Mr says
Business loan jargon makes more sense in sequence. At enquiry you'll hear about purpose, serviceability and security. At assessment: bank statements, BAS, LVR and valuation. At the offer: term, principal, establishment fees, guarantees and covenants. At settlement: mortgage, caveat and PPSR registration. During the loan: arrears, default and early repayment fees. At the end: discharge. Knowing which stage a word belongs to tells you why it matters.
Key points
- Most lending terms belong to a particular stage of the loan.
- Serviceability and security are the two ideas behind almost everything.
- Covenants and guarantees are the terms owners most often skim — don't.
- Default and discharge terms matter before you sign, not after.
Why learn the words in order?
Alphabetical glossaries are useful for looking things up, and Mr has one — the loan jargon decoder. But a list doesn’t tell you why a term matters or when it’ll come up. This guide walks through a business loan from first conversation to final repayment, and translates the language at each stage. By the end, a letter of offer should read like plain English.
business.gov.au keeps a broader list of key financial terms — cash flow, equity, depreciation, factoring and more — worth bookmarking alongside this.
Stage 1: The first conversation
Purpose. What the money is for. Lenders care because purpose decides the right structure and tells them how risky the loan is. “Buying a $90k excavator that’s already contracted to a job” is a purpose; “working capital” is a category.
Serviceability. Whether the business can comfortably make the repayments from its cash flow. You’ll also hear capacity or debt service cover. It’s the “can you afford it?” question in lender language.
Security. What the lender can rely on if repayments stop — usually property, sometimes business assets. Collateral means the same thing.
Secured vs unsecured. A secured loan has specific security; an unsecured one doesn’t, and leans on cash flow and usually a guarantee. Mr compares them on secured or unsecured business loan.
Exit strategy. How a short-term loan will be repaid: a sale, a refinance, a customer payment, a refund. Essential for bridging and caveat loans.
Stage 2: The assessment
Bank statements. Not jargon, but the most-read documents in business lending. Lenders read them for turnover (total sales coming in), consistency and account conduct — overdrawn days, dishonours and other lenders’ repayments.
BAS. Your business activity statement, lodged with the ATO for GST, PAYG withholding and instalments. Lenders use it as an independent check on turnover and on whether you’re keeping up with tax.
Credit file / credit report. The record credit reporting bodies hold about how you’ve borrowed and repaid. Credit enquiry means a lender has looked at it because you applied. Default is a listing for a debt that went unpaid.
Valuation. An independent opinion of a property’s value, ordered by the lender.
LVR (loan-to-value ratio). The loan divided by the property’s value. If a property is valued at $1m and the total lending against it is $600k, the LVR is 60%. Lower is safer for the lender. For a second mortgage, lenders look at total lending against the property — first and second loans combined.
Equity. The value of the property minus everything owed against it. It’s the room a secured lender works within.
Stage 3: The offer
Letter of offer. The written terms the lender is prepared to lend on. An indicative offer is conditional; a formal offer is what you’ll be bound by once signed. Read it with Mr’s 14 questions to ask before you sign.
Principal. The amount borrowed.
Term. How long you have to repay.
Repayment type. Principal and interest repayments reduce the balance over time — that gradual reduction is called amortisation. Interest-only repayments don’t, so the full principal remains at the end. A balloon or residual is a lump sum left owing at the end.
Establishment fee. A charge for setting up the loan. Ask whether it’s paid upfront or deducted from the loan.
Line fee. A charge on lines of credit for keeping the limit available.
Personal guarantee. A promise by a person — often a director — to repay the business’s debt if the business can’t. Read whether you’ll need to sign one.
Joint and several. When there are several borrowers or guarantors, the lender can pursue all of you together or any one of you for the full amount.
Covenant. A promise inside the agreement: provide annual financials, keep insurance, don’t take on more debt without consent. Breaching one can be a default even if every repayment is made.
Conditions precedent. Things that must happen before settlement — valuation, documents, insurance certificates, legal advice for guarantors.
