to assess creditworthiness. The scores and the ranges for scores vary by score provider. Credit scores can be standardized (for example a FICO Score), or can be proprietary, and vary from lender to lender.


A determination of the likelihood an individual or business will be approved to borrow funds. It considers factors, such as credit history, capacity, capital, collateral and conditions.


A method of fundraising for a business, in which small amounts of capital are raised from large numbers of backers and investors using the internet or an easily accessible social network of friends and family.


Debt service coverage ratio (DSCR)

A measure of the cash flow available to pay current debt obligations. DSCR equals Net Operating Income divided by Total Debt Service.

Debt to income ratio

A ratio that provides a simple measure of the total liabilities of a business compared to its income. It is expressed as a percentage, specifically what percentage of the business income would be required to go toward payment of the requested debt. Also used when defining an individual's debt ratio.

Discount rate

The interest rate that the Federal Reserve Bank charges commercial banks and other depository institutions to borrow funds.

Due diligence

The process of thoroughly researching a person or business before entering into a contract.



Organization established as a separate business group for the purposes of tax structuring. Corporations (C and S), limited liability companies, partnerships and sole proprietorships are types of common business entities.

Equal Credit Opportunity Act (ECOA)

A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs, or past exercise of rights under the Consumer Credit Protection Act.

Equity loan

A loan that lets a business entity borrow more money by leveraging the equity in their commercial property. The loan amount is a percentage of the current appraised value of the property minus the debt (including the new debt being applied for).


An item of value, money, or documents, deposited with a third party, to be delivered upon the fulfillment of a condition. For example, the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.



A financial transaction in which a business sells its accounts receivables at a discount to a third party. A business may factor its account receivables in order to generate cash to meet its needs.

Fixed interest rate

An interest rate that does not change during the life of the loan, unless there is default.

Floating interest rate

An interest rate that is tied to an index, such as The Wall Street Journal Prime Rate, and may fluctuate during the term.


A legal procedure in which collateral property mortgaged as security for a loan is sold to pay the defaulting borrower's debt.


Grace period

The period between the date of the credit card billing statement and the date payment in full must be received before interest begins to accrue on new purchases.


An agreement by which one person (guarantor) assures (guarantees) payment or fulfillment of another's debts or obligations.



Formal term for the amount a customer pays to borrow money. Interest is expressed as an annual percentage.



A contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. Property, buildings, business equipment and vehicles are assets that are commonly leased.

Letter of credit

A formal agreement, usually issued by a bank, entitling the beneficiary of the Letter of Credit to draw funds up to a specified maximum amount upon the satisfaction of specified conditions.


The legal right to take another's property (collateral) if the obligation secured by the lien (debt) is not paid as agreed.

Line of credit (LOC)

A flexible credit facility granted by a financial institution that allows the borrower to tap into the funds as needed. Interest is paid only on the funds actually withdrawn.

Loan-to-value (LTV)

A term used by lenders to express the ratio of the amount of a loan to the value of the asset intended to be used as collateral. Typically in reference to real estate value.

Lump-sum funds

A one-time disbursement of funds from the financing.


Maturity date

The date when a loan's or line of credit's balance is scheduled to be paid in full.


Community development lender that focuses on helping entrepreneurs and small businesses grow. Microlenders offer short-term loans (from six months to five years) for amounts up to $50,000. See CDFI.


Pre-payment fee

A provision in the lending contract that states the borrower will be charged a fee in the event the borrower pays off the loan earlier than was originally scheduled in the loan agreement.


The process in which a loan officer evaluates a borrower and makes a tentative assessment of how much the lending institution is willing to lend. Typically subject to verification of key lending factors.

Prime rate

The base interest rate charged by lenders on a short-term loan to qualified customers. It is not necessarily the best rate offered by the lender. Some lenders publish their own "prime rate" and others rely upon the prime rate established by others, such as Wall Street Journal Prime Rate, that is an average of what the largest commercial banks charge as their published prime rate.


The amount borrowed, not including interest.


Rate lock

An agreement between the borrower and lender that legally establishes the interest rate that will be charged so long as the loan closes within the specified period.


A new loan to pay off and replace an existing loan, with new terms (i.e. interest rate, payment amount, maturity date, etc.)

Revolving credit

A type of financing that gives the borrower the ability to access available funds up to a defined limit during the specified draw period. As the borrower pays down the principal, more credit becomes available during the draw period, up to the total amount of the approved line of credit.



U. S. Small Business Administration. The SBA is a federal government agency that works with organizations and private lenders to guarantee loans, assist with contracts, provide counseling sessions and offer other support to small businesses. Some of the different SBA loans include: SBA 7(a) loan, SBA 504 loan, and SBA Express loan.

Secured credit

Credit for which some form of property, such as real estate, equipment, vehicles, or cash has been pledged to be collateral. If the borrower defaults on a secured loan, the collateral can be used by the lender to satisfy any part of the loan that has not been paid.


See Collateral.



The time period over which a loan is scheduled to be repaid. Typically expressed in terms of months or years.

Term loan

A loan for a specific amount that has a specified repayment schedule (Term) at a fixed or floating interest rate.


Underwriting process

Analysis of risk and setting of appropriate rate and terms; generally started upon submission of an application for a credit facility (i.e. loan, credit card or line of credit).

Unsecured credit

A loan the terms of which are primarily based on a customer's personal and business credit history, and cash flow. No collateral is pledged; therefore unsecured credit accounts may have lower credit limits and higher interest rates.


Variable interest rate

An interest rate that is tied to an index, such as The Wall Street Journal Prime Rate, that may fluctuate during the term.

Talk with a banker

Make an appointment or call us now at 1-877-436-4170

Get the latest business updates during COVID-19

Explore Wells Fargo resources

Find an ATM or aWells Fargo location

You are leaving the Wells Fargo website

You are leaving and entering a website that Wells Fargo does not control. Wells Fargo has provided this link for your convenience, but does not endorse and is not responsible for the content, links, privacy policy, or security policy of this website.