Alternative Finance Glossary
142 key terms across the alternative finance landscape—spanning hard money lending, revenue-based financing, asset-based lending, invoice factoring, private credit, business purpose lending, and loan servicing operations.
Showing 142 of 142 terms
General Alternative Finance
- Alternative Lending
- Non-bank financing provided by private lenders, fintech platforms, or specialty finance companies outside the traditional banking system.
- Private Credit
- Privately negotiated loans and debt financing provided to companies by non-bank lenders, typically through dedicated funds or platforms.
AI for Private Credit → - Direct Lending
- A private credit strategy where non-bank lenders originate loans directly to borrowers without intermediaries like investment banks.
- Non-Bank Lender
- A financial institution that provides loans but does not hold a banking charter. Includes private lenders, fintech companies, and specialty finance firms.
- Accredited Investor
- An individual or entity meeting SEC wealth or income thresholds (e.g., $1M+ net worth or $200K+ annual income) permitted to invest in private placements.
- Alternative Investment
- Any investment outside of traditional stocks, bonds, and cash—including private equity, private credit, real estate funds, and hedge funds.
- Fintech Lender
- A technology-driven financial company that uses software, algorithms, and digital platforms to originate and service loans.
- Capital Stack
- The hierarchy of all funding sources in a deal, ordered by seniority from senior debt at the top to common equity at the bottom.
- Yield
- The income return on an investment, typically expressed as an annual percentage of the investment’s cost or current market value.
- Spread
- The difference between the interest rate a lender charges on a loan and the lender’s cost of funds or a benchmark rate.
- Origination
- The process of creating a new loan, from application through underwriting to funding and disbursement.
- Syndication
- The process of distributing portions of a loan across multiple lenders or investors to spread risk and increase lending capacity.
Hard Money Lending
- Hard Money Loan
- A short-term, asset-based loan secured by real property, typically issued by private investors or companies rather than banks, with approval based on collateral value rather than borrower creditworthiness.
AI for CRE Lenders → - After-Repair Value (ARV)
- The estimated market value of a property after all planned renovations and repairs are completed; used to determine maximum loan amounts on rehab deals.
AI for CRE Lenders → - Loan-to-Value (LTV)
- The ratio of a loan amount to the appraised value of the collateral property, expressed as a percentage (e.g., a $70K loan on a $100K property = 70% LTV).
AI for CRE Lenders → - Loan-to-Cost (LTC)
- The ratio of the loan amount to the total project cost, including purchase price and renovation budget.
AI for CRE Lenders → - Points (Origination Fee)
- Upfront fees charged by the lender at closing, expressed as a percentage of the loan amount (e.g., 2 points = 2% of the loan).
- Fix-and-Flip Loan
- A short-term hard money loan designed for investors purchasing a property, renovating it, and reselling it for profit.
AI for CRE Lenders → - Bridge Loan
- A short-term loan (typically 6–24 months) used to “bridge” the gap between acquiring a new property and securing permanent financing or selling an existing asset.
AI for CRE Lenders → - Interest-Only Payments
- A loan structure where the borrower pays only interest during the loan term, with the full principal due at maturity.
- Balloon Payment
- A large lump-sum payment of the remaining loan balance due at the end of a loan term, common in short-term hard money and bridge loans.
- Draw Schedule
- A predetermined plan for disbursing construction or renovation funds in stages as work milestones are completed and inspected.
AI for CRE Lenders → - Rehab Budget
- The itemized estimate of renovation costs for a fix-and-flip or value-add project, used by lenders to structure draw schedules.
- Exit Strategy
- The borrower’s plan for repaying the loan—typically through property sale, refinancing into permanent debt, or lease-up stabilization.
- Cross-Collateralization
- Using multiple properties as collateral for a single loan, giving the lender a lien on all pledged assets.
- Blanket Loan
- A single mortgage or loan secured by two or more properties simultaneously.
Business Purpose Lending (BPL)
- Business Purpose Loan (BPL)
- A real estate loan made for investment or business purposes (not owner-occupied), often exempt from consumer lending regulations like TILA and RESPA.
AI for CRE Lenders → - DSCR Loan
- A Debt Service Coverage Ratio loan that qualifies borrowers based on the rental income of the investment property rather than personal income or employment.
