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Clear definitions of the terms you'll see in a term sheet, so every conversation with your advisor starts from the same understanding.
Earnings before interest, taxes, depreciation, and amortization.
EBITDA shows what the operations of a business earn before financing and accounting decisions. Lenders and buyers both use it, and it often sets how much debt a business can support or what it's worth in a sale.
Worth asking: "Which adjustments would strengthen our EBITDA before we pursue this goal?"
The cash that moves through the business in a given period.
Profit and cash flow aren't the same thing. A business can show a profit and still run short when customers pay late, so we read cash flow on a documented basis rather than a projected one.
Worth asking: "Does our documented cash flow support this payment?"
How much debt the business can carry.
Debt-service capacity compares the cash the business generates with what it owes each period. Lenders often express it as a coverage ratio, and a ratio above 1.0 means the business earns more than its debt payments.
Worth asking: "What's our coverage ratio today, and what would this facility do to it?"
A fixed amount of capital repaid on a defined schedule.
A term loan suits a capital need with a multi-year horizon. Banks set the rate and structure based on their own risk appetite, so the same business can see different terms from different institutions.
Worth asking: "Which institutions are best suited to this business?"
A loan partly guaranteed by the U.S. Small Business Administration.
The government guarantee can open longer terms than a conventional loan, and the application usually takes more documentation and more time.
Worth asking: "Does the timeline for an SBA facility fit our goal?"
A facility secured by assets the business owns.
Receivables, inventory, equipment, or real estate can secure the facility, and the amount available generally follows the value of those assets.
Worth asking: "Which of our assets could support a facility?"
Capital you can draw on as you need it.
You borrow against an approved limit, repay what you use, and draw again. Interest generally applies only to the amount drawn, which suits needs that rise and fall through the year.
Worth asking: "How will we use this line across a full year?"
Selling unpaid invoices for cash now.
A factor buys your receivables at a discount and advances most of their value, then collects from your customers. It suits businesses with strong customers and long payment cycles.
Worth asking: "What's the advance rate and the total fee on our invoices?"
Capital repaid from business revenue.
Payments follow revenue or a fixed daily or weekly amount, and this category includes merchant cash advances. A merchant cash advance is a purchase of future receivables, not a loan.
Worth asking: "How does this compare with a term or asset-based facility for our business?"
A multiplier that sets the total repayment.
Multiply the amount funded by the factor to find what's repaid. At 1.25, $50,000 becomes $62,500. A factor rate isn't an interest rate, so compare the total dollars and the term.
Worth asking: "What's the total repayment in dollars?"
The annual cost of capital, expressed as a percentage.
APR includes interest and certain fees, which helps you compare facilities on the same basis. A short term can make a modest fee look much larger once it's annualized.
Worth asking: "What's the annualized cost of this facility?"
A fee charged for setting up a facility.
Some facilities deduct it from the proceeds. A $50,000 facility with a 3% fee would deliver $48,500, so confirm the net amount along with the headline figure.
Worth asking: "What amount will reach our account after every fee?"
A personal commitment behind a business obligation.
A guarantee makes the owner responsible if the business doesn't meet its obligation. Its scope varies, so read how far it extends and what triggers it.
Worth asking: "What does this guarantee cover, and when does it end?"
A public notice of a lender's claim on business assets.
The filing sets a lender's priority on the assets securing a facility. It's routine, and it should be terminated once the obligation is paid.
Worth asking: "Which assets does this filing cover, and who files the termination?"
A written summary of the proposed terms.
The term sheet states the amount, cost, schedule, and fees. Read it alongside the final agreement, and confirm that the two match before you sign.
Worth asking: "Does the final agreement match the term sheet?"
Replacing existing debt with a new facility.
A refinance can lower the payment, extend the term, or consolidate several obligations into one. It often appears later in a long-term plan, once the numbers support it.
Worth asking: "When would a refinance make sense in our plan?"
Your advisor will walk through it with you and explain what it means for your long-term plan.
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