Plain language

Glossary

181 terms you will meet when raising money. On route pages, each term links here the first time it appears.

401(k) loan: Borrowing from your own workplace retirement account, if the plan allows it: up to $50,000 or half your vested balance (at least $10,000) if less, repaid within 5 years. An unpaid loan is generally taxed as a distribution.; Read about Personal borrowing for the businessSource: IRS: Retirement plans FAQs regarding loans
504 debenture: A bond, guaranteed by the SBA, that funds a Certified Development Company's part of a 504 loan. Fees on it can be added to the loan.; Source: 13 CFR 120.971: allowable fees paid by the 504 borrower (debenture); 13 CFR 120.931: 504 lending limits; SBA: 504 loans
Accelerator: A program that supports early-stage businesses that already have a plan and a product, usually for three to six months, with training, mentoring and contacts. Accelerators commonly invest in, and take equity in, the businesses they work with.; Read about Prize competitions and acceleratorsSource: SEC: Small business glossary
Accounts receivable (receivables): Money your customers owe you for goods or services already delivered, usually shown by unpaid invoices.; Source: SEC: Small business glossary
Accounts receivable financing: Borrowing against your unpaid invoices, which stay yours and serve as collateral. Banks usually lend 70% to 80% of eligible receivables, on their own or as part of asset-based lending.; Read about Accounts receivable financing Compare: Factoring or accounts receivable financing?Source: OCC Comptroller's Handbook: Accounts Receivable and Inventory Financing; OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Accredited investor: An investor who meets SEC standards, for example an individual with income over $200,000 ($300,000 with a spouse or partner) in each of the last two years, or net worth over $1 million not counting their main home. Some exempt offerings, such as Rule 506(c), are limited to them.; Source: SEC: Small business glossary
Advance rate: The share of an asset's value a lender will lend against. The OCC says banks commonly advance 70% to 85% of eligible receivables, and less against inventory.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Angel investor: A wealthy individual who invests their own money directly in young companies, usually in early rounds. Most are accredited investors.; Read about Angel investorsSource: SEC: Small business glossary
Applicable federal rate (AFR): Interest rates the IRS publishes each month. A loan charging less, such as an interest-free loan from a relative, can be treated for tax as if it charged this rate.; Source: IRS Publication 550 (2025): Investment Income and Expenses (below-market loans)
APR (annual percentage rate): The yearly cost of credit, including fees, as a percentage. Under federal Truth in Lending rules it is a nominal rate: the rate for each payment period multiplied by the number of periods in a year. Federal law does not require an APR for business finance, but some states, such as California and New York, require non-bank providers to show one.; Source: 12 CFR part 1026, Appendix J (Regulation Z): annual percentage rate computations; New York Financial Services Law section 804: closed-end commercial financing disclosure requirements (APR); California Financial Code, Division 9.5: Commercial Financing Disclosures (sections 22800 to 22807)
Articles of organization or incorporation: The document filed with the state that creates an LLC (articles of organization) or a corporation (articles of incorporation). It gives basics such as the business's name, address and registered agent.; Source: SBA: Launch your business (business structures and the documents to file)
Asset-based lending (ABL): A revolving loan secured on receivables and inventory, where how much you can borrow moves with the value of those assets. Often more expensive than other commercial lending, with frequent reporting and audits.; Read about Asset-based lendingSource: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Assignment of claims: Transferring the right to be paid under a federal contract of $1,000 or more to a bank or other financing institution, usually as security for a loan, with written notice to the agency.; Read about Federal contract financingSource: 48 CFR part 32 (Federal Acquisition Regulation): contract financing, assignment of claims and prompt payment
Bad actor disqualification: A rule that stops companies and people with certain past violations from using popular exemptions, such as Rules 506(b) and 506(c).; Source: SEC: Consequences of noncompliance (rescission, bad actor disqualification)
Balloon payment: A large final payment on a loan whose regular payments were worked out as if it ran for longer, for example a five-year loan paid as if over 20 years. It usually has to be refinanced.; Read about Commercial real estate loansSource: OCC Comptroller's Handbook: Commercial Real Estate Lending (version 2.0, March 2022)
Beginning farmer: In USDA's farm loan rules, someone who has run a farm for 10 years or less, will work on it and help manage it, cannot farm on a workable scale with their own resources, and, for a farm ownership loan, owns little or no farmland (no more than 30% of the county's average farm size).; Read about USDA farm loans (Farm Service Agency)Source: 7 CFR part 761: farm loan programs, general (definitions of beginning farmer and family farm)
Below-market loan: A loan with no interest or interest below the applicable federal rate. Tax rules can treat the missing interest as a gift or other payment, with exceptions for some small loans.; Source: IRS Publication 550 (2025): Investment Income and Expenses (below-market loans)
Blanket lien: A lien on all of a business's assets, usually recorded through a UCC-1 filing. The SBA's rulebook, for example, requires one on some loans.; Source: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026); California Secretary of State: Uniform Commercial Code (UCC) filings
Blue sky laws (state securities laws): Each state's own securities laws, which cover offers and sales within the state. Federal law preempts some of them for certain offerings, but states can still require notice filings and fees.; Source: SEC: Small business glossary
Bonus depreciation (special depreciation allowance): An extra first-year depreciation deduction. The 2025 budget law restored a 100% allowance for qualifying property acquired and put into service after January 19, 2025.; Read about Business tax breaks (section 179, bonus depreciation and credits)Source: IRS Publication 946 (2025): How To Depreciate Property
Borrowing base: The most you can borrow under an asset-based line at any time: a set share of the value of your eligible receivables and inventory.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Bridge loan: Short-term financing, usually for up to three years, for a newly built or bought property until it is leased up and can be sold or refinanced with a long-term loan.; Read about Bridge and hard money loansSource: OCC Comptroller's Handbook: Commercial Real Estate Lending (bridge loans)
