Growing an established business
Repayment over fixed period; collateral usually required
Established small businesses
Long wait times; extensive qualifications; low rates; longer terms
Startups and businesses in disadvantaged areas
Smaller amount; extensive requirements; low cost
Competitive rates; often requires down payment; equipment used as collateral
Business line of credit
Short-term business needs and unexpected expenses
No collateral required; higher fees and rates
Businesses with unpaid invoices
High rates and fees; unpaid invoices serve as collateral
Merchant cash advances
Businesses with high volume of credit card sales
Fast cash; extremely high rates; rapid repayment
Purchase order loans
Small businesses without capital to meet large orders
Lender takes control over process and remits payment, minus their fees, to business owner
Accounts Receivable Financing: Loans that you can get by borrowing against your receivables. The loan amount is usually equivalent to around 85 percent of the invoices amount. In some cases, the lender will completely buy the invoices (taking on the debt) and take over collection of the invoices. In other cases, the lender simply upfronts cash based on the receivables, and then payments are made on the loan as your receivables are paid.
Accrual Basis Accounting: recognizes revenues when earned and expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid deducts expenses when incurred.
Acceleration clause: A legal term referring to a contract that states that an unpaid balance can become due immediately if a specific circumstance, such as missing a payment, occurs.
Account balance: The amount of money in an account at a specific point in time.
Account statement: A statement of transactions over a specific period of time. The statement usually includes the balance on an account at the end of the statement period.
Active account: An account, such as a checking or credit account, that is used regularly or has frequent activity.
Accounts Payable: Also often referred to as “current liability,” accounts payable is a business loan term that refer to short-term debt that you’ll need to pay off soon. Essentially, accounts payable denotes what your business owes. Money that is owed in relation to a product or service to a creditor. Because the money is owed to an individual or entity, accounts payable are considered to be an obligation.
Accounts Receivable: On the other hand, accounts receivable refers to payments that you’re owed. Accounts receivable are basically just outstanding invoices, so this term essentially means what your business is owed. Money that is owed in relation to a product or service from a borrower. Because the money is due to an individual or entity, accounts receivable are considered to be an asset.
Accounts receivable financing – When businesses sell its receivables to a third party at a discount – allowing for the business to get cash earlier (as opposed to waiting for its customers to pay them).
Accrued Interest: Accrued Interest refers to interest earned but not yet paid. Accrued interest for fixed income investments is calculated from the date of issue or the last interest payment made. When a buyer purchases a bond, the buyer owes the seller the accrued interest in addition to the market price of the security purchased, not when it is sold or when a sell trade is in settlement.
Active Tranche: An active portfolio component inside of a Real Estate Management Investment Company that is currently paying principal payments to its owners.
Accounting software: Computer programs that track financial transactions and provide automated reports and analysis. Examples include QuickBooks and Peachtree.
Accrued interest: This interest builds on itself until a debt is completely paid off. It is determined by the unpaid balance of the original loan.
Advance Formula: A payment made in advance of a larger line of credit. Typically, this acts as a sublimit draw based upon the maximum amount borrowed. Typically, an advance formula limits the amount that can be borrowed under a line of credit to either a lesser amount of a credit line or a percentage of receivables collateral.
Adjusted Net Worth: Post disaster fair market value of tangible assets, less liabilities, within certain restrictions.
Adjusted Gross Family Income: The sum of your family’s wages, salary, interest, dividends, etc., minus certain deductions from income as reported on federal income tax return.
Adverse credit history: Record that shows negative actions in a credit report like bankruptcies, delinquent accounts and foreclosures.
Adverse action: A creditor’s decision to refuse a person’s application for credit or cancel a line of credit.
Affiliate: Business concerns are affiliates if one concern controls or has the power to control another, or if a third party controls or has the power to control both. Generally, an affiliate may be any concern of which the applicant, or its principals, owns greater than 50 percent or more.
Affirmative Covenant: This refers to a provision in the lender’s terms that requires a borrower to fulfill a future obligation. For example, a requirement for annual audited financial statements to a lender during the term of the loan is an example of a clause in an affirmative covenant.
Affiliated Group: When two or more distinct legal entities are affiliated.
Alternative Lenders – any small business lender that isn’t associated with a traditional bank such as a bank or credit union.
Alternative Lending – a term used to describe the various loan options made available to business owners outside of traditional bank loans.
Alimony: The court-ordered obligation to offer financial support following a separation or divorce.
Amortization: Within the business loan terms vocabulary, amortization refers to the way in which a borrower pays off a business loan.
If a loan is amortized, then the borrower will make regular, scheduled payments that are of equal amount every time until the principal sum plus interest is paid off.
Amortization: A non-cash operating expense that reduces the value of intangible assets (such as patents, trademarks or goodwill) in a systematic manner. Amortization is recorded in the financial statements of an entity as a reduction in the carrying value of the intangible asset in the balance sheet and as an expense in the income statement.
Amortization: The process of reducing debt through regular installment payments, resulting in the payoff of a loan at its maturity (when the loan term is complete).
Amortization: Reduction value of an asset determined by prorating its cost over a certain amount of time.
Annual fee: Charged once a year to cover administrative costs and ensure credit benefits on credit cards.
Annual Fees: These are fees that can be charged by lenders each year to cover administrative costs associated with your loan. This fee is mostly associated with lines of credit. The cost of the fees can vary, but often tend to be just a couple hundred dollars a year.
Annual Percentage Rate (APR): Amount shown as a percentage that represents yearly costs of borrowing over the term of the loan or credit card.
Annual percentage rate (APR): A measure of the cost of credit expressed as a yearly rate.
Annual percentage yield (APY): A percentage reflecting the total amount of interest earned on a deposit account. APY is based on the interest rate and the frequency of compounding (how often interest is added to the account principal) over 1 year.
Annual report: A company’s financial statement that is issued on a yearly basis.
Annual Percentage Rate (APR): The cost of the loan, including total interest and other fees, expressed as a yearly rate. APR takes into account the amount and timing of capital you receive, fees you pay, and the periodic payments you make. It is not used to calculate the interest expense.
APR: The annual percentage rate is the total cost of a loan. It includes the interest rate and any other fees assessed, for example, the origination fee. It is the most useful basis for comparing different types of debt.
Annual Percentage Rate – a rate that reflects the total cost of borrowing a loan. This includes the interest rate, origination fees, and any additional financing charges.
APR: APR stands for Annual Percentage Rate and it is the most precise measurement of how expensive borrowing money will be. More than interest, APR will take into account extraneous fees to measure how much a business loan will cost every year. In order to capture the true cost of borrowing, you have to convert interest rate into APR.
Applicant Entity: The Corporation, Partnership, Limited Partnership, or Trust requesting small business funding.
Applicant Individual: Individual requesting small business funding.
Applicant/Co-Applicant: The individual(s) or legal entity requesting small business funding.
Appraisal: The monetary value of an item determined by an appraiser, who is a professional with knowledge and expertise about particular items.
Appraisal fee: A fee paid for an estimation of value (appraisal) given by an appraiser.
Appreciation: The increase in the value of an asset due to various reasons, such as changes in inflation or interest rates.
Appreciation: The increase in an asset’s value over time. Appreciation is often the result of an increase in demand, weakening supply and/or changes in the economy.
Arbitration: Debt resolution using an impartial third party.
Accounts Receivable: Money that is owed in relation to a product or service from a borrower. Because the money is due to an individual or entity, accounts receivable are considered to be an asset.
Arrears: Money that should have been paid and is now overdue.
Asset: Anything of value, tangible or intangible, that is owned by a company. Assets include cash, accounts receivable, inventory, prepaid expenses, property, equipment, trademarks, and patents.
Assets: An asset is something of value, which is owned by the borrower, that can be used as collateral on a small business loan. Traditional lenders like banks and credit unions require some form of collateral to secure a business loan. Most guaranteed loans will also require collateral.
Asset – a resource with economic value that is expected to provide future benefit for the owner.
Assets: Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, a house, a car, and other property.
Asset: An item of ownership that has exchange value.
Asset: Anything owned by a person or a business that has commercial or exchange value.
Audit: An investigation to verify that all assets, liabilities, income and expenses are correctly stated.
Automated teller machine (ATM): A machine that processes a variety of self-service banking transactions using a credit or debit card with a personal identification number (PIN).
Automatic funds transfer: The electronic transfer of funds from one account to another, set up to happen on a regular basis.
Average Monthly Payment Obligation: This is the average monthly repayment amount of the loan, which does not include fees and other charges you can avoid, such as late payment fees and returned check fees. The actual repayment frequency could be daily, weekly or monthly.
Available Asset Test: Part of the CET that determines if an applicant(s) has sufficient assets to borrow private sector funds to repair/replace uncompensated disaster damages without incurring undue hardship. (Certain exclusions apply.)
