Applying for a small business loan can be intimidating. Lending language can seem more complicated than setting up a business. However, it is critical to understand the fine print on your business loans. To cut through the confusion, here are 10 of the most important lending terms you need to know.

1. Fixed Rate

Fixed rate is the fixed interest rate you’ll pay throughout your loan period. A fixed-rate loan won’t increase during the life of your loan.

2. Default Interest

If you default on your loan, you’ll be charged default interest. The interest rate charged will be listed in your loan terms.

3. Variable Rate

The exact opposite of a Fixed Rate loan, a variable interest rate loan means that your monthly payments will change based on the market. Most business loans are fixed-rate, but variable rates typically don’t have a time-limit.

4. Covenants

Some loan agreements come with covenants that require you to meet outlined conditions. One example might be that you have to use the lending bank for all your business accounts.

5. Debt Service

Your debt service is the periodic payments required to pay for the principal and the interest on your loan.

6. Personal Guarantee

A personal guarantee requires you to be personally responsible for the debt if you default. This is different from collateral because a lender can seize your personal assets if you don’t or can’t pay back your business loan.

7. Debt-service Coverage Ratio

Your debt-service coverage ratio is the amount of cash your business has and how much is available to service your debt. It is based on your business’s cash flow.

8. Amortization

Amortization is the process of paying back your principle and interest charges through on-time payments.

9. Balloon Payment

A balloon payment is a large principle payment. Typically, business loans require this at the end of your loan term.

10. Environmental Risk

Environmental Risk is the loss of collateral value as a result of hazardous materials being found on your property.

For more information on these lending terms, and what they mean for your business, feel free to reach out to our team. We’re happy to help.

For small business owners, good advice often comes at a cost. Sure you’ll get guidance from your accountant or attorney, but that’s often limited. Let’s say you’re trying to expand your small business; who can you turn to for help? Friends and family can be hard to rely on long term. Business consultants can be expensive and not always a good option for small businesses. A business mentor is someone who knows your business and understands what it takes to grow. These mentors can be found in every business community, the key is finding the right one.

Start out by finding a mentor that’s an expert in your business. It sounds like a simple thing, but having an expert in your product or service will ensure that you’re getting a clear picture of the business landscape from the perspective of someone who’s been there before.

Once you have a mentor, commit some time each month to talk with your mentor with by phone or in person. Small business owners are seemingly always busy, with little time to have meetings. A good way to stay connected with your mentor is having a central place to share ideas and updates on projects. You can create a shared Google Doc and get feedback on a regular basis. Create project plans and share them with your mentor so you can discuss them monthly.

At some point you’re going to try and grow your business. You need a mentor who can provide guidance on the nitty-gritty things that aren’t always easy to deal with like finding access to capital when it’s time to grow your business. Finding the right mentor can often be the difference maker when you’re trying to take your business to the next level.