Broker-dealer: A firm registered to sell securities for others. Someone paid according to how much money they raise for you may need to be registered as one.; Source: SEC: Broker-dealers (finders and registration)
C corporation: A corporation taxed as a separate taxpayer: profits are taxed at the corporation, and again when paid to shareholders as dividends. Only C corporations can issue stock that qualifies for QSBS.; Compare: S corporation or C corporation?Source: IRS: Forming a corporation; 26 U.S.C. 1202: partial exclusion for gain from certain small business stock (2023 edition)
Capital access program: A state program where the borrower and the lender each pay a premium into a reserve that covers the lender's losses, and the state adds a matching amount. Under SSBCI, the premiums total 2% to 7% of the loan.; Read about State small business capital programs (SSBCI)Source: 12 U.S.C. 5704: approval of state capital access programs; U.S. Treasury: SSBCI program fact sheet
Capitalization (cap) table: A record of who owns the company's equity, including common and preferred stock, convertible notes and warrants, with the class, number held and price paid.; Source: SEC: Small business glossary
Cash discount (early-payment discount): An amount a seller lets you take off the invoice for paying promptly. For tax, the IRS lets you either deduct it from your purchases or record it as discount income.; Source: IRS Publication 334: Tax Guide for Small Business (cash discounts)
CDFI (community development financial institution): A lender certified by the US Treasury's CDFI Fund whose main mission is community development, serving low-income communities and people who lack access to finance, with advice alongside its loans.; Read about Community development lenders (CDFIs)Source: CDFI Fund: CDFI Certification
Certified Development Company (CDC): A nonprofit certified and regulated by the SBA that makes 504 loans for buildings, land and long-life equipment, alongside a bank.; Read about SBA 504 loansSource: SBA: 504 loans
Clawback: Having to pay back a grant or tax credit because you did not meet its terms, such as the jobs or investment you promised.; Source: California GO-Biz: California Competes Tax Credit
Collateral: An asset pledged as security for a loan, such as equipment, inventory or real estate. If the loan is not repaid, the lender can take it.; Source: FDIC: Money Smart for Small Business, Module 5: Small Business Financing (participant guide)
Collateral support: A program that puts up cash collateral for a business's loan when the business's own collateral falls short.; Read about State small business capital programs (SSBCI)Source: U.S. Treasury: SSBCI program fact sheet
Commercial financing disclosure law: A state law requiring providers that are not banks or credit unions to disclose the cost of business finance, such as the total repayment and the dollar cost, before you sign. Each state sets its own limits, and only some, such as California and New York, require an APR.; Source: California Financial Code, Division 9.5: Commercial Financing Disclosures (sections 22800 to 22807); New York Financial Services Law section 801: commercial financing definitions; Georgia SB 90 (2023), as passed (Act 78): commercial financing disclosures, O.C.G.A. 10-1-393.18; Connecticut General Statutes, chapter 669, part XVI: commercial financing (sections 36a-861 to 36a-872)
Common stock: Shares that represent ownership of a company, usually with votes on the board and major decisions and a right to dividends if paid. Founders usually hold common stock.; Source: SEC: Small business glossary; SEC: Common startup securities
Community Development Entity: A lender or investor certified by the CDFI Fund whose main mission is serving low-income communities. Only CDEs can receive New Markets Tax Credits to offer their investors.; Source: CDFI Fund: Introduction to the New Markets Tax Credit Program (September 11, 2026)
Confession of judgment: A contract clause that lets a lender or provider go straight to court for an uncontested judgment if it says you have defaulted. New York allows one to be filed only in a county where the business is based, Virginia does not allow them in sales-based financing, and Texas makes them void.; Source: FTC Business Blog: Looking for small business financing? Read this first (June 10, 2020); New York Civil Practice Law and Rules section 3218: judgment by confession; Code of Virginia, Chapter 22.1: Sales-Based Financing Providers (sections 6.2-2228 to 6.2-2238); Texas HB 700 (2025), enrolled: Finance Code Chapter 398, commercial sales-based financing
Confirmed letter of credit: A letter of credit to which a second bank, usually in the seller's country, adds its own promise to pay if the buyer's bank does not.; Read about Trade finance and letters of creditSource: U.S. Department of Commerce, International Trade Administration: Trade Finance Guide (2022 edition)
Convertible note: A loan from an investor that can convert into shares, usually preferred stock at the next funding round. Until it converts it is debt, with interest and a promise of repayment.; Read about Convertible notes Compare: SAFE or convertible note?Source: SEC: Small business glossary; SEC Office of Investor Education and Advocacy: Investor Bulletin, Be Cautious of SAFEs in Crowdfunding (May 9, 2017)
Credit elsewhere test: The rule that a government-backed loan is only for a business that cannot get the credit it needs on reasonable terms from private lenders. For SBA loans the lender must certify this, looking at things such as the business's age, collateral and the term it needs. For a direct farm loan, the Farm Service Agency asks for proof that you cannot borrow enough elsewhere, even with its guarantee.; Source: 13 CFR 120.101: credit not available elsewhere; 7 CFR part 764: direct farm loans (eligibility, including credit elsewhere)
Crypto asset: A digital representation of value recorded on a cryptographically secured ledger, such as a blockchain.; Source: SEC: Small business glossary; SEC: Crypto assets and the federal securities laws
Curtailment: In floor plan financing, a required part-payment of the advance on an item that has not sold within a set time, often a percentage each month.; Read about Inventory and floor plan financingSource: OCC Comptroller's Handbook: Floor Plan Lending (version 1.2)
Debt schedule: A list of every debt a business owes, with the lender, original amount and date, balance, monthly payment, interest rate, maturity, collateral and whether it is up to date. SBA lenders ask for one that includes loans from the owners.; Source: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
Debt service coverage ratio (DSCR): Income available to pay debts (for a property, its net operating income) divided by the year's loan payments. A ratio above 1 means the income covers the payments with room to spare.; Source: OCC Comptroller's Handbook: Commercial Real Estate Lending (version 2.0, March 2022); SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