Average daily balance: A method of calculating credit card interest using the sum of each day’s balance on a credit card, divided by the number of days in the billing cycle.
Balance sheet: A snapshot of a company’s net worth, based on what it owns and what it owes. This statement is set up according to a simple equation; assets should equal the sum of a company’s liabilities and shareholders’ equity.
Balloon Payment: The unpaid balance due at the end of a term loan (for loan types that don’t fully amortize over the term of the loan). A balloon payment, or the payment of that unpaid balance, is due at the end of the loan term to pay the balance in full.
Balloon Payment – a large payment due at the end of a balloon loan, such as a mortgage or commercial loan.
Balance Sheet or Statement of Financial Position: Reports an entity’s Assets, Liabilities and Equity (net worth) at a specific time. Assets = Liabilities + Equity.
Balance: Amount available in an account. In terms of debt, the amount owed, not including payments already made.
Bank Only EFT: an acronym for Electronic Funds Transfer, it is a secure electronic funds transfer network that processes the credit and debit transactions of public and privates sectors.
Bankruptcy: A legal procedure where the debtor’s assets are liquidated by the court to account for financial obligations. Although the debtor is able to start over, the negative action remains on the credit report for seven to 10 years.
Balloon payment: A final payment that is typically much larger than regular payments and includes any outstanding principal and interest remaining on the loan. Balloon payments are common with loans that have an adjustable rate or an interest-only period.
Banking center: The physical location of a bank where customers can go to engage in a variety of banking services.
Bankrupt: A person or institution that no longer has the funds to cover debts and has to seek financial assistance.
Basis points: A unit of measurement for interest rates or yields, equal to 1/100 of a percent (0.01%).
Better Business Bureau: A private, nonprofit organization that promotes ethical marketplace practices and offers resources to both businesses and consumers.
Bearer: A person who holds or presents for payment a negotiable instrument, such as a check or bank draft. The instrument states that it is payable to “bearer” or “cash,” which means that whoever holds the instrument can cash it (receive the funds due on it).
Beneficiary: A person who should receive the balance in an account upon the death of the account holder.
BID # (Business Identification Number): A Business Identification Number (BIN) is the 9 digit number on the Master Business License that is used by the Ministry of Government Services to identify provincial business registration.
Bill pay: Routine payments made electronically from a banking account to a specific vendor. Banks provide this service as part of broader online banking services.
Binder: A binder refers to a tentative agreement, secured by the payment of a deposit under which a buyer makes an offer to purchase real estate.
Blanket Lien: Lenders can secure a loan by putting a blanket lien on your business. A lien is a legal claim to a specific asset if you default. A blanket lien gives lenders the right to seize almost all your business assets if you default. However, they can only take what they need to settle the outstanding debt.
Blanket mortgage: The mortgage that is secured by all assets within a larger property such a co-op building, as opposed to the share loans on individual units within the property
Blanket Lien: The term blanket lien is an important one to know. If you sign on to a loan with a blanket lien, you’re agreeing to give the lender the right to seize almost any form of you or your business’s property if you’re not able to pay off your debt.
Business Line of Credit (BLOC): A business line of credit is a revolving loan that provides a fixed amount of capital that can be used, repaid, and then used again as needed over the term of the credit line.
Bond: A certificate of debt by which an investor loans money to an entity (usually a government or corporation). The borrower (also known as the issuer) must pay interest and pay back the principal amount at a set time.
Bookkeeping: An accounting activity that involves recording financial transactions like purchases, sales, receipts, and payments.
Bootstrapping: Funding startup operations and growth using personal finances and revenue from the business. Bootstrapping gives a business owner much more control over business decision-making.
Book Value: The value of an asset on a company’s books. In other words, the value of the asset on the balance sheet.
Bounced check: A check that cannot be processed because the account holder has insufficient funds to cover the amount written on the check.
Broker: The person who negotiates transactions between buyers and sellers for real estate.
Break Even Occupancy: The minimum occupancy level required by a commercial real estate property that will generate enough income to make all required principal and interest payments.
Broker: An independent agent or member of a firm who brings buyers and sellers together.
Break-even Analysis: A calculation of the approximate sales volume required to just cover costs, below which production would be unprofitable and above which it would be profitable. Break-even analysis focuses on the relationship between fixed cost, variable cost and profit.
Budget: A best guess of an individual or entity’s income and expenses for a specific period of time.
Business credit report: Prepared by a credit bureau, a business credit report is a record of a business’ credit history. Commercial or business credit scores are calculated based on the information in a credit report. Lenders, insurance companies, and investors use business credit reports to assess the risk and financial health of a business.
Business credit score: Also called a commercial credit score, business credit scores are based on a business’ credit and repayment history, legal filings, size, and length of time in business. Equifax is the major business credit scoring company.
Business Number (BN): The Business Number (BN) is a unique number the Canada Revenue Agency (CRA) assigns your business as a tax ID. It is a nine-digit number that is unique to your business and that is used when dealing with federal, provincial, or local governments. The Business Number (BN) may change if your business is sold or the legal structure changes; for example, you convert your business from a sole-proprietorship to a corporation or partnership.
Busted PAC (Planned Amortization Class): A busted PAC refers to tranches in collateralized mortgage obligations for which the supplemental tranches has been completely retired by larger than expected prepayments. Since the supplemental tranche is no longer outstanding and therefore requires no prepayments, the maturity of these tranches may be shorter than usual.
Buy-Down mortgage: A temporary buy-down is a mortgage on which initial payments are made by any party to reduce a borrower’s monthly payments in the first few years of the loan. A permanent buy-down reduces the interest rate over the entire lifetime of the loan.
Business Activity: The business (or loss) activity of the applicant business prior to any consideration of affiliation.
Business day cutoff: The latest time during a specific business day that a transaction can be made and posted to an account.
Bylaws: A rule or law that governs the internal affairs of an organization.
Capital: The wealth of a business as captured in its accounts, assets and investments. In accounting, capital refers to money invested in a business, in the form of debt or equity, to generate income.
Call Risk: Call risk refers to the risk that a decrease in interest rates will create an economic incentive for the owner of a security with a call option to exercise that option. This accelerates prepayment of the underlying loans in the portfolio and thereby shortens the duration of the investment.
Capitalized Lease: Under GAAP (Generally Accepted Accounting Principles), this refers to the unpaid future lease payments due under the terms of the lease. These payments must be shown as a liability on the firm’s balance sheet. Generally, this requirement applies to most equipment and buildings leased by a business and used in the day to day operations of the business.
Cash Flow Recapture Clause: An agreement or indenture provision that requires a borrower to make additional payments (or increase payment amounts by a certain percentage of excess cash flow) in order to reduce the outstanding debt balance.
Cash Flow: Typically calculated as cash receipts less cash payments over a certain period of time. There is often a lag between when you have to pay your suppliers and employees and when you actually collect cash from customers.
Cash advances: A service provided whereby a borrower provides a check payable to the lender for the amount that he or she wants to borrow, in addition to a fee that must be paid for borrowing.
Cash Flow: The total amount of money transferred into and out of a business that is used to pay for day-to-day expenses.
Capital – wealth in the form of money or assets that can be used by an individual or organization for economic benefit.
Cash Flow – the net amount of cash and cash-equivalents being moved into and out of a business.
Cash Flow Statement: When you prepare a cash flow statement, you take note of all cash inflows and outflows that your business performs during a certain period of time. So, if you prepare a cash flow statement for last month, you denote how much income your business took along with all of the expenses your business had to pay.
Capital Leases: are for the purchase of fixed assets (machinery/equipment) and these assets are shown on the company’s balance sheet and represent a fixed debt. If the lease is a capital lease, the debt should be shown as a Note Payable.
Cash Available to Service Additional Debt (CASAD): The cash flow determined that should be available to service a disaster loan. The target payment is generally 1/3 of CASAD.
Cash Flow Test: Part of the CET that determines if an applicant(s) has sufficient cash flow to borrow private sector funds to repair/replace uncompensated disaster damages without incurring undue hardship.
Cash-basis Accounting: records revenue when cash is received, and expenses when they are paid in cash
Canceled check: A check that a bank has already paid and charged to the account holder’s account. Once a check is canceled, it is no longer valid.
Capital: Also referred to as borrowed capital, this is the amount of money that’s borrowed through the loan and that must be repaid (with accrued interest) when the loan reaches maturity.
Capitalization: Adding unpaid interest to the original amount borrowed.
Cash advance: Cash taken out (withdrawn) from a line of credit or credit card. Cash advances often carry a higher interest charge than regular purchases.
Cash item: An item that is accepted for immediate credit to an account or that can be exchanged for cash.
