Business Loan Glossary Of Terms
Please note that these are a general explanation of the meaning of terms used in relation to business loans.
The wording of loan terms and conditions may use different phrases or terms, and you should read the terms and conditions of the relevant loan to understand the features and cost of that loan. You cannot rely on these terms to the part of any loan you may purchase.
Refer to the product disclosure statement (PDS) and Canstar’s Financial Services and Credit Guide (FSCG).
Account balance: The amount of money you have in your account.
Business loan: A loan granted to fund a business and its proceedings.
Business overdraft: A line of credit that becomes available to a business when it makes a withdrawal for a greater amount than the balance in your business’s debit account.
Fixed interest rate: A fixed interest rate remains the same for the entire duration of the loan.
Loan balance: The amount of money left to be repaid on a business loan.
Loan term: The term of the loan usually refers to the length of time the borrower has to repay the loan. This is different to the loan terms and conditions, which are a full list of the lender’s conditions in agreeing to offer a loan, including the interest rate, fees and charges, and the loan term.
Risk margin: When setting the interest rates on a business loan, lenders apply a ‘risk margin’ based on how risky it is to lend to the business. Lenders consider factors including how successful the business already, and its prospects for future success such as its location, customer base, ability to service debt, and the reason for borrowing. Learn about business loan risk margins here.
Secured loan: A loan that is backed by ‘security’ (collateral) such as the property the business owns (commercially secured) or the home the business owner lives in (residentially secured).
Unsecured loan: A loan that is obtained without security (collateral).
Variable interest rate: A variable interest rate fluctuates over time based on the RBA cash rate and the lender’s business decisions.
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