AI for CRE Lenders → - Debt Service Coverage Ratio (DSCR)
- A metric comparing a property’s net operating income (NOI) to its total debt obligations; a DSCR of 1.25x means income exceeds debt payments by 25%.
AI for CRE Lenders → - Net Operating Income (NOI)
- Gross rental income minus operating expenses (taxes, insurance, maintenance, management), before debt service; the key metric for investment property analysis.
AI for CRE Lenders → - Rental Property Loan
- A long-term loan for purchasing or refinancing income-producing residential (1–4 unit) or commercial rental properties.
- Portfolio Loan
- A loan held on the lender’s own balance sheet rather than sold to the secondary market, offering more flexible underwriting criteria.
- Blanket Lien
- A lien that gives the lender a security interest in all of a borrower’s assets, common in commercial and Revenue-Based Financing transactions.
- Non-QM Loan
- A Non-Qualified Mortgage that doesn’t meet the CFPB’s “qualified mortgage” standards but serves borrowers who fall outside conventional lending criteria.
- Ground-Up Construction Loan
- A loan to finance the construction of a new building from scratch, typically disbursed in draws as construction milestones are met.
AI for CRE Lenders → - Value-Add Property
- An investment property with potential to increase value through renovations, improved management, or repositioning.
Revenue-Based Financing
- Revenue-Based Financing
- An upfront lump sum of capital provided to a business in exchange for a fixed percentage of future credit card or debit card sales; technically a purchase of future receivables rather than a loan.
AI for Revenue-Based Financing Lenders → - Factor Rate
- A multiplier (not an interest rate) used to calculate total repayment on a revenue-based financing. For example, a factor rate of 1.35 on a $50K advance means $67,500 total owed.
AI for Revenue-Based Financing Lenders → - Future Receivables Sale Agreement (FRSA)
- The legal contract in a revenue-based financing transaction where the merchant sells a portion of future sales/receivables to the funder in exchange for an advance.
AI for Revenue-Based Financing Lenders → - Holdback Percentage
- The fixed percentage of daily credit card or bank deposit revenue withheld to repay a revenue-based financing.
AI for Revenue-Based Financing Lenders → - ACH (Automated Clearing House)
- An electronic funds transfer system used by Revenue-Based Financing funders and lenders to automatically debit daily or weekly repayments from a borrower’s bank account.
AI for Revenue-Based Financing Lenders → - Credit Card Split
- A revenue-based financing repayment method where a fixed percentage of gross credit card sales is routed directly from the payment processor to the funder.
AI for Revenue-Based Financing Lenders → - Daily Remittance
- The amount debited from a merchant’s bank account each business day as repayment toward a revenue-based financing or loan.
AI for Revenue-Based Financing Lenders → - Stacking
- When a merchant takes multiple revenue-based financing products or advances from different funders simultaneously, often without the knowledge of existing funders—considered high-risk.
AI for Revenue-Based Financing Lenders → - Confession of Judgment (COJ)
- A legal document signed by the borrower that allows the funder to obtain an automatic court judgment against the borrower in the event of default, bypassing standard litigation.
AI for Revenue-Based Financing Lenders → - Buy Rate
- The funder’s bottom-line offer on a revenue-based financing deal; the base factor rate before any broker commission is added.
AI for Revenue-Based Financing Lenders → - ISO (Independent Sales Organization)
- A third-party sales agent or broker that refers merchants to Revenue-Based Financing funders in exchange for a commission on funded deals.
AI for Revenue-Based Financing Lenders → - Clawback
- When a funder reclaims a previously paid commission from an ISO or broker, typically when a funded deal defaults within a specified period (e.g., 30 days).
AI for Revenue-Based Financing Lenders → - Position (1st, 2nd, 3rd)
- Refers to the priority order of Revenue-Based Financing funders when a merchant has multiple advances; 1st position means that funder is repaid first.
AI for Revenue-Based Financing Lenders → - Average Daily Balance (ADB)
- The average amount of money in a merchant’s business bank account on a daily basis; a key underwriting metric for Revenue-Based Financing funders.
AI for Revenue-Based Financing Lenders → - Stipulation (Stip)
- A document or condition required by the funder before a revenue-based financing product can be approved or funded (e.g., bank statements, tax returns, voided check).
AI for Revenue-Based Financing Lenders → - Payoff Amount
- The total remaining balance owed to fully satisfy and close out an existing Revenue-Based Financing or loan.
