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advance rate – the maximum percentage of the value of collateral that the lender will advance to a borrower. The advance rate will vary by the type and quality of the collateral, terms and age of the financing agreement and perhaps the financial strength of the obligated party.

aging report – a report listing a borrower's accounts receivable balances by customer, detailing the current status or delinquency of the balances owed or owing.

balloon payments – substantially larger-than-normal principal loan installments paid at prearranged dates, usually at the loan's maturity date.

borrowing base – a collateral base, agreed to by the borrower and lender, which is used to limit the amount of funds the lender will advance to the borrower. The borrowing base specifies the maximum amount that can be borrowed subject to collateral type, eligibility, and advance rates, and is therefore the value assigned by the lender to the collateral provided by the borrower.

cash flow – The amount of cash derived over a certain period of time from an income-producing business. A positive cash flow is large enough to pay the expenses of the business (loan payments, operating costs, rent, etc. ), whereas a negative cash flow does not cover all operating costs, requiring the input of extra money from the owner.

clause – a provision or condition affecting the terms of a financing agreement.

collateral – real or personal property of estimable value, that is pledged as a security to back up a promise of payment. The borrower risks losing the property if the debt is not repaid according to the terms of the financing agreement.

compliance risk – the risk to earnings of capital arising from violations of or noncomformance with laws, rules, regulations, prescribed practices or ethical standards.

credit risk – the current and prospective risk to earnings of capital arising from a debtors failure to meet the terms of any contract with the financing institution or otherwise perform as agreed.

creditworthiness – a lender's measure of a borrower's ability to successfully manage his or her finances and make timely payments on debt as demonstrated by the borrower’s credit history, stream of income and other financial obligations.

current assets – balance sheet item that summarizes a company's cash, accounts receivable, prepaid expenses and other assets that are expected to be converted into cash in less than one year.

current liabilities – balance sheet item that summarizes a company's accounts payable, short-term debt, interests on long-term debt, income taxes and other obligations that must be paid within one year. Also known as payables or current debt.

debt – an amount of money or property owed to another, also known as a liability.

dividends – the payment of cash or stock that a company distributes out of its profits to shareholders, at equal amounts for each share of stock.

down payment – the part of the purchase price of an asset that the buyer pays in cash and does not finance through a loan.

earnings – the total amount of profits that a company realizes after all costs of sales, operating expenses and taxes have been paid with revenues. Earnings are the single most important measure of the company's expected future dividends and its potential for growth, and therefore, the market rewards both stable and fast earnings growth. Many successful companies report negative earnings during their initial stages because of heavy investments that will provide high levels of profitability in the future. Also called profits or net income.

economic risk – the risk that a business will not generate sufficient revenues to cover operating costs and to repay debt obligations.

equity – a company's total assets minus its total liabilities. It signifies owner's financial interest in a company – the amount of money that the owners would be able to keep if the company were sold at market value after paying all its liabilities.

factoring – the practice of purchasing invoices from a business at a discount. Alternatively, it is the process of selling accounts receivable to a "factor" for an advance on the total amount of the receivable.

financial analysis – an analysis, often conducted by third party financial analysts, of a company's financial statements.

financial leverage – a measure of the amount of debt used in the capital structure of a firm. Highly leveraged companies may find it difficult to find willing lenders, and are at risk of bankruptcy if they default on debt payments. However, companies seek financial leverage to increase shareholder's return on equity and to benefit from tax advantages associated with borrowing.

financial structure – the relative proportions in which a company's assets are financed, including liabilities and owner's equity. Financial structure differs from capital structure in that capital structure only includes long-term debt and equity.

financing – the manner in which a business owner plans to cover for the difference between the cash he has on hand, and the cash that he needs to have on hand to take advantage of a business opportunity.

fixed interest rate – interest rate that does not fluctuate with general market conditions and is therefore the same throughout the life of the loan.

fully amortized loan – a loan that is fully paid off completely through regular uniform payments of interest and principal.

good – a durable or consumable product that satisfies a market need.

installment – a scheduled periodic payment that a borrower agrees to make to a lender.

installment loan – borrowed money that is repaid in equal, regularly scheduled periodic payments.

interest – the charge for using borrowed money, usually expressed as a percentage of the amount borrowed. Interest rate is dependent upon the creditworthiness of the borrower, time of the loan and the expected inflation rate. Also known as the cost of money.

liability – an obligation to pay money to another party at a specified point in time.

liquid – cash or financial assets easily convertible to cash.

liquidity – (1) a company's ability to meet current obligations with cash or other assets that can be quickly converted into cash (2) a financial asset's ability to be converted into cash quickly and without price discounts.

lump sum – a single installment or advance for the total amount of the loan, rather than a series of periodic installments or advances.

maturity – the date on which a financial obligation becomes due and payable.

operating costs – the day-to-day expenses incurred in operating and maintaining a business, such as utilities and administration, as opposed to production, also called operating expenses.

principal – (1) the total amount that was originally borrowed, or the portion of that amount that remains unpaid. Interests on a loan are based upon the unpaid or outstanding principal amount (2) an important company executive.

principal risk – the risk of losing not only profits, but also the amount invested (i.e. principal) due to bankruptcy or default.

put option – an agreement which gives the buyer, or holder, the right, but not the obligation to sell a certain quantity of financial assets at a previously specified price and date to the seller, or writer of the option.

regulated lenders – financial institutions that operate under the regulations of certain monitoring government organizations.

risk – the quantifiable financial uncertainty that the actual return on an investment will be different from its expected return.

senior debt – debt that, in the event of bankruptcy, has to be repaid in full before any payments are made to cover subordinated debt.

stock – an instrument that signifies ownership in a corporation, and entitles its holder to a claim in the corporation's assets and profits proportional to the holders. Also called equity.

subordinated debt – debt that, in the event of bankruptcy, is repayable only after all senior debts have been repaid. Also called unsecured or junior debt.

term – length of time during which a specific financing agreement is effective. The maturity date signifies the expiration of the term and also the point at which the balance of the principal is either paid off or renegotiated under a new financing agreement.

transaction risk – the current and prospective risk to earnings and capital arising from fraud, error, and the inability to deliver products or services, maintain a competitive position, and manage information.

useful life – the length of time during which a depreciable asset will have economic value and be usable. Also called the economic life.

variable interest rate – interest rate that changes based on fluctuations in the rate paid by a controlling index (usually Treasury bills or bank certificates of deposit).

working capital – liquid assets that a company has available to maintain, build and expand normal business operations. Also known as net current assets or current capital (current assets minus current liabilities). Negative working capital indicates high levels of debt as well as a lack of funds to fuel growth.

yield – the annual rate of return on an investment, generally expressed as a percentage of the funds invested

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