Business financing glossary

An accounts receivable aging report sorts what customers owe into monthly buckets by age, from current invoices through to balances several months past due. It shows at a glance which customers pay on time and where collection effort is needed.

Lenders and factoring partners read the aging report to assess the quality of your receivables. A book weighted toward current invoices from creditworthy customers supports better financing than one full of old, uncertain balances. It is usually the core document behind an invoice factoring application.

An amortization schedule spreads repayment over a set period. Early payments go mostly to interest and later payments mostly to principal. A longer amortization lowers the monthly payment but increases the total interest paid.

Equipment financing through CBL is available on terms from 24 to 72 months. Choosing a term means trading a lower payment against more total interest, and we can show you the numbers both ways.

Asset-based lending sizes and secures a facility against the value of what a business owns, such as equipment, accounts receivable or inventory. Because tangible collateral backs the advance, it can support larger amounts than an unsecured facility, and it is often available to businesses whose cash flow alone would not qualify.

It suits asset-heavy operations (manufacturing, transportation, construction) with capital tied up in equipment or receivables. The lender registers its interest against the assets, so their condition, resale market and any existing liens all factor into the decision.

A balloon structure keeps the periodic payments low by deferring a substantial portion of the balance to a single lump sum at the end of the term. This can improve near-term cash flow, which appeals to businesses expecting stronger revenue later or planning to refinance before the final payment lands.

The risk is the size of that final obligation: you need a plan to meet it, whether from accumulated cash, the sale of the asset, or a new financing arrangement. Confirm how the balloon interacts with any end-of-term buyout so the total cost is clear before signing.

Bridge financing covers a temporary shortfall: the gap between a purchase and the permanent financing that will replace it, or between an expense and the receivable that will pay for it. It is meant to be repaid quickly from a defined source, such as a pending loan approval, an asset sale or an incoming payment.

Because it is fast and short-lived, bridge financing usually costs more per month than the longer-term facility that follows it. It works best when you know how and when it will be repaid before you take it on.

When your business owns equipment, you deduct its cost over several years through Capital Cost Allowance rather than all at once. The Canada Revenue Agency (CRA) groups depreciable property into classes, and each class has its own maximum annual rate.

Whether leasing (deducting payments) or owning (claiming CCA plus interest) works out better depends on your profitability and the asset class. That is a question for your accountant, and we can help prepare the numbers they need.

A capital lease (also called a finance lease) is designed for businesses that intend to keep the equipment. The lease typically runs for most of the asset’s useful life and ends with a small pre-agreed buyout, either a nominal amount or a set percentage of the original cost.

For accounting, the equipment and the lease obligation generally go on your balance sheet, and the cost shows up as depreciation and interest rather than as a rent expense. Tax treatment depends on how the lease is written, so talk to your accountant about your specific structure.

DSCR compares the cash your business generates to the payments it owes over the same period. A ratio above one means the business brings in more than it needs to cover its debt payments; below one, it comes up short. Lenders generally want some cushion above one, and how much varies by lender and deal.

When we prepare a file for lenders, we put together an accurate, well-supported DSCR so they can see what your business can comfortably carry.

A down payment is the share of an asset’s cost paid at the outset, which reduces the amount financed. How much a lender asks for depends on the borrower’s credit, time in business and the equipment’s collateral value. Zero-down options are available through CBL for qualifying businesses, while newer businesses or challenged credit may see a first-and-last payment or a larger deposit instead.

A larger down payment lowers the financed balance and the monthly payment. It also gives the lender more cushion, which can help when a file is otherwise borderline.

An equipment appraisal establishes what an asset is worth in the current market, considering its make, model, age, hours or mileage, condition and demand. Lenders rely on it to decide how much to advance, particularly where there is no dealer invoice to reference.

Appraisals matter most on used, private-sale and refinancing transactions, where value cannot be read off a purchase order. A credible, well-documented valuation supports a stronger offer and helps avoid overpaying for the asset.

Fair market value is what an asset would reasonably fetch in an open transaction where neither party is under pressure to act. In equipment financing it informs how much a lender will advance and what a piece of equipment is worth at a given point in its life.

FMV also appears as a lease-end option: an operating lease may let you buy the equipment at its fair market value when the term ends. That keeps payments lower during the lease, but the eventual purchase price is not fixed in advance the way a nominal or stated buyout is.

A fixed rate locks your interest cost for the life of the financing, so payments are predictable regardless of what happens in the broader market. This certainty makes budgeting easier and protects you if rates rise, though you would not benefit if they fall.

A variable rate is tied to a benchmark like the prime rate and moves up or down with it. It can start lower than a comparable fixed rate, but exposes you to increases over the term. The right choice depends on your appetite for that uncertainty and your outlook on where rates are headed.

A general security agreement, sometimes called a blanket lien, gives the lender a claim over substantially all of a company’s assets rather than one specific item. The lender registers its interest in the provincial personal property registry (under the Personal Property Security Act in most provinces), which sets its priority against other creditors.

GSAs are common on larger or unsecured facilities because they give the lender broad recourse. A GSA can tie up assets you might want to pledge elsewhere later, so it is worth understanding its scope and asking whether security over one specific asset would meet the lender’s needs instead.

A guarantor, or co-signer, adds their own creditworthiness and assets behind a financing application. If the business fails to pay, the lender can pursue the guarantor for the outstanding balance, which reduces the lender’s risk and can turn a marginal file into an approval.

Guarantors are common for newer businesses, thin credit files and larger amounts. Anyone taking on the role should understand they may be called on to pay the balance, and that a default could affect their own credit.