Digital commodity: A crypto asset needed to take part in a working crypto system, valued through how that system operates and supply and demand. The SEC does not treat digital commodities as securities.; Source: SEC: Small business glossary
Dilution: When a company issues new shares, existing owners end up with a smaller percentage of the company.; Source: SEC: Small business glossary
Direct listing: Becoming a public company by letting existing shareholders sell shares directly to the public, typically without the company raising new money.; Source: SEC: Types of registered offerings (IPO, SPAC and direct listing)
Documentary collection: An export sale where the seller's bank sends the shipping documents to the buyer's bank, which hands them over only when the buyer pays or signs a promise to pay. Cheaper than a letter of credit, but no bank guarantees payment.; Read about Trade finance and letters of creditSource: U.S. Department of Commerce, International Trade Administration: Trade Finance Guide (2022 edition)
Dollar-out lease ($1 buy-out lease): A lease that lets you buy the equipment for a nominal sum, such as $1, at the end. Bank regulators treat it as the functional equivalent of a loan.; Read about Equipment leasing and sale-leasebackSource: OCC Comptroller's Handbook: Lease Financing (version 2.0, September 2023)
Due diligence: An investor's or lender's review of a business before committing, covering its legal documents, finances, market and management.; Source: SEC: Small business glossary; SBA: Plan your business (fund your business: loans, Lender Match, venture capital, SBICs, SBIR and STTR)
EIDL (economic injury disaster loan): A working capital loan direct from the SBA for a small business in a declared disaster area that cannot pay its bills because of the disaster, even without property damage.; Read about SBA disaster loansSource: SBA: Disaster recovery (loan types, eligibility and terms)
EIN (employer identification number): A business's federal tax ID number. You can get one free from the IRS; you never have to pay a fee for it.; Source: IRS: Get an employer identification number
Emerging growth company (EGC): A company with annual gross revenues under $1.235 billion that can use lighter disclosure rules for up to five years after its IPO.; Source: SEC: Emerging growth companies; SEC: Small business glossary
Equipment finance agreement (EFA): A loan document to buy equipment, secured on that equipment. Unlike a lease, you own the equipment from the start for accounts and tax, and keep it at the end without paying a purchase price.; Read about Equipment loans and finance agreementsSource: OCC Comptroller's Handbook: Lease Financing (version 2.0, September 2023)
Equity: Ownership of a company, such as shares of stock or an LLC's membership interests.; Source: SEC: Common startup securities
Equity injection: The money the owners put into a project financed with an SBA loan. For buying a business it is normally at least 10% of the project cost.; Source: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
ESOP (employee stock ownership plan): A qualified retirement plan, under section 401(a) of the tax code, designed to invest mainly in the shares of the employer. The IRS and the Department of Labor share oversight of it.; Source: IRS: Employee stock ownership plans (ESOPs)
Export credit insurance: Insurance that pays an exporter if a foreign buyer does not pay for goods or services bought on credit, for commercial reasons such as bankruptcy or political ones such as war. EXIM's policies cover up to 95% of the invoice.; Source: EXIM: Export Credit Insurance
Factoring: Selling your unpaid invoices to a provider (a factor) at a discount to their face value, to get cash before your customers pay.; Read about Invoice factoring Compare: Factoring or accounts receivable financing?Source: New York Financial Services Law section 801: commercial financing definitions; 12 CFR 1002.9 (Regulation B): notifications, including to business credit applicants
Failure-to-pay penalty: An IRS penalty of 0.5% of unpaid tax for each month or part of a month it stays unpaid, up to 25% of the tax.; Source: IRS: Failure to pay penalty
Family farm: In USDA's farm loan rules, a farm that sells enough crops, livestock or other farm products to be a real farm, where the owners or their families make the decisions and do a large part of the work. Hired workers can only add to the family's own work, though seasonal help is allowed.; Read about USDA farm loans (Farm Service Agency)Source: 7 CFR part 761: farm loan programs, general (definitions of beginning farmer and family farm); USDA Farm Service Agency: Guaranteed Farm Loans
Family office: A company that manages investments for one family. Under the SEC's rule it advises only family members, some key employees and family trusts and charities, is owned and controlled by the family, and does not offer its services to the public, so it is not treated as an investment adviser.; Read about Family officesSource: 17 CFR 275.202(a)(11)(G)-1: family offices (eCFR, current text)
Field examination: A lender's on-site check of the records and collateral behind an asset-based loan, first when the loan is set up and then regularly.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Finance charge: The cost of credit as a dollar amount: interest and the fees you pay as a condition of getting the financing. New York's and Connecticut's commercial disclosures count it as federal Truth in Lending rules would.; Source: New York Financial Services Law section 801: commercial financing definitions; Connecticut General Statutes, chapter 669, part XVI: commercial financing (sections 36a-861 to 36a-872)
Five Cs of lending: The factors lenders weigh: character (your record of repaying debts), capacity (cash flow to repay), capital (cash and assets to fall back on), collateral and conditions (the market, your industry and the loan's purpose).; Source: FDIC: Money Smart for Small Business, Module 5: Small Business Financing (participant guide)
Floor plan financing: Inventory financing for dealers, where the lender advances money against each specific item, such as a car or a boat, and is repaid as each item sells.; Read about Inventory and floor plan financingSource: OCC Comptroller's Handbook: Floor Plan Lending (version 1.2)
Forfaiting: Selling medium- and long-term export receivables to a forfaiter at a discount and without recourse, so the forfaiter carries the risk that the foreign buyer does not pay. The smallest deals are about $100,000.; Read about Trade finance and letters of creditSource: U.S. Department of Commerce, International Trade Administration: Trade Finance Guide (2022 edition)
Form 211: The form a broker-dealer files with FINRA, with the company information it has reviewed, before it starts quoting a security that is not listed on an exchange. It must also certify that it has taken no payment for the quote.; Source: FINRA Rule 6432: compliance with the information requirements of SEA Rule 15c2-11 (Form 211)