AI for Revenue-Based Financing Lenders → - Renewal / Re-Up
- A new Revenue-Based Financing offered to a merchant who has partially or fully repaid a previous advance, often at improved terms.
AI for Revenue-Based Financing Lenders → - Double Funding
- When two funders unknowingly fund the same merchant on the same day—a form of fraud or stacking.
AI for Revenue-Based Financing Lenders →
Asset-Based Lending (ABL)
- Asset-Based Lending (ABL)
- Financing secured by a borrower’s business assets—such as accounts receivable, inventory, equipment, or real estate—with loan amounts based on the liquidation value of the collateral.
AI for Asset-Based Lenders → - Borrowing Base
- The maximum amount a borrower can draw under an ABL facility, calculated by applying advance rates to the value of eligible collateral.
AI for Asset-Based Lenders → - Advance Rate
- The percentage of collateral value that a lender will advance as a loan (e.g., 80% on receivables, 50% on inventory).
AI for Asset-Based Lenders → - Eligible Receivables
- Accounts receivable that meet the lender’s criteria for inclusion in the borrowing base (e.g., less than 90 days old, from creditworthy customers).
AI for Asset-Based Lenders → - Concentration Limit
- A cap on the percentage of the borrowing base that can be attributed to a single customer or debtor, to reduce risk exposure.
AI for Asset-Based Lenders → - Field Exam / Field Audit
- An on-site review of a borrower’s collateral (receivables, inventory, records) conducted by or on behalf of the lender to verify asset values and quality.
AI for Asset-Based Lenders → - Dilution
- The reduction in the collectible value of receivables due to credits, returns, allowances, or disputes; tracked by ABL lenders as a risk metric.
AI for Asset-Based Lenders → - Lockbox
- A controlled bank account where a borrower’s customer payments are deposited directly, giving the lender oversight and control over incoming cash flows.
AI for Asset-Based Lenders → - FILO Tranche (First In, Last Out)
- A subordinated layer within an ABL facility that increases borrowing capacity by lending against less liquid assets; the FILO lender is first to fund but last to be repaid.
AI for Asset-Based Lenders → - Revolving Line of Credit
- A flexible credit facility that allows borrowers to draw, repay, and re-draw funds up to an approved limit based on their borrowing base.
AI for Asset-Based Lenders → - Availability
- The amount of funds a borrower can currently draw under an ABL facility, calculated as the borrowing base minus outstanding draws and reserves.
AI for Asset-Based Lenders → - Collateral Monitoring
- Ongoing tracking and verification of pledged assets by the lender, including periodic reports and field exams, to maintain accurate borrowing base calculations.
AI for Asset-Based Lenders →
Invoice Factoring
- Invoice Factoring
- A financial transaction where a business sells its unpaid invoices (accounts receivable) to a third-party factor at a discount in exchange for immediate cash.
- Factor
- The financial company that purchases a business’s invoices and assumes responsibility for collecting payment from the account debtors.
- Account Debtor
- The customer or business entity that owes payment on an invoice purchased by a factoring company.
- Factoring Fee (Discount Rate)
- The percentage charged by the factor for purchasing invoices, applied to the face value of each invoice.
- Recourse Factoring
- A factoring arrangement where the client must buy back or replace invoices if the account debtor fails to pay within a specified period.
- Non-Recourse Factoring
- A factoring arrangement where the factor assumes the credit risk of non-payment by the account debtor (subject to specific conditions).
- Reserve
- The portion of an invoice’s value withheld by the factor until the account debtor pays; the reserve (minus fees) is released to the client after collection.
- Rebate
- The remaining balance of an invoice, less factoring fees, returned to the client after the factor collects full payment from the account debtor.
- Notification Factoring
- A factoring arrangement where the account debtor is notified that their invoice has been sold to and should be paid directly to the factor.
- Funding Period
- The time between when the factor purchases an invoice and when the account debtor makes payment.
- Aging Report
- A report categorizing accounts receivable by the length of time an invoice has been outstanding (e.g., 0–30, 31–60, 61–90 days).
- Invoice Discounting
- A form of invoice finance where a business borrows against unpaid invoices but retains control of its sales ledger and collections process.
Underwriting & Credit
- Underwriting
- The process of evaluating a borrower’s risk profile—including creditworthiness, collateral, cash flow, and deal structure—to determine loan approval and terms.
