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Glossary: Lending


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Terms related to lending and business finance.


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A/R Management Services

Billing, lockbox collection, payment processing, monitoring, and reporting services.

Accounts Receivable Financing

An asset-based financing arrangement in which companies use their receivables as collateral in exchange for capital.

Amortization

Process of accounting for the decreasing value of an asset over a period of time.

Annual Percentage Rate (APR)

Interest-rate finance charge in terms of a whole year applied to a loan, credit card, etc.

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B2B

Commerce transactions between businesses. Short for Business to Business.

B2C

Commerce transactions between businesses and consumers. Short for Business to Consumer.

Bad Debt

Debt that is not collectible which makes it worthless to the creditor.

Balance Sheet

Financial statement showing assets, liabilities and equity.

Balloon payments

Payments made at the end of a loan that are larger than those made at the beginning of a loan.

Blanket Lien

Lien on all of the debtor’s current and acquired personal property assets.

Buydown

Lump-sum payment made to lower the amount of some or all of the remaining payments.

Business Plan

Formal business statement with goals, reasons for attainment, and the plan for reaching the goals. A business plan can also contain background information.

Capital

Assets available for use in the production of goods and services.

Cash Flow

Movement of cash into or out of a business.

Closed Loan

A loan, the funds of which have already been disbursed, and documentation has been received and reviewed.

Collateral

Property of the borrower that is used to secure the repayment of a loan to the lender.

Credit History

Record of an individual or company’s past borrowing and repayment.

Credit Score

Number that is derived from a person’s credit files to show whether that person is worthy to borrow.

Current Ratio

Ratio that measures liquidity in the form of current assets divided by current liabilities.

Dependent Group-Term Life Insurance

Term life insurance that gives an employee death benefits if the employee’s spouse or other dependents die.

Debt

What a person or company owes.

Default

Occurs when the debtor cannot fulfill the legal obligations stated in the contract; failure to pay back a loan.

Delinquent

Status of a borrower’s account when he fails to pay a debt or financial obligation.

Equity Participation

Loan for which the lender shares in the increase of equity in the business.

Fixed Interest Rate

Interest rate that is locked in and does not change over the life of the loan.

Funding Date

The date when funds are delivered to the borrower from the lender.

Guaranty

Agreement by an entity or person other than the borrower to repay the loan if the borrower does not pay.

Liabilities

Financial claim against assets; amounts owed to creditors.

Liquidity

Quality of being readily convertible into cash.

Lockbox

Service offered by banks where payments are received in a post office box and the bank picks them up to process immediately.

Merchant Cash Advance

Merchant cash advance allows a merchant to leverage her future sales paid for via credit card against a loan for an agreed-upon amount. Boiled down even more, it’s a way for a merchant to get cash upfront based on her estimated future credit-card sales.

Negative Covenant

Loan agreement that restricts the borrower from specific actions unless agreed upon with the lender.

Obligor

Any party with an obligation to pay off a debt (also known as a borrower).

Prime Rate

Reference interest rate used by banks to favored customers.

Permanent Lender

A lender that finances real estate projects after construction is finished (also called end lender.)

Principal

The original amount of debt without interest.

Promissory Note

A written note of promise to pay from the borrower to the lender.

Receivables

Amount due from individuals and companies.

SBA 7(a) Loan Program

With this program, the U.S. Small Business Administration guarantees a percentage of the loan rather than actually providing the money. It’s the U.S. Small Business Administration’s primary and most flexible loan program, and allows lenders to grant loans they may not otherwise consider.

SBA 504 Loan Program

This U.S. Small Business Administration loan program works in conjunction with Certified Development Companies throughout the United States for the acquisition of owner-occupied commercial real estate or machinery and equipment. It’s provides fixed-rate, long-term financing for businesses in need of brick-and-mortar financing.

Term Loans

Loans that are provided under attractive terms with 10-25 years amortization.

U.S. Small Business Administration

Provides support to small businesses nationwide by providing financial support, contracts, counseling and other forms of assistance.

Underwriting

Process that large financial service providers use to assess the eligibility of customers for their services/products.

Write-off

A reduction in the value of an asset.




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