Cashier’s check: A form of check that assures that funds are available. The bank writes a cashier’s check after the customer provides cash or the bank takes a verified account withdrawal for the full amount.
CD laddering: A practice in which an investor divides invested money into equal amounts of CDs with different maturity dates.
Cents on the Dollar: This is the total amount of interest paid per dollar borrowed. This amount is exclusive of fees.
Certificate of deposit (CD): An interest-bearing certificate issued by a bank in exchange for funds provided to the bank by the holder of that certificate.
Certified check: A personal check that is certified or guaranteed to be good.
Charge off: When a lender no longer expects payment to be made to an account and writes off the balance as a bad debt.
Check: A written, dated and signed instrument that contains an unconditional order from the drawer (the person or business that writes the check) that directs a bank to pay a specific amount of money to a payee (the person or business the check is written to).
Checking account: An account that people or businesses can use to withdraw and deposit funds by check or electronic transfer.
Check clearing: A check’s movement from a depository institution (the bank where it was deposited) to the bank on which it was drawn (the account holder’s bank).
Check hold: Waiting period of 1 to several days. Financial institutions use a check hold to make sure the drawee bank (the check writer’s bank) will pay deposited checks. After a check “clears,” the bank can lift the check hold.
Check truncation: The conversion of physical checks into electronic form for transmission to the paying bank.
Closed-end credit: Loan or credit line where the amount borrowed is dispersed when the loan closes. A set date is given for when the loan interest and charges must be paid.
Closed-end credit: A credit agreement that specifies when the full amount of a loan plus finance charges (interest and bank charges) are due to be repaid.
Closing costs: The costs incurred by sellers and buyers in the transfer of real estate ownership.
Clean Letter of Credit: A letter of credit that can be drawn upon with a simple written request. This is also known as a standby letter of credit. This type of letter of credit is often used to enhance credit quality and usually requires no additional paperwork or supporting documentation.
Collateralization: when a borrower pledges an asset to the lender in the event that the borrower defaults on the initial loan.
Constant Prepayment Rate (CPR): This refers to the rate of historical or expected prepayment of principal on a loan. This amount is expressed as a rate of prepayment as a constantly proportional to the amount of the outstanding principal. The CPR reflects annualized and compounded prepayment amounts and as a result is generally more accurate.
Compound Interest: Earned interest that is added to the principal amount when interest for the next period is calculated. In other words, compound interest is interest earned on interest.
Collateral: An asset, or assets, a borrower offers to a lender to secure a loan. The lender can acquire these assets if the borrower defaults on the loan.
Community bank: Generally used to describe banks with less than $1 billion of assets, and which have a narrow geographic scope anda primary focus on loans and core deposits. Community bankers often describe their banking as relationship driven, instead of transaction based.
Commercial Mortgage – a loan secured by a commercial real estate such as a shopping centre or office building.
Collateral – an asset used by borrower to secure a loan. If the loan is defaulted the lender is able to claim the asset.
Collateral: If you need to secure a loan, you can do it with collateral. Collateral is simply something valuable that you or your business owns (like real estate, vehicles, equipment, financial accounts, and so on). The term collateral refers to any property that you offer up for a lender to seize if you’re unable to pay off your debt. Sounds scary? Well, it might be worth it. With collateral, you’re more likely to qualify for funding and to secure better business loan terms when you do.
Consolidation: When you consolidate your debts, you pay off multiple loans with funds that you acquire from a single loan.
Consolidating your debt can not only save you the hassle of paying off multiple loans, it can also save you money in avoided interest, as well.
Collateral: Assets pledged by a borrower to secure a loan or other credit, and subject to seizure in the event of default. The preferred collateral for most loans is real estate.
Companion File: When an applicant, affiliate, and/or principal has another application filed for the same disaster for separate damages.
Comparative Analysis: Is designed to point out significant trends that occur from year to year by using more than one set of financial statements of comparable dates and time periods. A comparative analysis allows you to arrive at a more complete evaluation of the applicant’s financial position.
Cooperative: A corporation where members with similar needs have organized to create a business structure through which they can either obtain or share certain products or services. In a cooperative, each member is voluntary and has an equal democratic say in the running of the business. A cooperative returns limited interest on investment and distributes its profits to members in relation to the extent of their patronage.
Corporation: A corporation is a business structure that is a separate legal entity from its owners.
No personal liability for the debts or obligations of the company is assumed by the owners (shareholders)—their liability remains limited to the value of their investments. A corporation has more of a continuous existence than a sole proprietorship or a partnership as its lifespan is not tied to specific individual ownership. Two types of corporations exist in Ontario, and they can be incorporated at the provincial or federal level.
Collateral: Collateral is additional security promised by the borrower to help secure a loan. This security is often in the form of fixed assets with monetary value, like buildings, equipment, or land. It’s promised with the knowledge that these assets could be liquidated if the borrower defaults on the loan. For larger loan sizes, the lending amount must be collateralized as much as possible up to the loan amount.
Collateral: Property or assets a borrower pledges to secure repayment of a loan. Collateral may be seized if the borrower fails to repay the loan.
Consolidation: Combining monthly payments into one payment, often through a consolidation loan.
Consumer debt: Money owed by consumers, rather than businesses or the government.
Collateral: Assets that are promised to an institution as backup to secure a loan or form of credit being given.
Collateralized loan: A loan that is secured by collateral.
Collected funds: Cash deposits or checks that have been presented for payment and for which payment has been received.
Commercial loan: A loan given to a business, either all at once or in a series of payments.
Compound interest: Interest from a previous period that is added to the principal balance. Future interest will be calculated and applied to the full new balance.
Consolidation loan: Loan that combines several debts into 1 loan to reduce the dollar amount of payments owed each month.
Correspondent bank: A financial institution that maintains a relationship with another financial institution or provides it with services.
Co-signer: A person who signs for another person and is considered responsible for the loan if the primary signer fails to fulfill his or her obligation.
CPA: Certified public accountant; e.g.,a professional designation sometimes broadly used to describe an accountant. CPAs provide a wide array of services, including auditing financial statements, financial analysis and planning, tax preparation, etc.
Credit limit: The maximum amount a debtor is authorized to borrow on a credit card or line of credit. A line of credit maxes out when a debtor borrows up to or beyond the credit limit.
Credit Score: based on a person’s credit history, a credit score is a number between 300-850 used by lenders to determine the likelihood that a person will repay his or her debt. The higher the number the better.
Credit union: Member owned financial cooperatives – those who have accounts with their credit unions are the owners of the credit unions.
Credit – the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future.
Credit Score – a number that determines an individual’s creditworthiness. This number is based on the individual’s credit history.
Crowdfunding – a site that allows crowds of people donate a specific amount of money for a cause or project.
Credit Card Receivables: The term credit card receivables, also referred to as credit card factoring, essentially means the money your business will earn from future credit card sales. Many alternative, short-term lenders consider your business’s future credit card sales an asset. As such, they’ll lend to you and factor your repayment as a percentage of your business’s daily credit card sales. This common business loan term could come up if you’re signing the dotted line on a merchant cash advance agreement.
Credit Reports: Credit reports contain a historical record of your personal financial history and are very important during a business loan search. Why? Lenders assume the owner is paying back the debt, so they want to know how the owner has managed his or her personal finances. Information contained in your personal credit reports likely includes payment history for your credit cards, mortgages, students loans and other loans.
Credit Score: Your credit score is a number that reflects the risk associated with lending to you or your business. Think of it is a summary of your credit report. It is always a good idea to check your credit score before applying for a loan. For starters, if you check your credit score and it appears lower that you thought it would be, you should investigate why. This could be because of errors in your credit history that you need to have corrected. Another reason to check your credit score is it gives you an idea of your chances in getting a loan. If you have a lower credit score, you will have a harder time securing financing than someone with a 700+ credit score.
Credit history: Record showing consumer’s borrowing and repaid debt.
Credit repair: Process of improving your credit score through actions like negotiating with creditors and disputing errors on your report.
Creditors: Person or organization that lends money to consumers or businesses.
Creditworthiness: A potential borrower’s ability to pay back credit.
Credit card authorization: Verification by a credit card issuer that approves a credit card purchase based on the card holder’s line of credit.
Credit bureau: An organization that gathers and maintains information about individuals’ credit.
Credit card: A personal credit card or business credit card issued by a financial institution, giving the account holder the ability to borrow funds against the account named on that card.
Credit disability insurance: Insurance that makes payments on a loan(s) if the owner of the loan becomes unable to work because of a disability.
Credit limit: The maximum dollar amount available on a line of credit.
Credit rating: A rating that is based on how creditworthy a company or person is considered to be.
Credit scoring system: A system used to determine whether an institution will grant credit to a person or business. Credit scoring uses payment history, total amount of debt and total income to establish a credit score.