Form C: The offering statement a company files on EDGAR, and with the platform, for a Regulation Crowdfunding offering, with an annual report on Form C-AR afterwards.; Source: SEC: Regulation Crowdfunding, a small entity compliance guide for issuers
Form D: A short notice filed with the SEC within 15 days after the first sale in a Regulation D offering, giving basic facts about the company and the offering. It is public, and the SEC charges no fee.; Source: SEC: Small business glossary; SEC: Exempt offerings (Regulation D, Rule 504 and Form D)
Four-part test: The IRS test for qualified research: research and experimental spending, aimed at technological information, meant to create a new or improved business component, and done through a process of experimentation.; Source: IRS: Instructions for Form 6765 (revised December 2025)
Full standby: A condition on a loan, such as a seller note, that no principal or interest is paid for the whole term of the SBA loan. Only debt on full standby can count toward the owners' equity injection.; Source: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
Funding portal: An online platform registered with the SEC and FINRA through which companies run Regulation Crowdfunding offerings.; Source: SEC: Regulation Crowdfunding; SEC: Regulation Crowdfunding, a small entity compliance guide for issuers
Funding round (seed, Series A): A raise from investors on the same or similar terms within a set period. Rounds usually start with a seed round, followed by Series A and later lettered rounds.; Source: SEC: Small business glossary
General solicitation: Marketing an offering to the public, for example through advertising or open websites. Some exemptions, such as Rule 506(b), forbid it.; Source: SEC: Small business glossary; SEC: Private placements, Rule 506(b)
Hard money loan: A short-term, high-interest loan from private lenders, secured on real estate and based mainly on the property's value rather than the borrower's finances. Often used to buy and renovate a property.; Read about Bridge and hard money loansSource: California State Assembly, Committee on Banking and Finance: analysis of AB 2288 (April 2010), on hard money lending
Home equity line of credit (HELOC): Borrowing secured on your home, as a line you draw on or a single loan. You can lose the home if you do not repay.; Read about Personal borrowing for the businessSource: 12 CFR 1026.40 (Regulation Z): requirements for home equity plans
Incubator: A program that supports businesses still developing their model or product, over a longer period than an accelerator, with training, office support and mentoring. Some provide funding or take equity.; Read about Prize competitions and acceleratorsSource: SEC: Small business glossary
Indenture: The contract under which bonds or notes are issued, often with a trustee who acts for the holders. For a registered bond offering, the Trust Indenture Act generally requires the indenture to be qualified with the SEC.; Source: 15 U.S.C. 77ddd: Trust Indenture Act, exempted securities and transactions (2024 edition, govinfo); 15 U.S.C. 77eee: Trust Indenture Act, securities required to be registered (2024 edition, govinfo)
Installment sale: A sale where the seller receives at least one payment after the tax year of the sale. The seller can usually report the gain as payments arrive.; Source: IRS Publication 537 (2025): Installment Sales
Intrastate offering (Rules 147 and 147A): A sale of securities only to residents of one state, by a company doing business there, that is exempt from SEC registration. The state's own securities law still applies, and for six months investors can resell only to people in the same state.; Source: SEC: Intrastate offerings (Section 3(a)(11), Rules 147 and 147A)
Investment contract: A type of security: an investment of money in a common enterprise with a reasonable expectation of profits from the efforts of others (the Supreme Court's Howey test).; Source: SEC: Small business glossary
IPO (initial public offering): The first sale of a company's shares to the public, through investment banks (underwriters), in an offering registered with the SEC.; Read about Stock exchange listing (IPO, direct listing or SPAC)Source: SEC: Types of registered offerings (IPO, SPAC and direct listing)
IRS Form 4506-C: The form that lets a lender get transcripts of your tax returns straight from the IRS, through its Income Verification Express Service, to check the returns you gave it. The IRS shares them only with your consent.; Source: IRS: Income Verification Express Service (IVES) and Form 4506-C; SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
IRS payment plan (installment agreement): An agreement with the IRS to pay tax you owe over time. Interest and penalties keep adding up until the bill is paid, and long-term plans have a setup fee.; Read about IRS payment plansSource: IRS: Payment plans (installment agreements)
Lender Match: An SBA tool that puts you in touch with lenders offering SBA-guaranteed loans.; Source: SBA: Plan your business (fund your business: loans, Lender Match, venture capital, SBICs, SBIR and STTR)
Letter of credit (LC): A bank's promise, made for a buyer, to pay the seller once the seller presents the documents the letter of credit lists, such as shipping documents, exactly as stated. Banks deal in the documents, not the goods.; Read about Trade finance and letters of creditSource: U.S. Department of Commerce, International Trade Administration: Trade Finance Guide (2022 edition)
Lien search: A search of the public records for UCC filings and other liens against a business, showing who already has a claim on its assets. Lenders run one before they lend, because tax liens and purchase money interests can come before their own.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Liquidation preference: An investor's right to be paid before others when the company is sold or wound up, often a multiple of the original investment.; Source: SEC: Small business glossary
Listing standards: A stock exchange's financial and other requirements a company must meet to list its shares, and keep meeting to stay listed.; Source: SEC: Public companies (registration, reporting and listing)
LLC (limited liability company): A business structure set up under state law, owned by members. For federal tax, the IRS treats it as a partnership, part of its owner's return, or a corporation, depending on its members and elections.; Source: IRS: Limited liability company (LLC)
Loan participation: A program or lender buying part of a loan another lender makes, or lending alongside it, so that each carries part of the risk.; Read about State small business capital programs (SSBCI)Source: U.S. Treasury: SSBCI program fact sheet
Loan-to-value (LTV): The loan as a percentage of the value of the property or asset that secures it. Bank regulators set ceilings for real estate loans, such as 85% of the value of a finished commercial building.; Read about Commercial real estate loansSource: OCC Comptroller's Handbook: Commercial Real Estate Lending (version 2.0, March 2022)
