A
Amortization: The process of paying off a loan through regular payments over time. A 25-year amortization means loan payments are sized as if the loan will be fully paid off in 25 years — even if the term (and balloon) comes due earlier.
ARV (After-Repair Value): The estimated market value of a property after planned renovations are complete. Used to underwrite fix-and-flip and rehab loans.
As-Is Value: Current market value of a property in its present condition — before any improvements.
B
Balloon Payment: A large lump-sum payment due at the end of a loan term. Most commercial loans have balloons — for example, a 5-year fixed loan with 25-year amortization has a balloon of the remaining balance at year 5.
Bridge Loan: Short-term financing (6–24 months) used to bridge the gap between an immediate need and permanent long-term financing. See our bridge loan guide.
C
Cap Rate (Capitalization Rate): NOI divided by property value — used to price income-producing real estate. A $1,000,000 property generating $70,000 NOI has a 7% cap rate.
CMBS (Commercial Mortgage-Backed Securities): Commercial loans pooled and sold to investors as bonds. CMBS loans are typically non-recourse, 10-year fixed, and available for larger stabilized properties.
Construction Loan: Short-term financing for ground-up development or major renovation, disbursed in draws as work is completed. See our construction loan guide.
D
Debt Service: The total annual principal and interest payments on a loan.
DSCR (Debt Service Coverage Ratio): NOI divided by annual debt service. A DSCR of 1.25x means the property generates 25% more income than needed to cover loan payments. Most lenders require 1.20x to 1.30x minimum.
Draw: A disbursement of construction or renovation loan funds, released after an inspection confirms work completion.
E
Equity: The difference between a property’s value and the amount owed on it. A $1,000,000 property with a $600,000 loan has $400,000 in equity.
Exit Strategy: The plan for repaying a short-term loan — typically sale of the property or refinance into permanent financing.
F
FICO Score: A personal credit score ranging from 300 to 850. Higher is better. Commercial lenders vary significantly in their minimum requirements — hard money lenders may have no minimum at all.
H
Hard Money Loan: Short-term, asset-based loan from a private lender. Approved based on property value, not borrower credit. Fast closing, higher rate. See our hard money loan guide.
I
Interest-Only Loan: A loan where monthly payments cover only interest — no principal reduction. Common in bridge loans and construction loans. Results in the same balance at maturity as at origination.
L
LTC (Loan to Cost): Loan amount divided by total project cost. Used in construction lending — a $2M loan on a $3M project is 67% LTC.
LTV (Loan to Value): Loan amount divided by appraised property value. An $800,000 loan on a $1,000,000 property is 80% LTV.
N
NOI (Net Operating Income): Gross rental income minus operating expenses (taxes, insurance, management, maintenance, vacancy). Does not include debt service. The foundation of commercial property valuation.
Non-Recourse Loan: A loan where the lender’s only recourse upon default is the property itself — the borrower has no personal liability. Common in CMBS and larger institutional deals.
NNN (Triple Net Lease): Lease structure where tenant pays rent plus property taxes, insurance, and maintenance. See our NNN investing guide.
O
Origination Fee / Points: Upfront fee charged by the lender at closing. 1 point = 1% of the loan amount. A $1,000,000 loan with 2 points costs $20,000 at closing in origination fees.
P
Prepayment Penalty: A fee charged for paying off a commercial loan before its maturity date. Common structures: step-down (5-4-3-2-1%), defeasance (CMBS), or yield maintenance.
Points: See Origination Fee above.
R
Recourse Loan: A loan where the lender can pursue the borrower personally if the property doesn’t cover the debt at foreclosure. Most small commercial loans are recourse.
RevPAR: Revenue Per Available Room — the primary performance metric for hotels. Calculated as occupancy rate × average daily rate (ADR).
S
SBA Loan: A loan partially guaranteed by the Small Business Administration. Enables lower down payments and longer terms than conventional commercial loans. See our SBA loan guide.
Stated Income Loan: A commercial loan that does not require tax returns for income verification. See our stated income guide.
V
Value-Add: An investment strategy where the buyer acquires an underperforming property, makes improvements (physical renovation, better management, lease-up), and increases the property’s value and income.
W
Working Capital: The funds available for day-to-day business operations. See our working capital loan guide.