Credit union: An organization that provides financial, insurance and other services for members of that specific group.
Current Liabilities: Debt obligations owned by a business to creditors within a 12-month timeframe or normal operating cycle. Current liabilities appear on your balance sheet and will include things like short-term debt, accounts payable, accrued liabilities and other similar debt.
Current Assets: A balance sheet item which equals the sum of cash and cash equivalents, accounts receivable , inventory, marketable securities, prepaid expenses, and other assets that could be converted to cash in less than one year.
Current Liabilities: A balance sheet item, which equals the sum of all money owed by a company and due within one year.
Commercial Real Estate Loans: You can think of these loans like you would your own home mortgage. The big difference is that with a commercial real estate loan, the collateral is business property instead of your home.
Data processing: The processing of information, either electronically or manually.
Days Payable: A measure of the average time a company takes to pay vendors, equal to accounts payable divided by annual credit purchases times 365.
Days Receivable: A measure of the average time a company’s customers take to pay for purchases, equal to accounts receivable divided by annual sales on credit times 365.
DBA: Doing Business As – generally a trade name such as “Tony’s Pizzeria” is used, instead of the legal name of T&J Sons Inc.
Depreciation: A non-cash operating expense that reduces the value of a tangible asset as a result of wear and tear, age, or obsolescence. Depreciation is recorded in the financial statements of an entity as a reduction in the carrying value of the asset in the balance sheet and as an expense in the income statement.
Debit: Money taken from an account or money owed to a lender.
Debit card: A card that allows electronic access to a bank or credit account to initiate withdrawals from a person’s funds.
Declining balance: The decreasing amount owed on a debt as more payments are made.
Deed: A written agreement that allows the title of a property, or an asset of some form, to be transferred from one person to another.
Deed of trust: A type of secured real estate transaction that some states use instead of mortgages. A deed of trust involves three parties: a lender, a borrower and a trustee: The lender gives the borrower money. The borrower gives the lender one or more promissory notes (written agreement that the borrower will pay back the money in regular installments and/or by a certain date). The trustee sells the property at public auction only if the lender defaults on (does not make) the loan payments.
Demand deposit: Funds held in a deposit account (such as a checking, savings or money market account) that the account holder withdraws on demand.
Deduction: An amount that is subtracted, usually from gross income to reduce income subject to taxes.
Debt: Money owed by a borrower.
Debt-to-income ratio (DTI): Measure that compares personal debt payments to personal income. A high ratio means borrower faces a greater burden repaying debts and difficulty accessing other financing options.
Debt consolidation: The combination of multiple debts into a single debt with one interest rate.
Debt Management Plan: A credit counselor negotiates interest rates with creditors to make an individually tailored plan to reduce the borrower’s unsecured debts over a certain period of time.
Debt settlement: Process of negotiating with one or more creditors to reduce the balances owed by debtors. It’s also known as debt resolution.
Debt specialist: Trained professionals who mediate with creditors to resolve contractual obligations.
Deed: A written legal document showing transference and ownership of property. It includes the price, description of property and the signatures of involved parties.
Default: The status of a loan that is not repaid according to the terms of the promissory note. Federal student loans enter default status if payment hasn’t been made in more than 270 days.
Deferment: Period of time when loan payments (including principal and interest) are temporarily delayed.
Delinquency: Loan or account status when a borrower misses payments as specified by the repayment period in the loan agreement.
Dependent: Individual, usually a qualifying child, claimed by a taxpayer for credits or exemptions.
Default: Failure to make agreed-upon periodic payments on a loan.
Debt – an amount of money borrowed by one party from another. The borrower is expected to pay back the amount borrowed at a later date, usually with interest.
Debt Service Coverage Ratio: The ratio of operating income available for use to debt servicing. Debt servicing includes interest, principal and lease payments. The main goal is to determine whether or not a business is producing enough cash to cover their debt obligations.
Deferment: The act of pushing something off to a later time. In terms of finances, this means paying a debt later than when it’s due or creating an arrangement where the customer receives the product or service now but pays later.
Depreciation: The decrease in an asset’s value over time. Depreciation is most commonly a result of wear and tear from use, but can also be a result of a decrease in demand, increasing supply and/or changes in the economy.
Debt consolidation: Combining multiple loans or debts into one account to reduce fees or to get a lower interest rate.
Debt financing: Borrowing money from a lender to be paid back with interest. Debt financing includes loans, credit cards, lines of credit, invoice factoring and merchant cash advances. Debt financing is another of the many fancy business loan terms that have a simple meaning. It’s essentially a loan, or any way of financing your business that will require you to repay a principal amount plus interest over time. It’s essentially the process of taking out a business loan to grow your company.
Direct Lending: a term used to describe a loan made between a borrower and a lender with no third-party involvement, many times resulting in lower interest rates and fees. Direct lenders are not traditional banks, but instead are typically investment banks, brokers or private equity firms.
Disbursement: Loan funds paid out to borrower.
Discretionary income: Amount of individual’s income left for spending, investing or saving after taxes and essential goods like food, housing and clothing are paid. It also includes funds spent on luxury items and other non-essential goods.
Direct deposit: A method of transferring a payment, such as a salary, electronically from a payer’s bank account into the payee’s bank account.
Disclosure statement: A statement that outlines specific terms and conditions of a loan.
Dividend: Interest earned on any asset account (such as savings, a certificate of deposit (CD) or an investment) paid by the financial institution to the account holder.
Dormant account: An account that shows no activity over a certain (usually extended) time period. See also inactive account.
Down Payment – a payment made at the initial purchase an expensive good or service. This payment represents a percentage of the full-cost and is usually non-refundable.
Draft: A check for which payment is guaranteed to be available by the issuing bank.
DSCR: This acronym stands for debt service coverage ratio is a way to express whether a business has the cash available to service a debt.
If your DCSR is above 1, then it indicates that your business has enough cash to pay off its current debt.
Duplicated Interest: The amount of interest expensed that is added back to cash flow to prevent understating CASAD.
Earned Income Credit (EIC): This is a refundable income tax credit that assists low to moderate income working individuals and families.
Earned Income: Money that is received or receivable resulting from finished, paid work.
EBITDA: Another common business loan acronym EBITDA stands for Earnings Before Interest, Taxes, Debt, and Amortization. This is yet another way of indicating your business’s financial health, and measures your income without taking into account accounting decisions.
Economic Injury Disaster Loan (EIDL): a working capital loan that provides necessary operating funds to enable eligible businesses to overcome the financial impact of a declared disaster. This loan may not be used to purchase long-term assets.
EFT Payments: Electronic Funds Transfer (EFT) is a system of transferring money from one bank account directly to another without any paper money changing hands. One of the most widely-used EFT programs is direct deposit, through which payroll is deposited straight into an employee’s bank account. However, EFT refers to any transfer of funds initiated through an electronic terminal, including credit card, ATM, Fedwire and point-of-sale (POS) transactions. It is used for both credit transfers, such as payroll payments, and for debit transfers, such as mortgage payments.
Electronic funds transfer (EFT): The transfer of funds electronically between accounts.
Emergency cash: An account used specifically to set aside money for use in an emergency situation.
Endorsement: A person’s signature on a document, sometimes known as signing over a document or check. The signature gives that person’s rights to another person or group named in the endorsement.
Enhanced login security: Enhanced technology that protects an account from being easily accessed by someone who is unauthorized.
Entity Type: Your business’s entity type indicates what category it falls under legally. Whatever entity type you choose and declare will affect how your business operates within the law. From sole proprietorships to C-corps, every business, no matter how big or small, needs an entity type.
Equifax: One of the main credit bureaus within Canada.
Equity financing: Selling a piece of your business to an investor—friends or family, angel investors, or venture capitalists—in exchange for capital.
Equipment Financing: a small business equipment loan used to purchase business equipment using the purchased equipment as collateral to secure the loan.
Equipment Lease – obtaining use of machinery or equipment by renting it. The equipment is often owned by a leasing company or financial institution.
Equity – A stock or any other security representing the ownership stake in a company. Interest that a person earns on an asset. Various meanings, but in terms of finances, it’s ownership in an asset after debts related to that asset are paid off.
Escheat: The process by which an institution is required to turn over unclaimed members’ account balances to the state for safekeeping, when the account has been inactive for a specific period of time. The state of Maryland maintains a database of unclaimed property. People can search the database for lost or misplaced property.
Escrow: Financial instruments such as a property deed kept by a third party until a specific condition defined by the documents is fulfilled. Something, such as money, a document or an asset, kept in the custody of a neutral, third party until a specific condition has been met.
Escrow account: A trust account in which the lender holds funds for payment.
Extraordinary Items: Additional expenses that are outside “normal” operations and caused directly by the disaster.
Executor: Someone in a will who is named responsible for distributing the funds and property in an estate to the rightful heirs.