- Credit Memo
- A written analysis and recommendation prepared by an underwriter summarizing the loan request, borrower profile, risk assessment, and proposed terms for approval.
- Debt-to-Income Ratio (DTI)
- The percentage of a borrower’s gross monthly income that goes toward paying debts; a key metric in consumer and some commercial underwriting.
- Personal Guarantee (PG)
- A pledge by an individual (typically the business owner) to be personally liable for repayment of a business loan if the business defaults.
- Guarantor
- An individual or entity that agrees to be responsible for repaying a debt if the primary borrower fails to do so.
- Credit Score / FICO
- A numerical rating (typically 300–850) representing a borrower’s creditworthiness, based on credit history, payment behavior, and outstanding debts.
- Appraisal
- A professional assessment of a property’s fair market value, typically required by lenders before approving a real estate loan.
AI for CRE Lenders → - Broker Price Opinion (BPO)
- A less formal (and less expensive) alternative to a full appraisal, where a real estate broker estimates the value of a property.
- Due Diligence
- The comprehensive investigation and verification process conducted by a lender or investor before approving a loan or making an investment.
- Title Search
- An examination of public records to verify legal ownership of a property and identify any existing liens, encumbrances, or claims against it.
- Environmental Assessment (Phase I)
- A study of a commercial property’s environmental history to identify potential contamination or liability before a loan closing.
Loan Servicing & Operations
- Loan Servicing
- The administrative management of a loan from origination to payoff—including payment collection, escrow management, investor reporting, and default management.
- Amortization
- The process of paying off a loan through regular, scheduled installments that cover both principal and interest over time.
- Escrow Account
- A third-party account where funds are held for property taxes, insurance, and other obligations, managed by the loan servicer on behalf of the borrower.
- Delinquency
- The status of a loan when a borrower fails to make a payment by the due date; typically categorized by days past due (30, 60, 90+).
- Default
- A serious breach of loan terms—most commonly failure to make payments—that triggers the lender’s right to pursue remedies including acceleration or foreclosure.
- Charge-Off
- An accounting action where a lender writes off a delinquent loan as a loss on its books, typically after 120–180 days of non-payment.
- Foreclosure
- The legal process by which a lender seizes and sells a property used as collateral to recover an unpaid loan balance.
- Real Estate Owned (REO)
- Property acquired by a lender through foreclosure that remains unsold and sits on the lender’s books.
- Loan Modification
- A restructuring of loan terms—such as interest rate, maturity date, or payment schedule—to help a struggling borrower avoid default.
- Prepayment Penalty
- A fee charged to a borrower for paying off a loan before its scheduled maturity date, designed to protect the lender’s expected yield.
- Payoff Statement
- A document from the lender showing the exact amount required to fully satisfy and close a loan as of a specific date.
- Investor Reporting
- Periodic reports provided to loan investors or participants detailing loan performance, payment status, delinquencies, and portfolio metrics.
AI for Private Credit → - Subservicer
- A third-party company that handles the day-to-day servicing operations on behalf of the loan owner or master servicer.
- Loss Mitigation
- Strategies and processes used by servicers to minimize financial losses when a borrower is unable to make loan payments.
Legal & Compliance
- UCC Filing (UCC-1 Financing Statement)
- A legal form filed with a state agency to establish a lender’s security interest in a borrower’s personal property (assets), creating a public record of the lien.
- Lien
- A legal claim on an asset that serves as collateral for a debt, giving the lienholder the right to seize the asset if the debt is not repaid.
- Subordination Agreement
- A legal agreement where a creditor agrees to rank its claim below another creditor’s claim in terms of priority for repayment.
- Intercreditor Agreement
- A contract between two or more lenders that defines their respective rights, priorities, and remedies with respect to a shared borrower’s collateral.
AI for Private Credit → - Promissory Note
- A legally binding document where the borrower makes an unconditional written promise to repay a specific amount to the lender under agreed terms.
- Deed of Trust
- A legal document that conveys title to a property to a neutral third-party trustee as security for a loan, used in place of a mortgage in some states.
- Mortgage
- A legal instrument that pledges real property as security for a loan, giving the lender the right to foreclose if the borrower defaults.
- Perfected Security Interest
- A lender’s secured claim on collateral that has been properly documented and publicly filed (e.g., via UCC-1), establishing legal priority over other creditors.
