Accounts Payable – money owed by a company to its creditors.
Accounts Receivable – money owed to a company by its debtors.
Accrued Liabilities – obligations for goods or services provided to a company for which invoices have not yet been received.
Amortization – the process of allocating the cost of an intangible asset over a period of time or the process of repaying a loan over time.
Annual Interest Rate – the rate of interest paid on an investment over a 12 month period.
APR – Annual Percentage Rate. The annual rate charged for borrowing or earned through an investment. Represents the actual yearly cost of funds over the term of a loan.
Asset Based Financing – a business loan secured by collateral.
Bridge Financing – type of financing that allows the borrower to meet current obligations by providing immediate cash flow. It is a short-term loan, used until a company can secure long-term or permanent financing, or that removes an existing obligation.
Business Credit Report – like a personal credit report, it is a detailed report that indicates a company’s ability to pay debt.
Business Credit Score – a number representing a company’s ability to pay back a debt. Used as a risk assessment by lenders.
Business Valuation –process used to determine the economic value of a business.
Cap Rate – capitalization rate. An estimate of an investor’s potential return on investment, calculated by net operating income, divides by current market value.
Collateral – property or assets that are pledged as security for repayment of a loan. These items will be obtained by the lender in the event of a default.
Compound Interest – interest that is added to the principal of a loan or savings account and the interest already added to the loan or account. Essentially, it is interest paid on interest.
Conventional Loan – a long-term mortgage loan not backed by a government program.
Cost of Goods Sold – the collected total of all costs used to create a product or service that is sold. Typically direct labor, materials, and overhead.
Credit Report – a detailed report of a person’s financial history, specifically related to his or her ability to repay borrowed money. It includes credit accounts and loans, bankruptcies and late payments, and recent inquiries.
Current Liabilities – debt obligation to be paid within a 12 month period.
Current ratio – liquidity ratio measuring a company’s ability to pay short-term and long-term obligations. It considers the current total assets relative to the company’s total current total liabilities.
Debt Service – cash required to cover the repayment of interest and principal on a debt for a particular time period.
Debt Service Coverage Ratio – ratio of cash available for debt servicing to interest, principal and lease payments. Used by lenders to determine cash flow available to pay current debt obligations.
Debt to Equity Ratio – debt ratio used to calculate a company’s financial leverage. The figure is calculated by dividing a company’s total liabilities by its equity. It indicates how much debt a company is using to finance its assets relative to its equity.
Debt to Worth Ratio – measures a company’s ability to absorb losses without reducing its ability to service current debt.
Defeasance – provision that voids a loan when the borrower sets aside cash or bonds sufficient enough to service the debt.
Depreciation – the cost of a tangible asset over its useful life. Its reduction in value over time.
EBITDA – Earnings Before Interest, Tax, Depreciation and Amortization. The measure of a company’s operating performance or profitability as a percentage of its total revenue.
Equipment Loan – an equipment loan is used to buy business equipment, often secured by the equipment itself instead of other collateral.
Equity – the amount of company funds contributed by the owner(s) plus retained earnings and/or minus losses. Simplified, it is the outstanding price of any assets, minus all associated debts.
Factoring – when a business owner sells accounts receivable at a discount to a third-party funding source to raise capital.
Fair Market Value – an agreed upon price between a buyer and seller for the price of an item.
Fixed Assets – assets purchased for long-term use not likely to be quickly converted to cash, such as real estate and equipment.
Franchise Loan – a loan used to purchase a franchise license or to finance a franchise business.
Gross Profit – a company’s total revenue minus the cost of goods sold. The profit a company makes after removing the costs associated with making, providing and selling its products or services.
Gross Profit Margin Ratio – metric used to measure a company’s financial health and business model by revealing the portion of money left over from revenues after subtracting the cost of goods sold.
Gross Revenue – total revenue received before any deductions or allowances. Raw sales income.
Guarantee – a promise by one individual or company to take responsibility for another individual or company’s debt, should they be unable to meet their financial obligations.
Guaranty – a pledge or formal assurance given as security that another’s debt will be fulfilled.
Hard Money Loan – asset-based loan financing, backed by the value of property not by credit worthiness of the borrower.
Intangible Assets – a non-physical asset, for example intellectual property like patents, trademarks or branding.
Interest Expense – a non-operating expense representing interest payable on any type of debt, calculated by the interest rate times the outstanding principal on debt.
Invoice Financing – a way for businesses to borrow money based on amounts due from their customers.
Lien – a legal claim on property until a debt is paid back.
Line of Credit or Business Line of Credit – arrangement between a lender and a business that offers a maximum loan balance or credit extended to the borrower.
Loan to Value – risk assessment used by lenders to express the ratio of a loan to the value of an asset purchased. Commonly used in mortgages.
Long Term Debt – amount owed for a period exceeding 12 months from the date of the balance sheet.
Merchant Cash Advance – with a merchant cash advance, a lender pays a one-time lump sum to a merchant in exchange for a percentage of future credit card sales.
Market Value – the highest estimated price a buyer would pay and a seller would accept for an item or service in a competitive market.
Mechanic’s Lien – an assurance of payment to builders, contractors and construction firms that build or repair structures. It also extends to materials suppliers and subcontractors and covers building repairs.
Net Cash Flow – the difference between a company’s cash inflows and outflows in a given period.
Net Equity – the difference between the fair market value of business assets and its liabilities.
Net Income – a company’s total earnings or profit. Calculated by subtracting the cost of doing business (taxes, interest and other expenses like payroll) from total revenues.
Notes Payable – the amount due on a formal, written promise to pay a debt.
Origination Fee – a fee charged by a lender upon entering a loan agreement to cover the cost of processing the loan.
Owners Draw – withdrawals of a sole proprietorship’s cash or other assets for personal use by the owner.
Personal Property – property exclusive of land or buildings. Property that can be moved.
Point – common unit of measure for interest rates, each point representing 1% of the amount of the loan.
Prepayment Penalty – a clause in a loan contract stating a penalty will be assessed if the debt is prepaid within a certain time period. It is based on a percentage of the remaining loan balance or a certain months’ worth of interest. This regulates what a borrower is permitted to payoff and when.
Quick Ratio – the measure of a company’s ability to meet short-term financial liabilities. Cash plus marketable securities, plus accounts receivable divided by current liabilities.
SBA 7(a) Loan – the SBA’s primary program for helping businesses secure financing. The SBA guarantees loans made by participating lenders.
Secured Loan – a loan in which the borrower pledges and asset as collateral for the loan.
Security Interest – otherwise known as secured loans. Assets are promised to the lender by the borrower, to be collected in the event of default.
Small Business Loan – a small business loan can be provided to a business for various purposes.
Soft Costs – contractor accounting term for an expense item that is not considered direct construction cost. Those expenses not involving actual physical property, such as engineering and legal fees.
Subordinated Loan – a debt that ranks after other debts if a company falls into liquidation or bankruptcy.
Term – the period of time in which an investment is in force. For example, a term loan is a loan for a specific amount that has a specific repayment schedule and a fixed or floating interest rate.
Working Capital – working capital is used during day-to-day trading activities, calculated as current assets minus current liabilities. This figure measures a company’s efficiency and short-term financial health.