1. Assets: Within the context of a small business loan, any tangible or intangible thing that is owned or controlled by a business owner and can be used as collateral by a lender.
2. Factoring: Factoring is technically not a loan. A third party, known as a factor, purchases a company’s invoice(s) or purchase order(s) at a discount giving a business owner access to a percentage of that invoice or purchase order now, instead of when the invoice or P.O. is paid. The balance minus the agreed upon discount, is paid to the business owner once collected by the factor.
3. Profit & Loss Statement (P&L): This document accounts for a company’s income minus expenses and illustrates whether or not the business is making a profit. Most lenders will want to see your P&L.
4. Loan-to-Value Ratio: The ratio of a loan to the value of a purchased asset. Loan to value is one of the key factors lenders use when evaluating risk when considering a loan.
5. Short-Term Loan: A loan that is set to be paid back in a short period of time—typically within a year, though in some cases, short-term loans can have longer terms.
6. Long-Term Loan: A traditional long-term loan is repaid in specific incremental payments over time, typically five- to 10-year terms. These loans may have a fixed interest rate, or a floating rate based upon the prime rate or other benchmarks.
7. Net Assets: The total value of a business’ assets, after subtracting all of its liabilities.
8. Gross Profit: A business’ profit after selling a product or providing a service, once the costs attached to that product or service have been deducted. Gross profit is what is left over when the cost of goods sold is subtracted from the revenue.
9. Net Income: The calculation of a business’ total income after deducting costs such as the purchase of goods, taxes, and other expenses accrued in an established time period.
10. Revolving Line of Credit: A loan that provides a fixed amount of capital that can be accessed when needed. Unlike a traditional term loan, all or part of a line of credit can be accessed at any given time up to a fixed limit. The borrower pays interest only on the amount of the advance actually used.
11. Unsecured Loan: A loan that is based solely on the credit worthiness of the borrower (as indicated by their credit score/credit history) and does not require collateral.
12. Working Capital: The capital that is available to a business for day-to-day-use. Working capital is calculated by subtracting the current liabilities of a business from the current assets of the business.
13. Online Lender: A lender that functions largely online and uses technology and data to evaluate the credit worthiness of your business