Lockbox: An account the lender controls, into which your customers' payments go, so they can be applied to the loan.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
Low-income community: For the New Markets Tax Credit, a census tract with a poverty rate of at least 20%, or where median family income is no more than 80% of the area's. The CDFI Fund's mapping tool shows which tracts count.; Source: CDFI Fund: Introduction to the New Markets Tax Credit Program (September 11, 2026)
Management buyout: The purchase of a business, or a large part of it, by people who already run or work in it. The SBA's rulebook calls it an owner buyout when current owners, or employees of at least 24 months, buy out other owners.; Read about Management buyoutSource: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
Maturity date: When the final payment on a loan or other debt is due.; Source: SEC: Small business glossary
Merchant cash advance (MCA): A lump sum paid now in exchange for a share of your future sales, usually collected by daily withdrawals from your bank account until a fixed total is repaid. Usually described by providers as a purchase of future sales, not a loan.; Read about Merchant cash advanceSource: FTC Business Blog: Looking for small business financing? Read this first (June 10, 2020); California Financial Code, Division 9.5: Commercial Financing Disclosures (sections 22800 to 22807)
Microloan intermediary: A nonprofit, community-based lender that the SBA funds to make microloans of up to $50,000. It decides who gets a loan and sets the terms, within the SBA's rules.; Read about SBA MicroloansSource: SBA: Microloans; 13 CFR 120.707: conditions on loans by intermediaries to microloan borrowers
NAICS code: A code from the North American Industry Classification System that classifies a business by what it supplies. The SBA sets a size standard for each NAICS code.; Source: SBA: Get started with contracting (size standards, NAICS codes, Unique Entity Identifier)
New Markets Tax Credit: A federal tax credit, worth 39% of the amount invested over seven years, for investors who put money into a Community Development Entity, which uses it to lend to or invest in businesses in low-income communities.; Read about New Markets Tax Credit financingSource: CDFI Fund: New Markets Tax Credit Program; CDFI Fund: Introduction to the New Markets Tax Credit Program (September 11, 2026)
Nonrecourse loan: A loan where the lender can look only to the property that secures it, not to the borrower's other assets, except in circumstances the loan sets out.; Read about Commercial real estate loansSource: OCC Comptroller's Handbook: Commercial Real Estate Lending (version 2.0, March 2022)
Notification and non-notification: Whether a lender tells your customers to pay it directly (notification) or lets them keep paying as before while it controls or receives the money (non-notification), when it lends against your receivables.; Read about Accounts receivable financingSource: OCC Comptroller's Handbook: Accounts Receivable and Inventory Financing
Operating agreement: An LLC's own agreement on how its key business and money decisions are made, and each member's duties, powers and responsibilities. Not every state requires one.; Source: SBA: Launch your business (business structures and the documents to file)
Opportunity Zone: An economically distressed community, nominated by a state, DC or a territory and certified by the Treasury, where new investments can get tax benefits under certain conditions.; Read about Opportunity Zone investmentSource: IRS: Opportunity Zones frequently asked questions
Over-the-counter (OTC) market: Where securities that are not on a national securities exchange are quoted and traded, through broker-dealers and quotation systems. A broker-dealer may quote a company's shares only if current information about the company is publicly available (SEC Rule 15c2-11).; Read about Over-the-counter (OTC) quotationSource: 17 CFR 240.15c2-11: publication or submission of quotations without specified information (eCFR, current text)
Patronage dividend: A payment a cooperative makes to its members out of its net earnings from business done with them, based on how much business each did. It can be paid in cash or as shares or other written notices of allocation.; Source: 26 U.S.C. 1388: definition of a patronage dividend (2024 edition)
Performance-based payments: Federal contract financing paid when the contractor reaches milestones or measurable results set in the contract, up to 90% of the contract price.; Read about Federal contract financingSource: 48 CFR part 32 (Federal Acquisition Regulation): contract financing, assignment of claims and prompt payment
Personal financial statement (SBA Form 413): A form listing what a business owner owns and owes. The SBA uses Form 413 to judge whether applicants for 7(a), 504 and disaster loans can repay; lenders ask for one from each owner of 20% or more and each guarantor.; Source: SBA: Form 413, Personal Financial Statement; SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
Personal guarantee: A promise by an owner or another person to repay a business's debt if the business cannot. SBA loans generally need one from everyone who owns 20% or more of the business.; Source: 13 CFR 120.160: loan conditions (personal guarantees); FDIC: Money Smart for Small Business, Module 5: Small Business Financing (participant guide)
Preferred stock: Shares with rights ahead of common stock, such as a liquidation preference, protection against dilution, dividends or the right to elect directors. Outside investors usually get preferred stock.; Source: SEC: Small business glossary
Prime rate: The rate posted by most of the largest US commercial banks, and one of several base rates banks use to price short-term business loans. The SBA caps most 7(a) loan rates at a base rate, usually prime, plus a set margin.; Source: Federal Reserve: H.15 Selected Interest Rates (bank prime loan rate); SBA: 7(a) terms, conditions and eligibility (amounts, guaranty, maturity, rate caps, fees)
Private activity bond: A bond issued by a state or local government whose money is used by a private business. Its interest is tax-free to bondholders only if it meets the tax law's conditions, and many kinds need a share of the state's volume cap.; Source: IRS Publication 4078 (Rev. 1-2026): Tax-exempt private activity bonds
Private credit: Loans that are not publicly traded, made to private businesses by lenders that are not banks, such as private credit funds and business development companies, usually on terms negotiated directly with the borrower.; Source: Federal Reserve FEDS Notes: Private Credit: Characteristics and Risks (February 23, 2024)
Private placement: A sale of securities by a company that does not involve a public offering, exempt from SEC registration under Section 4(a)(2) of the Securities Act. Rules 506(b) and 506(c) of Regulation D are common ways to make one.; Source: SEC: Small business glossary