Factor Rate – an alternative method of presenting the amount of interest charged on a loan or lease. This rate is usually represented in decimals instead of a percentage. If you’re shopping for short-term financing, then you’ve probably encountered this term. Many short-term loan options’ costs are expressed through factor rates. Unlike APR’s (which are percentages), factor rates are decimal numbers that you multiply your principal debt by in order to see how much you’re ultimately paying off.
Fair Market Value (FMV): Price an asset would garner if sold in the open market.
Federal Trade Commission (FTC): Agency that protects consumer rights and enforces consumer protection laws.
Fiduciary: A person who holds property in trust under the terms of a trust agreement.
Finance charge: The amount of interest paid by the borrower to the lender on a loan.
Financial Statements: A collection of records of an organization’s financial activities, over a specified period. There are 4 main reports: the income statement, the balance sheet, the statement of cash flows and the statement of shareholder’s equity. Formal records depicting the financial position and activities of a business, individual or entity. Financial statements are very structured and are subject to rules and regulations. Usually, financial statements include a balance sheet, income statement and statement of cash flows.
Field of membership (FOM): Field of membership – used to denote the requirements for credit union membership. Eligibility can often be geographic or employer/association based.
Fixed Assets: A “tangible” asset, like property or equipment that can be used as collateral.
Fixed Rate – a rate that remains constant throughout the duration of the loan.
Fixed Interest Rate: As opposed to a variable interest rate, a fixed interest rate stays the same during the entire life of a loan.
Fixed assets: Also referred to as tangible assets, these are assets that are likely to be kept by the borrower for a long period of time, and aren’t easily convertible into cash. Examples of fixed assets include real estate properties, equipment, and land. These are the assets promised by the borrower as collateral in the event that they default on the loan.
Fixed Expense: A cost that does not fluctuate when there is an increase or decrease in business activity, such as sales or production. Examples of fixed expenses include a full-time employee’s salary, rent and insurance, among others.
Fixed interest rate: A fixed interest rate holds steady throughout the term of the loan; it does not change with the market.
Fixed-rate interest: Percentage will not change for the life of the loan.
Float: The amount of money deposited to an account that the financial institution cannot use immediately, because of the time it takes to process checks through the banking system.
Floating Interest Rate – an interest rate fluctuates over time depending on the market. A floating interest rate, also known as a variable or adjustable rate, changes with the market over time.
Forgery: The signing, or altering, of another person’s name in an attempt to be fraudulent.
Forbearance: A temporary postponement granted by the lender when borrower cannot make payments because of financial hardship. Interest accrues and is added to the overall amount owed.
Foreclosure: Lender legally takes possession of a mortgaged property when borrower is unable to make payments or meet obligations.
Fraud: Attempting to use deception for financial gain.
Garnishment: Act of employer withholding part of an employee’s wage to pay it to a creditor.
GPM%: Gross Profit (GP) ¸ Net Sales (NS). The measure of every sales dollar left after paying for the product; what percent of the sales dollar is left to cover operating costs and to create a profit.
Grace period: Period of time between graduation or leaving full-time college enrollment and making the first payment on a student loan. A grace period is a pre-determined amount of time following a payment’s due date in which you’ll be able to make due on your payment without incurring late fees.
Gross Profit: The cash left over when the total cost of goods is subtracted from the total revenue. The amount of money earned after considering expenses directly related to producing a product or service. Gross profit is typically calculated on a company’s income statement by taking revenue and subtracting cost of goods sold.
Guarantor: The legal entity and/or person who guarantees an obligation and has a legal duty to fulfill it.
Guarantee: The benefit of this for small business entrepreneurs is that it takes a considerable amount of risk away from the lenders, which makes them more likely to provide a loan.
Guaranty fee: This is a fee that the borrower must pay, and can range from .25% to 3.75% of the loan amount. It can be financed with the loan proceeds.
Hard Credit Check – a type of credit information request that includes a borrower’s full credit report and has a negative effect on a borrower’s credit score.
Hold: A specific amount of an account holder’s balance that cannot be withdrawn until a certain debit or check is posted.
Holdback: Within the context of a Merchant Cash Advance, the holdback is the percentage of the daily credit and debit card receipts that are withheld every day by the provider to pay back the advance.
Home equity: The difference between the market value of a home and the outstanding mortgage balance.
Home Equity Line of Credit (HELOC): A type of secondary financing that consists of a revolving line of credit.
Home equity loan: Secondary financing secured by equity in the borrower’s home.
Inactive account: An account that hasn’t had a deposit or a withdrawal within a certain (usually extended) period of time. See also dormant account.
Income Statement: A formal financial statement that communicates the income, expenses and net income (or loss) for a business over a particular period of time.
Incorporated: The state of being formed into a legal corporation.
Index: A statistical measure of change in an economy or a securities market. When referring to financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it.
Individual account: An account where only the person who owns the account is permitted to make transactions.
Inflation: A general increase in prices of goods and services in addition to a decrease in the purchasing power of a nation’s currency.
Interest: The amount of money accrued (added to an account) or the cost (fees or charges) associated with the use of money. The amount charged by lender to a borrower for using their assets. This amount is usually expressed as a percentage of the principal.
Interest-bearing account: A bank account that earns interest over a specific period of time. Commonly, savings accounts are interest bearing. Some checking accounts are interest bearing.
Interest rate: The amount paid by a borrower to a lender over a certain period of time.
Invoice Factoring – a method of financing where a business sells its invoices to a factor company at a discount.
Interest-Only Payments: Making only interest payments on a loan without paying anything on the principal. At the end of the term, the borrower will either need to refinance or pay back the principal in a lump sum.
Insolvency: Insolvency is a business loan term that refers to the state of being unable to repay debts.
Income Statement: Shows the entity’s income and expenses. (similar to a Profit & Loss Statement)
Injury Analysis: Measures the effects of the disaster on the overall financial condition of the business.
Injury Period: The time period during which the business feels the adverse effects of the disaster.
Inventory Financing: Money you borrow based on the amount of inventory you own. As you sell your inventory, you pay back the loan. Some inventory financing companies will even upfront you the cash to purchase the inventory you need, and then you pay back the loan as you begin moving the inventory off your shelves. This differs from accounts receivable financing as lenders are using the inventory itself as an asset, before you even sell it. Accounts receivable financing is solely for invoices that represent a sale you’ve already made.
Income statements: A financial report that addresses the bottom line directly, by reporting how much a company has earned and spent over a period of time. If the difference between the gains and losses is positive, the statement shows net income. If the net amount is negative, the business suffers a net loss. Also known as a profit and loss statements.
Interest rate: A percentage that represents the current rate of borrowing or the amount earned on an interest-bearing account. For loans, higher interest rates generally represent higher risk. Interest rates may be fixed or variable.
Invoice financing: Raising capital for your business by selling unpaid invoices at a discount.
ISO – an acronym for Independent Sales Organization, ISO is an individual or organization that is not an Association member (ie. Not a Visa or Mastercard member bank), but still has a bank card relationship with an Association member bank. ISO’s provide payment-related services to members of an Association, either directly or indirectly, including customer service, sales, merchant solicitation and training activities.
Incentive Stock Option (ISO): A company benefit that gives an employee of that company the right to buy stock shares at a lower price than the fair market value. There is also the added benefit of a tax break on any profits earned from the stock share purchase.
Institution Number: The institution number (three digits) identifies which bank you use (i.e., BMO, CIBC, TD, RBC, National Bank, Scotiabank, etc)
Joint account: An account that is owned by 2 or more people.
Lease: A legal contract signifying rental of goods or property.
Lender: Entity that makes funds available for borrowing.
Leverage – the amount of debt a company uses to finance assets.
Liabilities: Claims (bills, invoices, etc.) against a corporation or person that are due to be paid. Liabilities are a business’s payable obligations, including loans, salaries, mortgages, and deferred payments. They are deducted from the business owner’s total equity. A financial obligation, debt, or claim, i.e. notes payable and accounts payable.
Lien: The lawful right to sell the mortgaged or collateral property of those who fail to meet the obligation of a loan contract. A lender’s claim against a collateral asset if the borrower is unable to repay their debt.
Linked account: An account connected to a person’s primary account.
Liquidity: The part of total assets that is available. Liquidity includes funds not held in fixed assets (such as property or an investment account) and not loaned to a person.
Liability: Obligation for repaying a loan in addition to charges and interest.
Lien: A lender or creditor’s right to secure a debt against the property of a borrower. If obligations are not met, property may be sold.
Liquidation: Converting assets into cash, typically to settle debts with creditors.