- Personal Property Security
- The legal framework governing security interests in movable assets (as opposed to real estate), including equipment, inventory, and receivables.
- Usury Laws
- State regulations that cap the maximum interest rate a lender can charge on a loan; exemptions may apply to commercial or business-purpose loans.
- Truth in Lending Act (TILA)
- A federal law requiring lenders to clearly disclose loan terms, APR, and total costs to consumers; business-purpose loans are generally exempt.
- RESPA (Real Estate Settlement Procedures Act)
- A federal law governing real estate closing procedures and disclosures; generally does not apply to business-purpose or investment property loans.
Private Credit & Structured Finance
- Senior Debt
- The highest-priority debt in the capital stack, with first claim on assets and cash flows in case of default or liquidation.
AI for Private Credit → - Mezzanine Debt
- Subordinated debt that sits between senior debt and equity in the capital stack, often carrying higher interest rates and sometimes including equity warrants.
AI for Private Credit → - Subordinated Debt
- Debt that ranks below senior debt in repayment priority; in default, subordinated lenders are repaid only after senior obligations are satisfied.
AI for Private Credit → - Unitranche Loan
- A single, blended loan facility that combines senior and subordinated debt into one tranche, simplifying the capital structure for the borrower.
AI for Private Credit → - PIK (Payment-in-Kind) Interest
- Interest that is added to the loan’s principal balance rather than paid in cash, effectively deferring current payments and increasing the total amount owed.
AI for Private Credit → - Covenant
- A binding condition in a loan agreement requiring the borrower to meet certain financial benchmarks (financial covenants) or operational requirements (maintenance covenants).
AI for Private Credit → - Covenant-Lite
- A loan structure with fewer or less restrictive covenants, giving the borrower greater operational flexibility—common in private credit deals.
AI for Private Credit → - Warrant
- A right (often attached to mezzanine or venture debt) allowing the lender to purchase equity in the borrower’s company at a set price.
- Distressed Debt
- Debt securities or loans of companies in financial difficulty, bankruptcy, or default, often purchased at a steep discount with potential for recovery upside.
AI for Private Credit → - Special Situations Lending
- Financing strategies targeting atypical or event-driven opportunities—such as restructurings, turnarounds, or litigation-related funding.
AI for Private Credit → - Warehouse Line / Warehouse Facility
- A revolving credit line used by loan originators to fund new loans before they are sold or securitized in the secondary market.
- Loan Participation
- An arrangement where a lead lender sells portions of a loan to other investors, who share in the loan’s risk and return.
- Securitization
- The process of pooling loans or receivables into a single vehicle and issuing asset-backed securities (ABS) to investors, funded by the pool’s cash flows.
- Sponsor-Backed Deal
- A lending transaction arranged through the borrower’s private equity or financial sponsor, who typically provides equity and facilitates the financing.
AI for Private Credit → - Non-Sponsored Deal
- A direct lending transaction originated with company management without the involvement of a private equity sponsor.
Deal Flow & Portfolio Management
- Deal Flow
- The rate at which new lending or investment opportunities are received and reviewed by a lender or fund.
- Pipeline
- The inventory of potential deals at various stages of origination—from lead generation through underwriting to closing.
- Loan Tape
- A standardized dataset containing key attributes of every loan in a portfolio (borrower info, terms, balances, performance status), used for analysis and due diligence.
- Portfolio Servicing
- The ongoing management and administration of a book of loans, including collections, reporting, compliance, and workout activities.
- Funding Velocity
- The speed at which a lender can move deals from application through underwriting to funding—a key competitive differentiator.
- Default Rate
- The percentage of loans in a portfolio that have entered default over a given period.
- Recovery Rate
- The percentage of the outstanding loan balance that a lender recovers after a borrower defaults, through collateral liquidation, workout, or other means.
- Loan-to-Value at Origination
- The LTV ratio calculated when a loan is first funded, used as a baseline for tracking collateral coverage over the life of the loan.
- Weighted Average Coupon (WAC)
- The average interest rate across all loans in a portfolio, weighted by each loan’s outstanding balance.
- Concentration Risk
- The risk of disproportionate exposure to a single borrower, property type, geography, or industry within a loan portfolio.
- Vintage
- The year or period in which a group of loans was originated; used to analyze performance trends across different origination cohorts.
- Workout
- The process of restructuring or resolving a delinquent or defaulted loan through negotiation, modification, or liquidation of collateral.