Prize competition: A contest run by a federal agency, or another body, that awards cash or other prizes for solving a set problem. Federal cash prizes go only to US-incorporated businesses based in the US, and to US citizens or permanent residents.; Read about Prize competitions and acceleratorsSource: 15 U.S.C. 3719: prize competitions
Program-related investment: A loan, guarantee or investment a private foundation makes mainly to further its charitable purpose, where making money is not a significant purpose, often on below-market terms.; Read about Program-related investments and impact fundsSource: IRS: Program-related investments
Progress payments: Payments a federal agency makes to its contractor as costs are incurred, before delivery, recovered from later payments for delivered items. The customary rate is 85% of costs for small businesses and 80% for others.; Read about Federal contract financingSource: 48 CFR part 32 (Federal Acquisition Regulation): contract financing, assignment of claims and prompt payment
Prompt Payment Act: The federal law that makes agencies pay contractors' proper invoices on time, generally within 30 days, and add interest automatically when they pay late, at a rate the Treasury sets every six months (4 3/4% for July to December 2026).; Read about Late fees and Prompt Payment Act interestSource: 48 CFR part 32 (Federal Acquisition Regulation): contract financing, assignment of claims and prompt payment; 5 CFR 1315.10: late payment interest penalties; Federal Register 2026-13903: Prompt Payment Interest Rate; Contract Disputes Act
Purchase money loan: Credit used to buy the item that secures it, such as a loan for a machine secured on that machine. A supplier's purchase money interest in inventory can rank ahead of a bank's lien. Several state disclosure laws, such as Georgia's, leave these loans out.; Source: OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017); Georgia SB 90 (2023), as passed (Act 78): commercial financing disclosures, O.C.G.A. 10-1-393.18
QSBS (qualified small business stock): Stock in a C corporation that can let investors exclude some or all of their gain from tax. For stock issued after July 4, 2025, the exclusion is 50%, 75% or 100% after 3, 4 or 5 years, up to $15 million per company, if the company's gross assets were no more than $75 million.; Source: Public Law 119-21 (July 4, 2025), section 70431: expansion of the qualified small business stock exclusion; 26 U.S.C. 1202: partial exclusion for gain from certain small business stock (2023 edition)
Qualified Opportunity Fund (QOF): An investment vehicle taxed as a partnership or corporation that certifies itself to the IRS each year and holds at least 90% of its assets in Opportunity Zone property, such as new shares in businesses operating in a zone. Investors who put gains into one can pay less tax.; Read about Opportunity Zone investmentSource: IRS: Opportunity Zones frequently asked questions; 26 U.S.C. 1400Z-2: special rules for capital gains invested in opportunity zones (2024 edition, govinfo)
Qualified small issue bond: A tax-exempt private activity bond of up to $1 million, or $10 million in some cases, mostly used to pay for a manufacturing facility. Often called an industrial revenue bond.; Read about Industrial revenue bonds (small issue bonds)Source: 26 U.S.C. 144: qualified small issue bonds (2024 edition)
Registration statement: The document filed with the SEC to register an offering, describing the business, the securities and management, with audited financial statements.; Source: SEC: Public companies (registration, reporting and listing)
Regulation A: An exemption for public offerings, sometimes called a "mini IPO": Tier 1 up to $20 million and Tier 2 up to $75 million in 12 months, with an offering statement the SEC must qualify first.; Read about Regulation A offerings Compare: Regulation Crowdfunding or Regulation A?Source: SEC: Regulation A; SEC: Small business glossary
Regulation B (Equal Credit Opportunity Act): Federal rules that cover business credit as well as consumer credit. A lender must tell you its decision and, if it turns you down, give you the reasons or tell you how to ask for them. For businesses with sales of $1 million or less, the decision is due within 30 days of a complete application.; Source: 12 CFR 1002.9 (Regulation B): notifications, including to business credit applicants
Regulation Crowdfunding (Regulation CF): An exemption that lets a business sell securities to the public online, up to $5 million in 12 months, through one SEC-registered broker-dealer or funding portal.; Read about Regulation Crowdfunding Compare: Regulation Crowdfunding or Regulation A?Source: SEC: Regulation Crowdfunding; SEC: Small business glossary
Regulation D: The SEC rules for the most common exempt offerings: Rule 504, Rule 506(b) and Rule 506(c).; Source: SEC: Small business glossary; SEC: Exempt offerings (Regulation D, Rule 504 and Form D)
Regulation Z (Truth in Lending): The federal rules on credit disclosures, including the APR. They do not cover credit mainly for business purposes, except for a few credit card rules, such as the ban on unsolicited cards and the $50 cap on liability for unauthorized use.; Source: 12 CFR 1026.3 (Regulation Z): exempt transactions, including business credit; 12 CFR 1026.12 (Regulation Z): special credit card provisions, including business use
Reporting company: A company that must file annual, quarterly and current reports with the SEC, usually because it has made a registered offering or listed its securities.; Source: SEC: Public companies (registration, reporting and listing)
Rescission: Undoing an investment: if a company sells securities without registering or fitting an exemption, investors may have the right to their money back with interest.; Source: SEC: Consequences of noncompliance (rescission, bad actor disqualification)
Research credit (section 41): A federal tax credit for increasing spending on qualified research. Young businesses with gross receipts under $5 million can use up to $500,000 a year of it against payroll taxes.; Read about Research and development tax creditSource: IRS: Instructions for Form 6765 (revised December 2025)
Restricted securities: Securities bought from a company in certain exempt offerings, which the holder can resell only under an exemption from registration.; Source: SEC: Small business glossary
ROBS (rollover as business start-up): An arrangement in which someone moves their retirement savings, tax free, into a new plan that buys the shares of their new C corporation. The IRS calls these plans questionable, and found that most of the businesses it reviewed had failed or were failing, with some owners losing their retirement savings.; Read about Retirement savings in your business (ROBS)Source: IRS: Rollovers as Business Start-Ups Compliance Project
Rule 144: An SEC safe harbor for reselling restricted or control securities. Restricted securities must be held for six months if the company reports to the SEC, or one year if not, and affiliates of the company face more conditions.; Source: SEC: Rule 144, selling restricted and control securities
