Glossary of Terms

| A | B | C | D | E | F | G | H | I | J | K | L | M |

| N | O | P | Q | R | S | T | U | V | W | X | Y | Z | - A -

Acceleration Clause

If a specified event occurs or other events are not met, a loan or lease clause causing faster or immediate repayment of a debt facility.

Accounts Receivable

Monies owed to a business for products or services sold on credit with full payment required at a future date.

Accrued Interest

The amount of interest owed but not yet paid. E.g. payment of principal and interest due at quarter end, but interest accrues between payments during the ensuing months.

Amortization Schedule

A schedule that shows the frequency of when and what amounts of interest and principal will be repaid until maturity.

Angel Capital

Private wealth individuals who will infuse capital into your business for an equity state. Search For Angel Capital!

Asset-Based Financing

Loans or leases based solely on the asset being financed.

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Balance Sheet

A financial report showing a company's assets, liabilities, and owners' equity at a set point in time.

Break-Even Analysis

A study of when sales volume equals the costs of generating those sales to include both fixed and variable cost.

Bridge Loan

A short term loan to cover the operating needs of a company until permanent financing is arranged.

Business Checks

As with all things business - it is always better to separate your business financials from your personal life. One quick and easy way to do so is to obtain separate business checks. Most business checks can be printable making your organization appear much more professional.

Business Loan

Business Loans are typically term loans either, fixed or variable, that are a perfect option for Businesses seeking items like equipment, repairs, expansion, renovations, and other large purchases.

Business Line Of Credit

Business Lines of Credit (BLOC) are an ideal option for businesses that need periodic funding for items like making payments to your vendors, contractors, or employees. Business Lines of Credit offer much more flexibility than a Business Credit Card in regards to repayments terms and rates typically. BLOC's are typically required to be paid to a zero balance once in a 12 month period. How, they can always be drawn from again.

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Capital

Any asset capable of producing income; could include property, equipment, cash, investments, raw materials, and employees.

Capital Investments

Money used to purchase long-term, fixed assets for a business, such as property, equipment, or investments.

Capital Lease

A lease of property or equipment that nearly resembles that of a loan where the lessee assumes all benefits and risks.

Cash Flow

Actual cash in-flows and out-flows of a business. Calculated from Net Income plus deprecation and other non cash charges.

Cash Ratio

Ratio of cash and cash equivalents divided by liabilities. Demonstrates a company's ability to cover all liabilities from cash.

Collateral

Assets that are used to secure a loan or lease.

Commercial Mortgage

A loan made on real estate, other than a residential property, in which a mortgage is given to secure the facility.

Confidentiality Agreement

A legal document where all parties agree to keep confidential unique information related specifically to said company.

Contract

A formal written statement of the rights and obligations of each party to a transaction.

Covenants

In a loan or lease agreement, requirements that the borrower or lessee promise to do or not to do specified things such as maintain a certain level of liquidity or meet a certain level of earnings.

Credit

A rating of a company or person's willingness to repay creditors.

Credit Terms

Conditions under which credit is extended by a lender to a borrower or lessee.

Current Assets

Cash and cash equivalents that can be readily turned into cash, usually within three months or less but can be up to 12 months.

Current Liabilities

Debts or other obligations coming due within 12 months.

Current Ratio

Current assets divided by current liabilities. Demonstrates a company's ability to cover short-term liabilities with short-term assets including cash and assets that can quickly be converted into cash.

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Debt Capacity

A company's ability and willingness to repay a loan from past or anticipated cash flow or other sources.

Debt Financing

Acquiring loan or lease funding to purchase assets of continue operations.

Debt Ratio

Total debt divided by total assets. Demonstrates the amount of leverage a company has taken to acquire the assets it needs to operate its business.

Debt/Equity Ratio

An evaluation of debt to equity of a company. Demonstrates the amount of debt a company has compared to its equity either placed or earned in a company.

Default

Failure of a borrower to make required payments of principal and interest.

Depreciation

Amortization of fixed assets, such as property, plant, and equipment. An accounting charge only that could help reduce business tax liabilities.

Discounting of Accounts Receivable

Loan financing based on the amount and due dates of the accounts receivable of a company. The accounts receivables are used as collateral.

Down payment

Amount paid as a down payment to reduce the original principal balance and risk of the lender. For leases this is often called a capital reduction.

Due Diligence

The process of evaluating the strengths and weaknesses of a company prior to investing in or lending too.

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Earnings

The revenue a company earns after it covers (pays for) all of its cost including interest and taxes.

EBITDA

Abbreviation for earnings before interest, taxes, depreciation and amortization.

Equity

The net worth of a business; total value of assets minus total liabilities.

Export Financing

Financial products designed to help companies sell their products in foreign markets.

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Factoring

Loan financing where accounts receivables or inventory is taken by the lender as collateral. In this case, the lender actually takes ownership of the assets and lends an amount less than their face value.

Fair Market Value

The highest value a company could expect to receive if assets are sold in an open market.

Fee

A charge for services.