Line of Credit: line of credit is a business funding option that functions a lot like a credit card. You’ll be extended a line of credit from which you’ll be able to spend up to your credit limit. You’ll only have to pay off what you spend. A set amount of money that you can draw on as needed. It is very much like a credit card except you are able to pull cash out without penalty. A method of financing that gives small business owners access to a pool of funds whenever needed. When the funds have been used, interest is charged on the outstanding balance. After the balance is repaid, the line of credit reverts to its original balance.
Lien: A legal claim against an asset which is used to secure a loan and which must be paid when the property is sold.
Limited Partnership: A business organization with one or more general partners, who manage the business and assume legal debts and obligations, and one or more limited partners, who do not participate in day-to-day operations and are liable only to the extent of their investments.
Lien: The business loan term lien refers to the act of using ownership of something as a guarantee for an obligation—in this case, repaying a loan. If a lender takes a lien on your property when you sign on for a loan, and you’re unable to pay your loan, then the lender will have the right to seize that property.
Liability: A legal obligation to settle a debt. Current (payable within one year) and long-term (payable after one year) liabilities are recorded on a company’s balance sheet. These liabilities can include accounts payable, taxes, wages, accrued expenses, and deferred revenues. The state of being responsible for something particular. In the business world, this typically refers to legal and financial responsibilities.
Lien: A lien is the legal claim of a creditor to the collateral of a debtor who does not meet the obligations of their signed contract.
Line of credit: A pool of capital a business can draw from, up to a certain maximum. When you draw down on a line of credit, cash is made available in your bank account. This cash is a short-term loan that must be repaid with interest.
Liabilities: A business’ debts or obligations that can be resolved in the form of periodic payments or the transfer of goods or services.
Loan Agreement: When you sign on to take on debt, you’ll have to sign a contract called a loan agreement. This agreement will delineate the terms of your loan.
Long-Term: In the context of business loans, long-term refers to any debt that will be paid back in more than a year.
Long-Term Debt: Long-term debt is money you borrow for large purchases, like real estate and equipment, which takes years to pay off. You will need to have a strong financial history to qualify for long-term debt.
Loan interest rate: This is the fee charged by a lender of a loan, with the exact amount being a percentage of the principal amount. Interest rates for loans can be either variable (the rate fluctuates over time) or fixed (based on a maximum rate determined by the Federal Register). The type of interest rate for a loan is chosen by the lender.
Loan-to-cost ratio (LTC): LTC is the loan amount divided by the total cost of a project. This comparison helps lenders determine the risk of offering a loan for land or real estate. For example, if a lender is willing to loan $750,000 for a construction project that will cost the borrower a total of $1 million, the LTC ratio is 75%.
Loan forgiveness: Writing off all or part of a federal student loan balance when borrower meets certain criteria like a career in an eligible field such as teaching, law enforcement and others.
Loan term: Agreed time period for loan repayment.
Loan-to-value (LTV) ratio: A number that measures the ratio of the mortgage amount to the property value. LTV is calculated by dividing the mortgage amount by the appraised value of the property. It is expressed as a percentage.
Loan-To-Value (LTV) Ratio – the ratio of outstanding debt to the value of the collateral for the loan. Lenders will determine a maximum ratio they are willing to accept based on the value of the collateral.
Loan or credit agreement – If your company’s loan is fairly large, the lender may require a loan or credit agreement. A loan agreement contains terms and conditions for your loan in addition to those contained in the promissory note, security agreement, or mortgage. Common provisions in a loan agreement include provisions regarding the lender’s commitment to lend, repayment and note terms, things that must happen before the lender is obligated to advance funds, representations and warranties, agreements by the borrower to take or not take certain actions, and events of default.
LTV Ratio: A lender will consider the LTV ratio, or loan-to-value ratio, when you’re applying for a loan to purchase a specific thing. For instance, if you’re looking to get a loan to get a new piece of equipment, the LTV ratio will indicate how much of the equipment’s worth the loan amount will cover.
Marketplace – an online platform that connects borrowers and lenders. The amount that an asset is worth or can be sold for in a particular market place.
Maturity: The date when a note or a principal obligation becomes due and payable (its term ends). A loan reaches maturity on the day that you make your last loan payment. That is, once you pay off the principal and the interest on a loan, it has reached full maturity. A term loan’s maturity date is the length of time you have to repay the money you borrow. For example, if you open a 10-year loan in 2015, the date of maturity will be in 2025. The maturity of a loan is the agreed upon date that the loan is to be repaid in both principal amount and interest. Loans have a range of maturity dates, from a maximum of 10 years for loans given for inventory or working capital to a maximum of 25 years for loans given for real estate.
Master Promissory Note: Signed legal document that holds terms and conditions of a loan.
Merchant Cash Advance: A merchant cash advance is a short-term business financing option that is repaid through a daily percentage of your business’s credit card receivables. Merchant cash advances are easy to secure but often end up being the most expensive financing option. A lump-sum advance given to a business in exchange for a percentage of their future credit and/or debit card sales. An MCA is a short-term loan based on a business’ monthly sales volume. Repayment is made through a fixed debit or percentage taken off daily or weekly sales. A quick, easy way to get your business a lump sum payment in exchange for a share of future sales. There’s no need for collateral, even if your business has bad credit. Also considered an advance based upon a company’s daily credit card receipts into its credit card merchant account.
Micro-Loan: A small amount of money lent to new businesses with a low-interest rate. Micro-loans are typically issued by individuals as opposed to large lending bodies like banks or credit unions.
Microlender: Refers to lenders that extend very small loan amounts (typically <$50,000); often community-based lenders.
Mortgage – A type of loan to purchase commercial or residential property.. A mortgage gives the lender a security interest in real property owned by your company. That means that your company pledges the real property as collateral for the loan. If your company does not repay the loan, the lender can foreclose on the real property, sell it, and apply the proceeds to your loan. Real property means real estate owned by your company.
Monthly or annual revenue
Most lenders will require businesses to have a certain amount of revenue coming in each month or year. They want to assure that you have enough income coming in to pay off your current expenses along with the new debt you are applying for.
Multi-factor authentication (MFA): A way to strengthen the level of security on a login by adding an additional end user authentication factor, such as a texted or emailed confirmation code. MFA helps to protect against fraudulent activities online.
Net Income: A business’ total income after deducting the costs of goods, taxes and other expenses from the business’ cash receipts.
Non-bank ATM: An ATM that does not display a bank’s name or logo. These ATMs usually have an added fee for their use.
Normal Annual Sales: Those sales that would have been attained had the disaster not occurred. To determine this figure, you must first review historical sales figures and identify the trends.
Normal Gross Margin: The margin that would have been attained had the disaster not occurred. To determine this figure, you must first review historical sales figures and identify the trends.
Online banking: Account information and services available online from a person’s banking institution.
Open-end credit: Pre-approved loans made on a continuous basis, rather than at one time. It is also known as revolving credit.
Operating Leases: are deducted on the company’s operating expenses. If the lease is an operating lease, then the amount is already accounted for in total expenses and should not be shown as a scheduled debt.
Original interest rate: An interest rate that was given at the time the account was opened.
Overdraft: Spending more than the available funds in an account, causing a negative balance. A deficit caused by the withdrawal of more money from an account than the account currently holds.
Overdraft protection: A revolving line of credit that serves as a backup source of funds for a checking account. The protection helps avoid fees for spending more money than is in the account.
Owner equity: Owner’s equity refers to the assets they own in the business, less any funds needed to pay liabilities. Before applying for a loan for investment in a for-profit business, some borrowers must have reasonable owner equity. The most common form of owner equity is the down payment made on the business, but outside assets can be considered as well.
P&L (Profit and Loss Statement): also considered as Income Statement or Statement of Earnings. Measures Net Income or Loss over a defined period of time. In addition, having the simple formula of Revenues – Expenses = Net Income/Loss.
Paid in full: A status on a credit report that shows debts as paid, rather than reduced or settled.
Payee: A person to whom a check or other form of financial obligation is made payable.
Partnership: This is a partnership between two or more parties.
In this case, a legal contract is usually prepared to define the terms of the partnership and how the profit-sharing will work. A partnership is also not a separate legal entity from its owners. Two types of partnership exist in Ontario:
Pension: A fixed sum paid at regular intervals, typically following retirement.
Personal Guarantee – an individual’s legal promise to be personally responsible if a business becomes unable to repay a debt.
Peer-To-Peer (P2P) Lending – a method of debt financing that uses an online platform that connects borrowers and lenders. A term used to describe a loan agreement between a borrower and a lender without the use of an official financial institution, resulting in achieving higher interest rates for the lender and lower rates for the borrower than either would achieve through a third-party bank.
Periodic rate: A rate (such as interest) set on an account over a specific amount of time.
Personal identification number (PIN): A number that allows an account holder to gain access to an ATM or use a debit card or chip-equipped credit card.
