Finance and Business Definitions to help you make the best decision when checking out small business loan options for your business.
Although many of you have experience with getting business funding, there’s always a first time, and for those of you who may not know finance definitions, you’ll find here the basic working capital definitions that we use regularly with our following services:cash advances, short term business loans, SBA loans, equipment leasing, and credit card processing.
Business Definitions A-C
Accounts Receivable– Money owed by customers to another a business in exchange for goods or services that have been delivered or used, but not yet paid for.
ARP – Annual Percentage Rate – Is what credit costs you each year, expressed as a percentage of the loan amount, which is usually higher than the named rate you’re quoted for a loan, and includes most of a loan’s up-front fees, as well as the annual interest rate. You should use APR, which is a more accurate picture of the cost of borrowing than the interest rate alone, to compare various loans you’re considering.
Articles of Incorporation – A legal document that creates a corporation, filed with a state by the founders of a corporation, and governed by the laws of the state.
Balance Sheet – A balance sheet or “statement of financial position” that paints a picture of your business’s financial strength at the end of an accounting period, and is a cumulative record of what has happened in your business right from the start. The balance sheet is a summary your assets (what you own) and liabilities (what you owe). The difference between the two is what you’re worth.
Breakeven Point – When income and expenses are exactly equal. The business has not made a profit or a loss, but you have recovered all business expenses.
Business Funding – Financial resources to provide inventory, equipment, or any other business need.
Capital -Wealth, money, assets.
Capital Injection – An investment of capital generally in the form of cash, equity, or assets into a company or institution, either for a new company or an established one that is in distress.
Cash Advance – An amount paid before it is earned.
Collateral – Something pledged as security for repayment of a loan, to be forfeited in the event of a default.
Commercial Loan – Same as a Business Loan, a loan made and to be repaid with interest on or before a fixed date.
Corporation – C Corporation – A corporation is created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock.
Credit Card Processor – A third party vendor who processes credit card information.
Credit Card Receivables – What is owed to a credit card issuer by its customers.
Business Definitions D-M
DBA – Doing Business As – Is used when the trade name, or fictitious business name under which the business is conducted and presented. is not the legal name of the legal person, or persons, who actually own it.
Double Factoring – When renewing cash advances before paying the entire balance, the unethical practice of adding the rate factor to the remaining balance again. See the example on our Business Cash Advances page.
Fee Stacking – Also with Business Cash Advances, the unethical practice of adding an extra fee on top of the commission a broker receives. Go to our Business Cash Advances page for more info.
FICO – A type of credit score that lenders use to access credit risk. it stands for Fair Isaac Corporation, the developers of the score. Scores range from 300 – 850, with 650+ considered a good credit risk.
Junk Fees – Usually relating to mortgages, but also works for business definitions and associated with questionable and previously undisclosed fees added to a loan document.
K-1 – A tax document used to report the incomes, losses, and dividends of a business’s partners or S corporation’s shareholders
LLC – Limited Liability Company, an LLC can obtain a tax identification number, open a bank account and do business, all under its own name. Advantages are that owners, known as members, are not personally liable for the debts and liabilities of the LLC.
Markups – The amount added to the cost price of goods to cover overhead and profit.
MCA – Merchant Cash Advance – Same as a Business Cash Advance.
Mid-Sized Business – A business with 100-999 employees, and between $50 million and $1 billion in annual revenue.
Business Definitions N-P
Negative Working Capital – When liabilities exceed assets.
Net Working Capital – Same as Working Capital, basically assets minus liabilities.
NSF – Non-Sufficient Funds, not enough funds in the bank to cover debiting checks, also called a “bounced check”.
Operating Agreement – an agreement among Limited Liability Company (LLC) members governing the LLC’s business, and Member’s financial and managerial rights and duties. Many states in the United States require an LLC to have an Operating Agreement.
Operating Working Capital – Is a narrower definition of working capital, it measures the amount of accounts receivable and inventory, minus accounts payable.
Partnership – In terms of business definitions, an organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
Prime Rate – The lowest rate of interest at which money may be borrowed commercially.
Procurement – Describes the whole process involved to acquire and purchase goods and services. Can include such things as market research, vendor evaluation, and contract negotiations.
Profit Loss – A profit and loss statement, or statement of financial performance, provides a picture of your business’s trading performance over a defined period, such as a month or a whole financial year. It records sales, expenses, profits or losses, and any tax payments for the period.
Purchase Order Financing – Is a financing option for resellers or distributors of hard goods that lack the funds to pay their manufacturers. A third party assumes the obligation of billing and collecting the materials that will be made, quickly sold, and then paid for, usually within 30-60 days.
Business Definitions R-Z
Real Estate – Property consisting of land or buildings.
SBA – The Small Business Administration, a government agency that provides loans and assistance to small and mid-sized businesses.
S Corporation – A form of corporation that meets the IRS requirements to be taxed under Subchapter S of the Internal Revenue Code. This gives a corporation with 100 shareholders or less the benefit of incorporation while being taxed as a partnership, so profits earned by the corporation are not taxed at the corporate level, but rather at the level of the shareholders.
Small Business – Usually a business with fewer than 100 employees, and less than $50 million in annual revenue.
Startup Business – A new company, usually considered to under 2 years old.
Unsecured Loan – A loan based on creditworthiness and not on collateral.
Working Capital – The capital(money) of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. It ensures you have enough cash to pay your debts and expenses as they fall due, particularly during your start-up period.
Working Capital Cycle – Measures the time between paying for goods supplied to you and the final receipt of cash to you from their sale. It is desirable to keep the cycle as short as possible as it increases the effectiveness of working capital.
Working Capital Turnover – Is a ratio that measures how effectively a company is using their working capital, the higher the number the more revenue they are generating for each dollar of working capital.
YTD – From January 1st of the current year until today’s date.
Now that you have a better understanding of these business definitions, Contact Us if you have any more questions.