Finance Company

Company engaged in making loans or leases to individuals or businesses. Not a bank.

Financial Lease

A lease of property or equipment that nearly resembles that of a loan where the lessee assumes all benefits and risks including maintenance, insurance, and taxes.

Fixed Assets

Land, buildings, plant, equipment, and other assets held for normal operations of a business.

Fixed Expenses

Overhead, long-term costs that remain in place regardless of sales volume.

Fixed Interest Rate

A rate that does not fluctuate with general market conditions.

Floating Interest Rate

A rate that fluctuates with general market condition.

Front End Fees

Fees paid up front when a loan or lease is funded.

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Generally Accepted Accounting Principles (GAAP)

GAAP is the term used to describe the underlying rules basis on which financial statements are normally prepared.

Grace Period

Length of time from when monies are funded and repayment is required.

Guarantee

To take responsibility for payment of a debt if the primary person fails to do so.

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Income Statements

A financial statement that displays a breakdown of sales and expenses.

Interest

A charge for the use of money supplied by a lender.

Interest Rate

Cost of borrowing money.

Inventory Turnover

Ratio of annual sales to inventory. Demonstrates how many times the inventory of a company is sold and replaced over a 12 month period.

Invoice Finance

Lenders will purchase your Account Receivables. They may purchase them nearly as soon as you create them (contract for the payment). This speeds up your receipt of cash (not having to wait 30 days or more). Plus, many lenders will collect the invoices for you on your behalf - thus, your customers will not even know they are not dealing with you.

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Lease Payment

The amount paid by a lessee to the lessor for the use of the leased equipment/property.

Leasing

Contract for the use of real estate, equipment, or other fixed assets for a specified time in exchange for payment.

Lending Policy

The guidelines of a financial institution in lending funds or granting leases.

Lessee

A person to whom a lease is granted; the user of the asset.

Lessor

A person who grants a lease; the owner of the asset.

Letters of Credit

A letter of credit is a guarantee of payment by a bank to a third party for a specific amount of money, if certain conditions are met.

Lien

The right of a party to a contract to take possession of an asset unless payment under the contract is received in full or other conditions are met.

Line of Credit

A loan agreement which establishes the maximum amount and how often a borrower may draw funds and when those funds are to be repaid.

Long Term Debt

Obligations due in 12 months or more.

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Management

Individuals of a company who are in charge of insuring that the company's assets are deployed in the most efficient and profitable manner.

Margin Tax Rate

The tax rate applicable to the last or next unit of income.

Maturity Date

Date on which a debt or lease is completed and paid in full.

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Net Present Value (NPV)

Equal to the present value of the future returns, discounted at the marginal cost of capital, minus the present value of the cost of the investment.

Net working capital

A company's current assets minus current liabilities. Demonstrates a company's ability to cover fixed costs after short-term liabilities are paid.

Nominal Interest Rate

The contracted, or stated, interest rate.

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Other fees

Any fee, other than a capital reduction or down payment, required to be paid at the close of the lease or loan.

Operating Cycle

The length of time between a purchase of materials and collection of accounts receivable generated by the sale of the products made from the materials.

Operating Lease

A lease of property or equipment where the benefits and risks remain with the owner of the asset(s); the lessor.

Operating Line of Credit

A contract to make loans to a borrower up to a specified maximum for a specified period, usually 12 months or less.

Operating Loan

A loan advanced under an operating line of credit.

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Payback

The length of time required to cover the initial outlay of cash.

Personal Assets

Assets help by an individual and not a company.

Personal Guarantee

A legal obligation of an individual to take responsibility for payment of debt if the primary person or company fails to so.

Present Value (PV)

The value of a future income stream discounted back into today's terms.

Prime Rate

The interest rate that is charged by the banks to their most credit worthy customers.

Principal

The obligation due under a debt instrument not including interest.

Purchase price

The total price required to purchase an object or service.

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Quick Ratio

The ratio of a company's liquid assets to current liabilities. Demonstrates a company's ability to cover short-term liabilities with assets that can or will be converted to cash within 3 months or less.

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Repayment Terms

The length of time given a borrower to repay a debt and the frequency of such payments.

Retained Earnings

Net profits after all business obligations are satisfied.

Revolving Credit

A Line of Credit in which funds can be drawn down, repaid and drawn down again.

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Sale and Leaseback

An agreement in which the owner of a property sells that property to a person or institution and then leases it back again for an agreed period and rental.

Salvage Value

The value of a capital asset at end of a specified period.

Supplier Credit

An agreement to delay receipt of payment of invoices for a set period.

Supplier Discount

An amount deducted from an invoice by a supplier in exchange for quick payment.

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Term

The duration of a loan - usually in months.

Term Loan

A secured loan made to a borrower for a specific time frame.

Title

The legal owner of property.

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Unencumbered

Property free and clear of all liens.

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Valuation

The act or process of determining the value or price of something.

Venture Capital

Investors infuse capital into your business for an equity stake in the business. Search for Venture Capital!

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Working Capital

Funds invested in a company's cash, accounts receivable and inventory.

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