Personal credit report: Prepared by a credit bureau, a personal credit report contains detailed information about an individual’s financial history with banks, credit card companies, collection agencies, and governments. Credit scores are based on the information in a credit report.
Personal credit score: Equifax uses variations of the FICO Score algorithm to determine a personal credit score. This algorithm uses the patterns in hundreds of thousands of credit reports to approximate a consumer’s level of future risk.
Personal loan: A type of unsecured loan, meaning not tied to any property, for personal use and typically based on creditworthiness and other factors. If you’re a fairly new business owner who hasn’t really gotten a chance to build your business credit. Lenders will check your personal credit to gauge your creditworthiness.
Phishing: A way of attempting to acquire information such as user names and passwords by pretending to be a trustworthy entity in email or other electronic communication.
Physical Loans: Funds to repair/replace disaster damaged or destroyed business assets such as real estate, inventory, machinery and equipment, etc.
Point-of-sale terminal (POS): A terminal service that allows a banking customer to access account funds at the location where the sale is made.
Points: A loan discount used to adjust the yield on a loan. Points may adjust a loan to what market conditions demand.
Power of attorney: A legal document that authorizes another individual to act on the behalf of another person in the event that they cannot act for themselves. Legal document that allows one person to make decisions, including financial ones, on behalf of another individual.
PPSA (Personal Property Security Act): The Personal Property Security Act (“PPSA”) is the name given to each of the statutes passed by all common law provinces, as well as the territories, of Canada. They regulate the creation and registration of security interests in all personal property within their respective jurisdictions.
Prepayment penalty: A penalty levied if a loan is repaid earlier than the agreed upon terms, typically put in place to protect the lender and ensure that its anticipated yield on the loan will be earned. Prepayment penalty is a crucial business loan term for you to understand. Lenders with prepayment penalties, sometimes referred to neutrally as prepayment fees, will charge you for paying your loan off early.
Principal: The original amount borrowed or the outstanding balance yet to be repaid, excluding interest. The amount of money being borrowed excluding interest payments and fees. The amount borrowed, not including capitalized fees and interest. The amount borrowed or the amount still owed on a loan, separate from the interest.
Profit and Loss Statement (P&L): A report maintained by a business that shows the business’ income minus expenses.
Profit: The difference between the amount of money earned and the amount of money spent to earn the money.
Principal – the original sum of money borrowed in a loan or in an investment. Within the context of business loan terms, principal refers to the original size of your loan. If your business borrows $100,000, then your principal is $100,000.
Prime Rate: The business loan term prime rate indicates the interest rate at which the most creditworthy borrower can borrow. This is the rate what determines all other rates, as well. All less creditworthy borrowers will borrow at an interest rate that is often determined at “Prime Rate + X” with x being an interest rate determined by your own creditworthiness. Prime rate means the lowest rates that banks are giving to their customers. A low interest rate offered to the most creditworthy borrowers.
Proprietorship: A proprietorship, or sole proprietorship, is a business entity-type for unincorporated businesses that consist of one individual.
Principal: the owner(s) of the Applicant Entity that have a controlling financial interest in the business. Most lenders define controlling interest as an owner who owns 20% or more of the Applicant Entity or are a General Partner or Managing Member regardless of ownership percentage.
Primary Activity: The major business activity of the single legal entity or affiliated group, which is their predominant field of operation. (Commonly known as the Main Activity)
Projection: An estimate of future economic or financial performance. Generally presented in the form of a Profit and Loss Statement (P&L)
Private sector: A for-profit businesses owned by private individuals or groups, rather than the government.
Preauthorized payment: A payment set up in advance at a bank by an account holder to automatically make payments.
Prepayment penalty: A fee for repaying a loan before it was due.
Primary or principal residence: The permanent residence where a person claims to reside.
Prime rate: An interest rate charged by a financial institution for loans made to larger business borrowers. Prime is typically the best rate available.
Private mortgage insurance (PMI): Insurance written by a private company that protects the mortgage lender against a potential loss incurred by a mortgage default (when a borrower stops making mortgage payments).
Promissory note: A written agreement between people in which a person or company agrees to pay another person or company a specific amount of money by a certain date. A promissory note is a contract. When your company signs a promissory note, it promises to repay to the lender a certain amount of money, at a certain time, and according to certain terms and conditions. A promissory note may be unsecured or secured. If a promissory note is unsecured, the lender is looking only to your company’s cash flow and profits for repayment of the loan. If a loan is secured, the lender still looks to your company’s cash flow and profit for repayment of the loan, but if the company does not pay, the lender looks to the security or “collateral” as a secondary source of repayment. Personal property means all property owned by your company other than real estate.
Registered Retirement Savings Plan (RRSP): A Registered Retirement Savings Plan (RRSP) is a retirement savings and investing vehicle for employees and the self-employed in Canada. Pre-tax money is placed into an RRSP and grows tax-free until withdrawal, at which time it is taxed at the marginal rate. Registered Retirement Savings Plans have many features in common with 401(k) plans in the United States, but also some key differences.
The growth of an RRSP is determined by its contents. Simply having money in an RRSP is not a guarantee that you may retire comfortably; however, it is a guarantee that the investments will compound without being taxed, as long as the funds are not withdrawn.
Revolving Credit: Revolving credit is just another term for a line of credit. Credit cards are considered a form of revolving credit.
Refinancing: Replacing an old loan with a new loan at a different interest rate by the same individual.
Repossession: Act of a creditor seizing property to make up for a borrower’s failure to pay on a loan.
Retirement: Stage of life after ceasing to work full-time.
Refinance: Replacing an old loan with a newer loan, generally offering better terms.
Revolving account: A specified line of credit that can be used repeatedly.
Revolving Line of Credit: The business loan term “revolving” denotes credit that can be used repeatedly. As such, a revolving line of credit is a line of credit that a business can spend on repeatedly up to the credit line, as long as they pay off their previous spending.
Residual Value: The value of an asset at the end of its lease or at the end of its useful life.
Retained Earnings: The amount of net income left over after a business has paid out dividends to their shareholders. Often, the retained earnings are used within the business for investment, growth or capital purchase purposes.
Refinancing: When you refinance your debt, you pay off your debt with a new, better loan. By refinancing debt, you could save your business tons of money in avoided interest.
Savings account: An account that has the purpose of saving money and accumulating funds.
Schedule of Liabilities: A business debt schedule that lists all of the debts the business currently owes, including creditor name; original amount due; original due date; current balance; repayment status; maturity date; payment amount and frequency; and how debt is secured.
Second Lien Debt: This business loan term refers to any loan you take on that’s more subordinate to a more senior loan. In other words, if you have another debt that you need to pay off first, and you take on a second loan, this second loan will be referred to as a second lien debt.
Secured: When used as a small business loan term, secured refers to debt that is taken on with a lien to any of your assets. So, if a loan requires collateral, then that loan is a secured loan.
Secured loan: A loan in which the borrower pledges some asset (for example, a car or property) as collateral for the loan. The collateral becomes a secured debt owed to the creditor who gives the loan. Auto loans are secured loans. A loan where the borrower uses their asset as collateral for the loan. A loan protected by an asset or collateral, to which the lender holds the title.
Service charge: An institution’s fee for a specific service the institution provides.
Security: Often times lenders will require collateral to approve you for a loan. This is a layer of protection for the lender if you default on your payments. The higher the value your collateral is, the more likely you are to be approved.
Security agreement – A security agreement gives the lender a “security interest” in specific personal property owned by your company. That means that your company pledges that property as “collateral” for the loan. If your company does not repay the loan as required, the lender can seize the “collateral,” sell it, and apply the proceeds to your loan. The lender may take “all assets” of your business (everything your company owns) as collateral. Sometimes the lender requires only certain assets as collateral, such as inventory and accounts receivable or specific vehicles or equipment.
Secured debt: Loan backed by collateral such as a car or property.
Secured Loans: Loans you obtain by putting up collateral, whether a physical asset like equipment or real estate. If you default on a secured loan, the collateral can be seized by the lender to satisfy any part of the loan that has not been paid. Loans can also be secured by the lenders putting a blanket lien (see above) on your business.
Short-Term: Short-term, when referring to debt, means anything that will be paid back in a short amount of time. Literally, short-term refers to debt paid off within a year. However, some short-term lenders still use the term for loans with repayment periods of up to 2 years. As an almost universal rule, short-term financing is easier to secure, quicker to fund, and more expensive than long-term financing.
Short sale: Selling property or security when the recovered money is less than the amount owed.
Simple interest: Interest rate charged on the principal of a loan. The interest on an outstanding balance that produces a declining finance charge with each payment of the installment loan made.
Sole proprietorship: This is a partnership with a single partner: you.