Factoring converts receivables into cash. The factor advances most of an invoice’s value right away and pays you the balance, less its fee, when your customer pays.

Because approval rests mainly on your customers’ creditworthiness, factoring is accessible to newer businesses that invoice reliable commercial or government customers.

When equipment secures financing, the lender registers its interest under the province’s Personal Property Security Act (PPSA); Quebec has its own registry. A lien search shows whether an asset already secures someone else’s debt, which is essential before buying used equipment privately.

On used and private-sale purchases, lenders typically check for existing liens before the deal funds.

A line of credit gives a business ongoing access to funds rather than a single lump sum. You borrow what you need up to the limit, repay it, and the room becomes available again, with interest charged only on the amount outstanding.

Lines suit recurring or unpredictable short-term needs, such as covering payroll in a slow month or buying inventory ahead of a busy season. For a defined one-time expense, a term loan is often simpler to arrange and easier to qualify for.

An MCA advances a lump sum against future sales, repaid through daily or weekly deductions. Approval is fast and credit-tolerant, but the effective cost usually runs well above other options.

We generally treat an MCA as a last resort and will point out when a working capital loan or a factoring facility could do the same job at lower cost.

Net terms state how long a business gives its customers to pay. The number in net-30, net-60 or net-90 is how many days the customer has, starting from the invoice date. Offering terms is standard in business-to-business trade and can help win and keep customers.

The catch is that extending terms means financing your customers in the meantime: the work is done and the cost incurred, but the cash arrives weeks later. Invoice factoring and working capital financing exist to close that gap without waiting out the full term.

Under an operating lease, the leasing company keeps ownership of the equipment while your business pays for its use. Because the lease term is shorter than the asset’s useful life and ownership does not automatically transfer, payments are generally treated as an operating expense for tax purposes. Your accountant can confirm how that applies to your business.

Operating leases suit equipment that becomes outdated quickly or that you may want to upgrade. Technology, medical devices and vehicles are common examples.

Most small-business financing in Canada includes a personal guarantee from the owner or owners. It gives the lender recourse beyond the business itself and is often what makes approval possible for smaller or newer companies.

Guarantee requirements vary by lender and deal strength. Established businesses with strong financials can sometimes negotiate a limited guarantee or none at all.

A pre-approval is a lender’s indication, based on a preliminary review of your business, of how much financing you can expect and on roughly what terms. It is conditional on verifying the specific asset and final documentation, but it sets your working budget in advance.

Pre-approval is especially useful at auctions and in private sales, where you need to act fast and show you can close. Walking in with financing arranged strengthens your position and keeps the purchase from stalling once you have committed to a price.

The prime rate is the reference rate that financial institutions publish for their most creditworthy borrowers. It generally moves with the Bank of Canada’s policy rate, and variable-rate business financing is often quoted relative to it, for example prime plus a margin that reflects the borrower’s risk.

Because prime can rise or fall over the life of a variable-rate loan, payments tied to it change accordingly. Knowing whether your financing is fixed or set against prime helps you anticipate how repayment could shift if rates move.

Refinancing pays off an existing financing agreement and replaces it with a new one on different terms. Businesses refinance to reduce a monthly payment, extend or shorten a term, consolidate several payments into one, or draw out equity that has built up in owned equipment.

It is most worthwhile when rates have fallen, when your credit profile has improved since the original agreement, or when cash flow would benefit from restructuring. Weigh any prepayment charges on the existing loan against the savings the new terms provide.

Every lease defines what happens at term end. The residual (or buyout) is the price at which you may purchase the equipment. Depending on the structure, it may be a nominal amount, a set percentage of the original cost, or fair market value.

Lower residuals mean higher monthly payments but a cheaper path to ownership. Higher residuals reduce payments and suit equipment you plan to return or upgrade.

In a sale-leaseback, a financing company buys equipment you already own at an agreed value and leases it back to you on fixed terms. Your business receives the purchase proceeds as a lump sum and keeps using the equipment without interruption.

It can be a quick way for an equipment-heavy business to raise capital, because the security already exists and its value can be checked directly.

Secured financing is tied to an asset (the equipment, receivables or property behind it), which the lender can recover if payments stop. Because that collateral lowers the lender’s risk, secured debt often carries lower rates and supports larger amounts. Equipment loans and leases are typically secured by the equipment itself.

Unsecured financing has no specific asset pledged behind it, so approval leans more heavily on cash flow, credit history and time in business. It keeps your assets free, but limits and pricing reflect the added risk the lender takes on.

A term loan advances a set amount up front, which you repay on a schedule, usually monthly, over an agreed term. It suits a defined purpose with a known cost, such as buying a specific piece of equipment or funding a one-time expansion.

Because the amount and repayment schedule are fixed at the outset, a term loan makes budgeting straightforward. The trade-off against a line of credit is that once repaid, the funds are not available to draw again without a new application.

Vendor or dealer financing is offered directly by the party selling the equipment, often through a lending partner they work with. Its appeal is convenience: the purchase and the financing are handled in one place, sometimes with promotional terms tied to a particular model.

That convenience can come at a cost. The single option a dealer presents is not necessarily the best available for your file. Comparing the vendor offer against financing arranged independently, across several lenders, shows whether its terms are competitive.

Working capital measures the short-term financial health of a business: what you could convert to cash within a year, minus what you owe within a year. Payroll, inventory, materials and receivables all live inside it.

Working capital financing exists to bridge timing gaps, when expenses land before the revenue they generate arrives.