September 11, 2019

Cheat Sheet: 25 Financial Terms You Should Know

Here are 25 of the most important financial terms you should know if you’re thinking about getting financing for your business.

1. AIR

Annual Interest Rate is the yearly interest percentage you pay based on your average loan balance. This rate excludes any fees.

2. APR

Annual Percentage Rate is the annualized interest rate plus any fees that are a condition of receiving capital—expressed as a yearly rate.

3. Assets

Within the context of a small business loan an asset is something of value, owned by the borrower, which can be used as collateral by a lender.

4. Balance Sheet

Snapshot of a moment in time in which the assets, debts and equity of the company are shown.

5. Business Credit Profile

A collection of information based on your business’ history of credit used to predict the likelihood of your business to be able to pay back borrowed funds.

6. Capital

The overall wealth of a business as demonstrated by its cash accounts, assets, and investments. Often called “fixed capital,” it refers to the long-term worth of the business.

7. Cash Flow

The total amount of money being transferred into and out of a business that is used to pay for day-to-day expenses.

8. Cents on the Dollar

Cents on the Dollar is the total amount of interest paid per dollar borrowed. This amount excludes any fees.

9. Collateral

An asset, or assets, a borrower offers to a lender to secure a loan. The lender can take possession of these assets if the borrower defaults on the loan.

10. Default

Failure to make the agreed upon periodic payments on a loan.

11. Fixed Asset

A “tangible asset,” like property or equipment that can be used as collateral.

12. Gross Profit

What is left over when the total cost of goods is subtracted from the total revenue.

13. Interest-Only Payments

Making only the interest payments on a loan without paying anything on the principle. At the end of the term, the borrower will either need to refinance or pay back the principle in a lump sum.

14. Liabilities

A business’ debts or obligations, which can be resolved in the form of payments or the transfer of goods or services.

15. Line of Credit

Where the borrower receives access to a revolving set amount of funds to be utilized at the borrowers discretion and to be paid back based on the borrowed amount over a set period of time.

16. Merchant Cash Advance

A merchant may offer a funding method through a loan based on the business’s monthly sales volume. Repayment is made with a percentage of the daily or weekly sales.

17. Net Income

The total revenue for a given period of time minus all costs and expenses.

18. Personal Credit Score

A number determined by a collection of information based on your personal history of credit, used to predict the likelihood of your personal ability to pay back borrowed funds.

19. Principal

The amount of money being borrowed excluding interest payments and fees.

20. Return on investment (ROI):

The efficiency of an investment. Simply put, if you invest X dollars, how much will you get back?

21. Revenue

The total income generated for a given period of time before deducting any costs or expenses.

22. Secured Loan

A loan where the borrower puts forth collateral in the event they should default.

23. Stacking

Loan stacking is where a loan or cash advance is approved on top of a loan or advance that is already in place with similar characteristics and payback terms.

24. Term Loan

A loan where the borrower receives a lump sum to be paid back in a predetermined dollar amount per period (day, week, month, etc.), for a set length of time.

25. Unsecured Loan

A loan where the borrower is not required to put up collateral to secure the loan.