Rule 144A: An SEC rule for reselling securities, often notes or bonds, only to qualified institutional buyers: institutions that own and invest at least $100 million in securities of companies they are not affiliated with ($10 million for registered dealers).; Source: 17 CFR 230.144A: private resales of securities to institutions (eCFR, current text)
Rule 504: An exemption for offerings of up to $10 million in 12 months, which must also comply with each state's securities laws where the securities are offered or sold.; Source: SEC: Exemption for limited offerings not exceeding $10 million (Rule 504)
Rule 506(b): A private placement with no general solicitation, open to any number of accredited investors and up to 35 others in any 90 days, who must be able to judge the risks and receive disclosure documents.; Compare: Rule 506(b) or Rule 506(c)?Source: SEC: Private placements, Rule 506(b)
Rule 506(c): An exempt offering that can be advertised to the public, but where every buyer must be an accredited investor and the company must take reasonable steps to check that they are.; Compare: Rule 506(b) or Rule 506(c)?Source: SEC: General solicitation, Rule 506(c)
S corporation: A corporation that elects to pass its income and losses through to its shareholders' own tax returns. It can have no more than 100 shareholders, who must be individuals or certain trusts and estates, and only one class of stock.; Compare: S corporation or C corporation?Source: IRS: S corporations
SAFE (simple agreement for future equity): An agreement in which a company promises an investor future shares if a trigger event happens, such as a later equity round or a sale. It is not a loan, and the investor owns nothing until it converts.; Read about SAFEs (simple agreements for future equity)Compare: SAFE or convertible note?Source: SEC: Small business glossary; SEC Office of Investor Education and Advocacy: Investor Bulletin, Be Cautious of SAFEs in Crowdfunding (May 9, 2017)
Sale-leaseback: Selling an asset you own, such as equipment or a building, and leasing it straight back, so you raise cash and keep using it. If control does not really pass to the buyer, the accounts treat it as a loan.; Read about Equipment leasing and sale-leasebackSource: OCC Comptroller's Handbook: Lease Financing (version 2.0, September 2023)
Sales-based financing: Financing repaid as a percentage of sales or revenue, so payments rise and fall with sales, or by fixed payments later adjusted to a share of sales (a true-up). State laws use the term for merchant cash advances and revenue-based finance.; Read about Revenue-based financeSource: New York Financial Services Law section 801: commercial financing definitions; Connecticut General Statutes, chapter 669, part XVI: commercial financing (sections 36a-861 to 36a-872); Code of Virginia, Chapter 22.1: Sales-Based Financing Providers (sections 6.2-2228 to 6.2-2238)
SBA (Small Business Administration): The US federal agency for small businesses. It guarantees loans that banks and other lenders make, such as 7(a) and 504 loans, makes disaster loans directly, funds community lenders for microloans, and coordinates the SBIR and STTR programs.; Source: SBA: 7(a) loans; SBA: Disaster recovery (loan types, eligibility and terms); SBA: Microloans; SBIR.gov: About SBIR and STTR (award limits as of October 16, 2026)
SBA 504 loan: An SBA loan for buildings, land and long-life equipment, made by a Certified Development Company alongside a bank, at a long fixed rate. The 504 part can be up to $5 million, or $5.5 million for small manufacturers and some energy projects.; Read about SBA 504 loans Compare: SBA 7(a) or 504?Source: SBA: 504 loans; 13 CFR 120.931: 504 lending limits
SBA 7(a) loan: The SBA's main loan program: loans of up to $5 million from banks and other lenders, partly guaranteed by the SBA, for working capital, equipment, real estate, buying a business and refinancing.; Read about SBA 7(a) loans Compare: SBA 7(a) or 504?Source: SBA: 7(a) loans; SBA: 7(a) terms, conditions and eligibility (amounts, guaranty, maturity, rate caps, fees)
SBA CAPLines: SBA-guaranteed lines of credit of up to $5 million for short-term needs: working capital against receivables and inventory, specific contracts, seasonal build-ups, and building projects for sale.; Read about SBA lines of credit (CAPLines and others)Source: SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
SBA Express: A form of 7(a) loan of up to $500,000 that lenders approve under their own procedures, with a smaller SBA guarantee of 50%.; Source: SBA: 7(a) terms, conditions and eligibility (amounts, guaranty, maturity, rate caps, fees)
SBA Form 1244: The application for a 504 loan, which the SBA uses to check that the business is eligible. It lists every owner of the business and their share.; Read about SBA 504 loansSource: SBA: Form 1244, Application for Section 504 Loans; SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
SBA Form 1919: The SBA's borrower information form for 7(a) loans. The business fills it in for the lender, with its owners, the loan request, its existing debts and any earlier government financing.; Read about SBA 7(a) loansSource: SBA: Form 1919, Borrower Information Form; SBA: SOP 50 10 8.1, Lender and Development Company Loan Programs (effective October 1, 2026)
SBA guarantee: The SBA's promise to repay a lender part of a loan if the borrower defaults: up to 85% of 7(a) loans of $150,000 or less and up to 75% of larger ones. It makes lenders more willing to lend; you still deal with the lender.; Source: SBA: 7(a) loans; SBA: 7(a) terms, conditions and eligibility (amounts, guaranty, maturity, rate caps, fees)
SBA guaranty fee: An upfront fee the lender pays the SBA on the guaranteed part of a 7(a) loan, which it may pass on to you. The SBA caps it, by loan size.; Source: SBA: 7(a) terms, conditions and eligibility (amounts, guaranty, maturity, rate caps, fees)
SBIC (Small Business Investment Company): A privately owned investment fund licensed and regulated by the SBA, which uses its own money plus SBA-backed borrowing to make equity and debt investments in small businesses.; Source: SBA: Plan your business (fund your business: loans, Lender Match, venture capital, SBICs, SBIR and STTR); SEC: Small business glossary
SBIR (Small Business Innovation Research): Federal research and development awards to small businesses, run by 11 agencies and coordinated by the SBA. Awards are not loans and take no ownership.; Read about SBIR and STTR research awardsSource: SBIR.gov: About SBIR and STTR (award limits as of October 16, 2026)
Secondary sale: A sale of existing securities from one investor to another, rather than from the company. The company receives none of the money.; Read about Private share sales and tender offersSource: SEC: Small business glossary; SEC Office of the Advocate for Small Business Capital Formation: What is a private secondary market?