While regarded as the most straightforward way to set up a business (having fewer start-up costs, less paperwork, more direct control, and minimal working capital needed), it also means that as sole proprietor, you are personally liable for the activities of your company. You will find yourself in a position of unlimited liability, which means should debt arise, your creditors will have the right to claim against all your personal AND business assets. This occurs because a sole proprietorship is not a separate legal entity from its owner.
Soft Credit Check – a credit report check that does not affect an individual’s credit score. This check can happen when an individual checks their own credit report or a potential employer credit report.
Specialized lender: Traditional loans aren’t right for everybody, especially small business entrepreneurs who are planning on repaying the capital of their loan through income made on their new business. In these scenarios, specialized lenders fill in the gaps, offering flexible funding solutions that make a loan more possible.
Split deposit: A transaction in which a portion of a deposit is credited to a person’s account and the balance is taken in cash. A split deposit can also be divided between 2 different accounts.
Statement of cash flows: A summary of the cash generated and used by a business over a period of time, in operating, investing and financing activities. The statement of cash flows is an important supplement to the income statement, because it accounts for the actual collection of revenue and payment of expenses.
Statements of shareholders’ equity: A financial report that describes the changes in the equity section of a balance sheet in detail.
Stop payment: A verbal or written statement by an account holder stating that he or she no longer wishes to pay a specific check or draft. Once a stop payment is issued, funds cannot be drawn on that check (the check cannot be cashed or deposited).
Subprime Borrower: A subprime borrower refers to a borrower who is considered higher risk.
Essentially, if you’re less qualified by traditional standards—i.e. you have a lower credit score—then you’ll be considered a subprime borrower.
Substantial Damage: means uninsured or otherwise uncompensated disaster damages: For homes is either:
40 percent or more of the home’s pre-disaster fair market value (FMV) or replacement cost including the value of any land, whichever is less; or 50 percent or more of the structure’s pre-disaster fair market value or replacement cost, (excluding the value of any land) whichever is less. For businesses is either: 40 percent or more of the aggregate value (lesser of market value or replacement cost at the time of the disaster) of the damaged real property (including the value of any land) and damaged machinery and equipment; or 50 percent or more of the aggregate value (lesser of market value or replacement cost at the time of the disaster) of the damaged real property (excluding the value of any land) and damaged machinery and equipment.
Subsidized loan: A type of need-based loan for which the government pays the interest while the borrower is in school and during the grace deferment periods.
Subsidiary: A company for which a majority of the voting stock is owned by a holding company. For most lenders, a subsidiary is an affiliate; a company owned or controlled by the applicant business.
Swift Code: A SWIFT code is an alphanumeric code containing information that identifies a bank and branch. It can be 8 or 11 characters long, depending on which bank office it refers to. An example of a SWIFT code is this one for the Royal Bank of Canada (RBC) in Vancouver: ROYCCAT2VIC
Tax lien: The legal claim of a government entity to seize or sell a taxpayer’s assets when an individual or business fails to pay taxes. Besides paying what is owed, a person or business may get rid of a lien by getting the debt dismissed in bankruptcy court or establishing an offer in compromise with tax authorities. If taxes are unpaid for a period of time, a lender may claim the borrower’s property equal to the delinquent taxes.
Tax Refund: An amount owed to or received by a taxpayer from the government resulting from taxation. A tax refund typically occurs when an individual has paid more income tax throughout the year than what was owed, has large tax credits or did not earn enough income to be required to pay tax by law.
Tax Return: A legal form which is completed by a taxpayer to determine tax payable to the government or tax receivable from the government. Tax returns require information about the taxpayer, such as annual income, annual expenses, personal information and financial information, to determine the tax asset or liability.
Term: Period of time between the initial procurement of the loan and the time the loan is to be paid back in full. Lenders often use this word to refer to the amount of time you’ll be repaying your loan for. Loan terms can last as short as 3 months, and as long as 25 years—depending on the kind of financing you’re working with.
Term Loan: A term loan is a lump sum (the “loan amount”) borrowed from a lender and paid off at specified intervals over a set period of time (or “term”). Term loans are typically appropriate for one-time investments in business growth – opening a new storefront, renovating an existing location, hiring new employees, etc. These loans are made to businesses and can be either secured or unsecured. This is the type of loan you usually get from a bank, but there are also some available online. Bank term loans are not frequently awarded to small businesses, but are more frequently granted to mid-size and larger businesses. In fact, according to a survey by First Down Funding, 88 percent of small business loan applications are denied by the banks. However, term loans found online, which usually have shorter terms (one to five years) and higher interest rates (starting at 7 percent) have higher approval rates. A loan that is repaid in regular periodic payments over a specified period of time. Terms can vary depending upon the nature of the loan or the lender and could be as short as three months to several years.
Thrift institution: Financial institutions, such as mutual savings banks, savings and loan associations and credit unions.
Time deposit or CD: A deposit that cannot be withdrawn for a certain period of time without hefty penalties being applied.
Time in business: The amount of time you’ve been in business can affect the likelihood of you receiving a loan. The longer you’ve been in business, the more stable and reliable you’ll look to your lender.
Total Cost of Capital (TCC): This is the total amount of interest and other fees for the loan. The amount does not include fees and other charges you can avoid, such as late payment fees and returned payment fees.
Traditional Lenders – a financial institution that provides a range of services to consumers. These include the Canadian Big 5 Banks as well as credit unions and smaller banks.
Transaction: An exchange of goods and services.
Transaction limitations: Limits imposed by law on the number of electronic and telephone withdrawals and transfers from a deposit account. Federal law limits electronic and telephone transactions from specific banking accounts.
Transfer: Funds moved from one account to another.
Transit Number: A transit number is a series of five numbers that identifies your specific bank branch. The five-digit code is the first series of numbers listed along the bottom of a cheque. The transit number typically sits near the three-digit financial institution number and your 12-digit account number.
TransUnion: One of the three major credit bureaus.
Traveler’s checks: A check that functions just like cash and is protected if lost or stolen, often used during travel.
Trend Analysis: A comparative analysis of a company’s financial ratios over time.
Trust: A person who holds property for the benefit of someone else.
Underwriting: When a lender underwrites your application, they are accessing the risk they would take on by lending to you. The results of the underwriting process are the decisions of whether or not you qualify for a loan along with the exact terms of your loan if you qualify.
Unsecured: When used as a business loan term, unsecured refers to debt that doesn’t have collateral backing it. Unsecured debt is more risky for the lender and, as result, often more expensive for the borrower. Unsecured loans can also be harder to qualify for due to the fact that there isn’t much security in lending to your business. If you can’t pay back your unsecured business loan, the lender doesn’t have an easy means to recoup their losses like they do with security business loans.
Unsecured loan: A loan that is issued and supported only by the borrower’s creditworthiness, rather than by a type of collateral. An example of an unsecured loan is a regular credit card. A type of loan for which the government doesn’t pay the interest. Borrower is responsible for interest at the moment funds are disbursed. A loan where the borrower is not required to put forth specific collateral to secure the loan. Loans that are approved without the need for collateral. In this case the borrower is approved for the loan based on their credit history and income. An unsecured loan not protected by an asset or collateral, but extended based on the borrowers credit history and financial position. Financing instruments like credit cards and education loans that are not backed by collateral. Unsecured loans involve greater risk for the lender and therefore higher costs and shorter repayment terms for the borrower.
Variable rate: A loan plan in which the interest charged over the life of the loan may vary. Interest rates that are periodically reset. As opposed to a fixed interest rate, variable interest rate is an interest rate that will vary with market interest rates over the life of a business loan.
Veteran: In financial aid terms, it’s a former member of the armed forces who served on active duty and was not dishonorably discharged.
Void Cheque: A check that cannot be deposited. In order to void a cheque, all one must do is write “VOID” on the face of the check, preferably in capital letters. Voided cheques can also be used to set up automatic payments for a service.
Wire transfer: A method of transferring funds electronically from one person or institution to another.
Working Capital: The amount of current assets that is left after all current debts are paid. Also called current capital, working capital is the cash available to a business for day-to-day operations. Capital used in a company’s daily operations, technically defined as current assets less current liabilities. Working capital is all of your capital that your business uses in it day-to-day transactions. Essentially, it’s how much money your business has, minus the debt it has.
Working Capital Loan – a loan that is taken to finance the daily operations of a company, such as accounts payable and wages.
Zero fraud liability: The practice of preventing an account holder from being held responsible for charges incurred on a lost or stolen card.
5 C’s of Credit – The 5 C’s of Credit, a framework some lenders use to evaluate borrowers; includes: character, collateral, capital, conditions, and capacity. The 5 C’s of Credit is a punchy list of criteria that lenders look at when deciding whether to lend to you. When you apply for funding, a lender will look at your character, capacity, capital, conditions, and collateral to underwrite the risk of lending to you.