Glossary · operations

Escrow

Also called escrow account, escrowed funds, impound.

Money or documents held by a neutral third party under written instructions, released only when defined conditions are satisfied.

Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.

What it means

Where it shows up in small-business funding:

  • Real estate closings, where a title company or attorney holds funds and documents until everything required to close has been delivered
  • Construction and renovation, where loan proceeds are held and released against inspections and lien waivers rather than paid out at once
  • Tax and insurance impounds on real estate loans, funded monthly with the payment so the lender knows the taxes get paid
  • Equipment progress payments to a manufacturer against milestones on a long build
  • Holdbacks in acquisitions, where part of the purchase price sits with a third party against post-closing claims

The defining feature is the third party and the written instructions. Both must be present.

Where this one catches people

A factoring reserve is not escrow, however it is described. The reserve is a bookkeeping entry on the factor's own books, held subject to the factor's right to set off anything you owe, and usually not segregated from the factor's operating funds. If the factor fails, escrowed money and a reserve balance have very different characters. Read what the agreement says about segregation and setoff rather than the word used to describe the account.

Where you will meet this term

Term Loan SBA Loan Equipment Financing Invoice Financing

Read next

DisbursementThe actual movement of money at closing, whether to the business, to a vendor, or to pay off another creditor… HoldbackMoney withheld from what a business would otherwise receive and applied to an obligation — the daily slice of… Lien waiverA signed release giving up the right to file a mechanic's lien for work performed, exchanged for payment — an… ReserveThe portion of an invoice's face value a factor holds back at funding and releases, less fees, once the custo… SetoffA creditor's right to apply money it already holds for you — usually deposits — against what you owe it, with… StipsThe documents and conditions an underwriter requires before an approval turns into funded money — the list th…

Escrow — common questions

What does escrow mean?

Money or documents held by a neutral third party under written instructions, released only when defined conditions are satisfied.

Where does escrow catch people out?

A factoring reserve is not escrow, however it is described. The reserve is a bookkeeping entry on the factor's own books, held subject to the factor's right to set off anything you owe, and usually not segregated from the factor's operating funds. If the factor fails, escrowed money and a reserve balance have very different characters. Read what the agreement says about segregation and setoff rather than the word used to describe the account.

Is escrow the same as an interest rate?

Escrow is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.

Which products does escrow apply to?

Term Loan, SBA Loan, Equipment Financing, Invoice Financing.

Is there a worked example of escrow?

Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.

What else should I read alongside escrow?

Disbursement, Holdback, Lien waiver, Reserve, Setoff.

Has this definition been checked?

Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.

Is this legal advice?

No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.

Can I suggest a term?

Yes — [email protected]. The glossary grows from what people are actually shown in contracts.