Glossary

Commercial lending terms, defined

The words lenders use, in one sentence each.

After-Repair Value (ARV): The estimated value of a property after planned renovations are complete, based on comparable sales. Fix & flip lenders often cap the loan at a percentage of ARV.
Amortization: Paying a loan off through regular payments that cover both interest and principal, so the balance reaches zero by the end of the term.
Balloon Payment: A large lump sum due at the end of a loan whose regular payments didn't fully pay it off.
Bridge Loan: A short-term loan that covers a gap — such as buying a property before permanent financing is ready.
Cap Rate: A property's net operating income divided by its value. Used to compare income properties and estimate value.
Cash-Out Refinance: Replacing an existing loan with a larger one and taking the difference in cash.
Debt Service: The total principal and interest payments due on a loan over a period, usually a year.
Debt Service Coverage Ratio (DSCR): Net operating income divided by debt service. A DSCR of 1.25 means the property earns 25% more than its loan payments.
Debt Yield: Net operating income divided by the loan amount. Lenders use it as a quick measure of risk that ignores interest rate and term.
Draw: A release of loan funds during construction or renovation, usually after an inspection confirms the work is done.
Entitlements: The government approvals — zoning, plats, permits — needed to develop a piece of land.
Exit Strategy: Your plan to repay a short-term loan, usually by selling the property or refinancing.
Guarantee (Personal Guarantee): A promise by an individual to repay the loan if the borrowing company can't.
Hard Money Loan: A short-term loan from a private lender, underwritten mainly on the property's value rather than the borrower's income.
Interest Reserve: Part of a loan set aside to pay interest during construction or lease-up, before the property earns income.
Interest-Only: Payments that cover only interest, leaving the principal balance unchanged until it's repaid.
Loan-to-Cost (LTC): The loan amount divided by the total project cost, including land, construction and soft costs.
Loan-to-Value (LTV): The loan amount divided by the property's appraised value.
Net Operating Income (NOI): A property's income minus operating expenses, before loan payments and income taxes.
Non-Recourse: A loan where the lender can only take the property if you default — not your other assets, except in cases of fraud or misconduct.
Origination Fee (Points): An upfront fee charged by the lender, quoted as a percentage of the loan. One point equals 1%.
Prepayment Penalty: A fee for paying a loan off early. Common on DSCR and permanent commercial loans.
Recourse: A loan where the lender can pursue the borrower or guarantor personally if the property doesn't cover the debt.
Seasoning: How long you've owned a property or held a loan. Some lenders require a minimum before a refinance.
Term Sheet: A non-binding summary of proposed loan terms — amount, rate, fees, term and conditions — issued before final approval.
Underwriting: The lender's review of the borrower, property and deal to decide whether — and on what terms — to lend.

Have a deal in mind?

Tell us about it in CFUND Connect. An advisor will review it, explain your options in plain language and match you with the right lender.

Start a funding request Talk to an advisor