Section 174A: The tax rule, added in 2025, that lets businesses deduct domestic research and experimental spending in the year it is paid, for tax years beginning after December 31, 2024, or spread it over at least 60 months.; Source: IRS: Instructions for Form 6765 (revised December 2025)
Section 179 deduction: A tax rule that lets a business deduct the cost of qualifying equipment in the year it starts using it, up to $2,560,000 for tax years beginning in 2026, reduced once equipment costs pass $4,090,000.; Read about Business tax breaks (section 179, bonus depreciation and credits)Source: IRS Publication 946 (2025): How To Depreciate Property
Security: An investment such as stock, a bond, a convertible note or an investment contract. Federal law requires every offer and sale of securities to be registered with the SEC or to fit an exemption.; Source: SEC: Small business glossary
Security interest: A lender's legal claim on property that secures a debt. Lenders usually make it effective against others ("perfect" it) by filing a UCC financing statement with the state.; Source: California Secretary of State: Uniform Commercial Code (UCC) filings
Size standard: The largest a business can be and still count as small for SBA programs, set for each industry by number of employees or average annual receipts.; Source: SBA: Get started with contracting (size standards, NAICS codes, Unique Entity Identifier)
Sold out of trust: Selling an item financed under a floor plan without repaying the lender's advance on it. A breach of the agreement that lenders treat as serious.; Read about Inventory and floor plan financingSource: OCC Comptroller's Handbook: Floor Plan Lending (version 1.2)
Sole proprietorship: An unincorporated business owned by one person, who reports its profit or loss on their own tax return.; Source: IRS: Sole proprietorships
SPAC (special purpose acquisition company): A shell company that raises money in its own IPO to merge with a private company, usually within two years. The merger (the de-SPAC) makes the private company public.; Source: SEC: Types of registered offerings (IPO, SPAC and direct listing)
SSBCI (State Small Business Credit Initiative): A US Treasury program of nearly $10 billion that funds states, territories and tribal governments to run their own small business programs: loan participations, guarantees, collateral support, capital access programs and venture capital.; Read about State small business capital programs (SSBCI)Source: US Treasury: State Small Business Credit Initiative (SSBCI)
Stablecoin: A crypto asset designed to hold a stable value against a reference asset such as the US dollar. A payment stablecoin under the GENIUS Act is generally not a security.; Source: SEC: Small business glossary
Standby letter of credit: A bank's promise to pay if its customer fails to do what it agreed, such as paying invoices on time. Used as a safety net rather than as the usual way to pay, including as bid and performance bonds.; Read about Trade finance and letters of creditSource: U.S. Department of Commerce, International Trade Administration: Trade Finance Guide (2022 edition)
STTR (Small Business Technology Transfer): The sister program to SBIR, in which a small business works with a nonprofit research institution on the funded research.; Read about SBIR and STTR research awardsSource: SBA: Plan your business (fund your business: loans, Lender Match, venture capital, SBICs, SBIR and STTR); SBIR.gov: About SBIR and STTR (award limits as of October 16, 2026)
Tender offer: An offer to buy securities from many holders at once, at a stated price. Under SEC rules it must stay open for at least 20 business days, including for private companies.; Source: 17 CFR 240.14e-1: unlawful tender offer practices (eCFR, current text)
Term sheet: A summary of the terms and conditions on which an investor will invest, agreed before the final documents.; Source: SBA: Plan your business (fund your business: loans, Lender Match, venture capital, SBICs, SBIR and STTR)
Tokenized (digital) security: A security, such as a share or bond, formatted as or represented by a crypto asset, with ownership recorded on one or more blockchains. The securities laws apply as to any other security.; Read about Tokenized securitiesSource: SEC: Small business glossary; SEC Divisions of Corporation Finance, Investment Management, and Trading and Markets: Statement on Tokenized Securities (January 28, 2026)
TRAC lease: A vehicle lease, mostly for trucks and trailers, that states the vehicle's value at the end. You pay that value at the end, and if the vehicle sells for less you pay the difference; if it sells for more, you get the excess.; Read about Equipment leasing and sale-leasebackSource: OCC Comptroller's Handbook: Lease Financing (version 2.0, September 2023)
Trade credit: An arrangement in which a business buys goods or services from another business without paying in full straight away, such as paying a supplier's invoice 30 days later.; Read about Supplier trade creditSource: 12 CFR 1002.104 (Regulation B): trade credit defined
True-up: A reconciliation that adjusts fixed payments to the agreed share of your actual sales or revenue.; Source: New York Financial Services Law section 801: commercial financing definitions
Trust fund taxes: Taxes a business withholds or collects for the government, such as income and social security tax withheld from employees' pay. If they go unpaid, the IRS can hold the people responsible for paying them personally liable (the trust fund recovery penalty).; Source: IRS: Employment taxes and the trust fund recovery penalty (TFRP)
UCC-1 financing statement: A public notice, filed with a state's Secretary of State, that a lender has a security interest in named collateral. Filing perfects the interest and sets its priority if the business defaults or goes bankrupt. Filings generally expire after five years unless continued.; Source: California Secretary of State: Uniform Commercial Code (UCC) filings; OCC: Comptroller's Handbook, Asset-Based Lending (version 1.1, January 27, 2017)
UEI (Unique Entity Identifier): A 12-character identifier you get when you register with SAM.gov, needed before you can bid for federal contracts.; Source: SBA: Get started with contracting (size standards, NAICS codes, Unique Entity Identifier)
Valuation (pre-money and post-money): What a company is worth, as agreed with investors, which sets how much ownership they get. Pre-money is the value before the new money goes in; post-money includes it.; Source: SEC: Small business glossary
Valuation cap: The highest valuation at which a SAFE or note converts into shares. A SAFE usually sets no valuation when it is signed; the cap puts a ceiling on the one used later. On a post-money SAFE, the share sold equals the investment divided by the cap.; Source: SEC: Common startup securities; Y Combinator: SAFE (the instrument's own documents and definitions)
Venture capital fund: A private fund, run by a venture capital firm, that invests in growing companies in exchange for equity, usually preferred stock.; Read about Venture capitalSource: SEC: Small business glossary
Venture debt: Loans to startups that rely on investors' money rather than their own cash flow, made by banks and specialist funds. Bank regulators say they tend to have a higher risk of default than other business loans.; Read about Venture debtSource: OCC Bulletin 2025-45: Commercial Lending, Venture Loans to Companies in an Early, Expansion, or Late Stage of Corporate Development
Volume cap: The limit on how many private activity bonds can be issued in a state each year. The state shares it out among its issuers under its own rules.; Source: IRS Publication 4078 (Rev. 1-2026): Tax-exempt private activity bonds
Warrant: The right to buy a company's shares later at a set price. Venture lenders usually take warrants with their loans, often at the price investors paid in the last funding round, so they share in the company's growth.; Read about Venture debtSource: SEC EDGAR: annual report on Form 10-K for 2025 of a business development company that makes venture loans

Often mixed up

Terms that sound alike or do a similar job, side by side.

SAFE or convertible note?

Both let early investors put money in now and receive shares later, usually at the next priced round, so you can put off agreeing a valuation. The difference is whether the money is a debt in the meantime.

SAFE or convertible note?
SAFE	Convertible note
What it is
A promise of future shares if a trigger event happens	A loan that can convert into shares
Interest and repayment
None	Interest for a period, and a promise of repayment
If no trigger event happens
It may never convert, leaving the investor with nothing	The company still owes the money
What the investor holds until then
No ownership and no debt claim	A debt claim, but no ownership

In short: A SAFE keeps debt off your hands but may leave investors in limbo if no round comes. A convertible note gives investors a claim for repayment, so it fits better if you can repay it should no round happen.