Stage 4: Settlement
Settlement. The moment the loan is finalised and funds are paid — to you, or directly to whoever you owe (the ATO, a seller, a supplier).
Mortgage. A registered security interest over property. First mortgage is first in line on the title; second mortgage sits behind it.
Caveat. A notice lodged on a property title warning others that someone claims an interest in it. Land Services Victoria describes it as a document anyone with a legal interest in a property can lodge, which places a notation on the title. A caveat loan uses one as its security — see what a caveat loan is.
PPSR. The Personal Property Securities Register, where lenders register security over business assets like vehicles and equipment. business.gov.au’s guide to buying a business recommends checking it — you want to know the equipment you’re buying isn’t someone else’s security.
Stage 5: During the loan
Arrears. Repayments that are overdue.
Default. Failing to meet the loan’s terms — usually missing repayments, but also breaching covenants or, for some loans, an event like insolvency. Default interest is extra interest charged while in default.
Hardship. A request to vary repayments because of genuine difficulty. Ask early; lenders have more options before things go badly wrong.
Variation. A formal change to the loan’s terms, such as extending the term or increasing a limit.
Early repayment fee / break cost. A charge for repaying before the agreed date. Check it before you sign if there’s any chance you’ll repay early.
Stage 6: The end
Payout figure. The exact amount needed to clear the loan on a given date, including interest to that day and any fees.
Discharge. Formally removing a mortgage from the title once the loan is repaid. Withdrawal is the equivalent for a caveat. There’s usually a fee for the paperwork.
Release (of guarantee). The lender’s formal confirmation that a guarantor is no longer liable. Don’t assume a guarantee ends just because a loan does — ask for confirmation, especially for “all money” guarantees.
An illustrative translation
Here’s a sentence you might find in a letter of offer, then Mr’s translation.
“The facility is secured by a registered second-ranking mortgage over the Property, a joint and several guarantee from each Director, and is subject to the Borrower providing annual financial statements within 120 days of financial year end.”
Mr says: The lender will register a second mortgage behind your existing home loan. Each director personally promises to repay the whole debt if the business can’t — and the lender can chase any one of you for all of it. And every year, you must send the lender your financial statements within about four months of 30 June, or you could be in breach even if you’ve never missed a payment.
Five phrases that sound harmless but aren’t
- “All money” — a mortgage or guarantee that secures every debt you owe that lender, now and in future, not just this loan.
- “Cross-default” — a default on one facility counts as a default on others with the same lender.
- “At the lender’s discretion” — the lender gets to decide; ask what usually happens in practice.
- “Material adverse change” — a clause letting the lender act if your circumstances worsen significantly, even without a missed repayment.
- “Subject to valuation” — the offer can change, or fall away, if the property is valued lower than expected.
None of these is unusual, and none is necessarily a reason not to sign. But each deserves a direct question before you do.
Still got questions?
That’s normal — and a good sign you’re reading carefully. Keep the jargon decoder handy for quick look-ups, and read what a business loan actually costs for the fee terms in more depth.
When you’re ready to turn the vocabulary into an actual loan, ask Mr in about 60 seconds. There’s no credit check to enquire, your details aren’t shopped around a list of lenders, and a real person will explain every term in any offer before you sign — in plain English, the way Mr likes it. Give us accurate details on the form and the offers you hear about will fit. See if you qualify.
Frequently asked questions
What's the single most important term to understand?
Security, closely followed by guarantee. Together they decide what you personally stand to lose if the loan goes wrong.
What's the difference between principal and interest?
Principal is the amount you borrowed. Interest is the charge for using it over time. Repayments on many loans cover both; interest-only repayments cover just the interest.
What does LVR mean?
Loan-to-value ratio: the loan as a proportion of the property's value. A lower LVR means more cushion for the lender and usually more options for you.
Where can I look up a term quickly?
Mr's loan jargon decoder has one-line definitions of common business lending terms, and business.gov.au publishes a broader list of key financial terms.