Small Business 101
Small business 101
Learning the language of business loans: A glossary
4 out of 10 business owners are unaware of the terminology that comes with lending. Let’s master the ABCs of business loans.
Jun. 24, 2025
4-minute read
For business starters, there is a degree of confidence and knowledge when it comes to how banks work. When it comes to business lending terminology, 4 out of 10 business owners are unaware of the terminology that comes with lending. At CIBC, our goal is to help increase the knowledge of that business loan language so business owners can feel confident and empowered when they’re having the lending conversation with their business advisors or even friends.
Sometimes business advisors and lenders within the banking industry are so familiar with the industry jargon that they don’t even realize when they use it. But not everyone works at the bank. We want to equip you with the knowledge to better understand your business loan and the confidence to speak with your CIBC business advisor to get the best out of your business banking.
Glossary of business loan terminology
The annual interest rate set by the Bank of Canada that Canada’s major banks, including CIBC, generally follow. Check out CIBC’s current prime rate.
A line of credit is a loan that allows you to borrow a predetermined amount with no specified purpose for the funds attached to your Business Account. This line of credit can support operating expenses and any unforeseen cash shortages. Business LOCs are greater than $10,000. When funds are deposited, the balance is automatically paid and the client regains access to the limit again. There are 2 types of Business LOCs:
- Unsecured line of credit — Personal guarantee from all principals and General Security Agreement is needed; no collateral security is needed.
- Secured line of credit — Security in the form of a collateral mortgage or hypothetic on a principal residence or farm property, third party guarantee for unlimited liability with supporting personal guarantee, cash or cash equivalent.
A loan specifically designated for your business normally to help acquire fixed assets such as equipment, leasehold improvements, real estate and business transitions.
Attached to the Business Account, it helps with operating expenses and any cash shortages with a small credit protection up to $10,000. A great backup, it protects your business with access to funds for small expenses, inventory, payroll and ensures that a cheque does not get returned in the case of an insufficient balance.
Closed loan, also known as fixed term loan
Like a closed or fixed term mortgage. This loan has a set term and interest rate, and you can only make additional payments on top of your regular payments up to a previously defined amount. If you want to pay off more than what is allowed, you may have to pay “breakage fees,” either the greater of 3 months interest or the interest rate differential (IRD). When the fixed term of your loan ends, your loan will have to be refinanced.
The security behind your loan. Collateral is a way to strengthen a credit request. Usually refers to real estate, liquid investments and bank accounts or other tangible assets — things you can touch. Different risks assessments are done depending on the collateral provided. For example, commercial property collateral is less risky for the bank than collateral such as farming equipment because, generally, the property will increase in value, whereas the equipment will depreciate as it is used.
The amount of time you have a certain rate for your loan. For example, a 5-year loan term at 5%, after which you will have to renegotiate a new rate on the loan.
Open term loan, also known as variable loan
Variable loans are open loans that can be paid off partially or completely at any time without any kind of penalty. Unlike a closed or fixed term loan, the interest on these loans is variable and fluctuates with the market. This rate is usually a spread added to the prime rate.
Lending where there is some type of security involved. This security ranges from collateral to, more simply, a general security agreement (GSA) which is an agreement that enables a lender to access the business assets as collateral.
Lending where there is no security involved. This means that there is nothing to bind the loan, and the bank cannot sell off any kind of asset or collateral to pay out the debt of the loan. It will usually only consist of a personal guarantee, which all business lending still requires.
Extra credit: Terminology highlights from the experts
Apart from the previous general glossary terms, here are some additional terms for you to have on hand.
The length of time the loan is to be repaid. For example, you can have a fixed rate loan over a 5-year term at 5%, but the loan is amortized over 25 years. The overall payment is lower as the repayment is spread over 25 years, and after the 5-year term is finished, the amortization is reduced to 20 years, and you would need to either pay out the balance or renew into another term.
General Security Agreement (GSA)
A General Security Agreement is a contract signed between two parties – a creditor (lender) and a debtor (borrower) – to secure personal loans, commercial loans, and other obligations owed to a lender.
The term personal guarantee refers to an individual’s legal promise to repay credit issued to a business for which they serve as an owner or guarantor. Providing a personal guarantee means that if the business becomes unable to repay the debt, such as go bankrupt, the individual assumes personal responsibility to pay for the remainder of the loan.
A type of payment that has the principal and interest combined into 1 payment on the loan statement. Neither the principal nor the interest amounts are constant. As the payments are made, the total outstanding principal reduces, which leads to the interest charged being reduced as well. Due to this, the payment amount debited from the account every month may be slightly different.
In this type of payment method, 2 different amounts are debited from the business account every month; one is for the principal, and the other is for interest. The principal payment, in this case, always stays the same throughout the life of the loan. The interest payment reduces over time as the outstanding principal gets paid off.
Empowered banking with CIBC
At CIBC, we want you to get the most out of your banking experience. Communicating your needs with confidence helps you find success with your business goals and ensures that we provide the best banking solutions possible. To keep learning the language of business loans, we invite you to explore your go-to place for business advice: CIBC Smart Advice for Business.
