ACCOUNTS RECEIVABLE FINANCING A short-term financing technique for working capital purposes, loans to a company are collateralized by a security interest in a company's account receivables. Account receivables serve as collateral, and loans are made on a percentage of eligible assets pledged.
ACQUISITION A loan to assist in acquiring the assets of a business.
ASSET BASED A business loan where the borrower pledges as collateral for the loan any assets used in the conduct of his or her business. Funds are used most business related expanses. All asset-based loans are secured.
CONDUIT LENDING Many differing definitions: Here are just two--- a) May refer to the use of contracts such as receivables to secure a real estate transaction. b) A pool of mortgages sold to another lender.
CONSUMER LOAN Loan made to individuals for personal needs.
CONSTRUCTION Funds designated for the construction of a new home or commercial building. Usually not including the cost of the property.
DEBT CONSOLIDATION A method of combining existing debt, usually credit cards and high interest rate loans, and paying them all off with one loan. A debt consolidation loan often involves the use of real estate as collateral and lowers the monthly payment amount.
HARD MONEY Term applied to, usually, private lenders who extend credit for high risk or under-secured transactions. High rates and terms are expected to compensate for the greater risk of these transactions.
HOME EQUITY LOAN Funds borrowed against the equity--value less debt.
HOME IMPROVEMENT Funds for the purpose of home remodeling or expansion.
IMPORT-EXPORT The financing extended to a business as a purchaser of goods from abroad or as a seller of goods to a foreign purchaser. Letters of credit are usually involved.
INVENTORY A form of asset-based lending where the lender funds a percentage, usually up to 60% of the inventory cost or market value, depending upon the type of inventory.
LEASING-EQUIPMENT An agreement under which the owner of the property permits someone else to use it. Leasing enables a business to acquire equipment without having to pay for it all at the outset. There is little or no down-payment and the equipment often may be purchased at lease end for as low as $1.00 by prior agreement.
LETTERS OF CREDIT A document, usually issued by a bank, in which the issuer agrees to accept drafts, under conditions set forth in the document, to be charged against previously established credit.
LINE OF CREDIT An arrangement whereby a lender agrees to lend up to a specific amount of money during a specific period, usually one year. A commitment fee is sometimes imposed on the borrower. For business, a line of credit is the most economical way to borrow money since only interest is charged on the amount actually borrowed. A second type of line of credit is called revolving. A revolving line of credit usually requires collateral (accounts receivable/inventory), has a loan duration over a year, and is available only to established companies.
MERGERS The combining of two or more corporations.
MEZZANINE Debt or equity participation for the difference between the secured lending amount (as determined by the available collateral) and the purchase price.
MORTGAGES A legal document in the financing process involving real estate whereby it insures the performance of an act by a borrower.
PURCHASE ORDER Written authorization to a vendor to deliver specified goods or services at a stipulated price. Once accepted by the supplier, the purchase order becomes a legally binding purchase contract.
R.E. COLLATERAL LOAN Amount of loan is usually based on a percentage of the equity.
R.E. DEVELOPMENT Funds for the purpose of building on, or in some manner, increasing the value of land and property.
REVERSE MORTGAGES Lender and property owner agree on a selling price and lender makes monthly payments to owner. Use of the property, title, rate of interest, and many other terms should be fully understood before entering into this type of transaction. Accounting and Legal advise is highly recommended.
REVOLVING LOAN A loan that is automatically renewed upon maturity.
TAX EXCHANGE In real estate, the exchange of one piece of property for another per IRS guidelines.
TURN AROUND In asset-based finance, a turnaround loan is temporary financing, secured or unsecured, designed to assist the borrower to acquire assets or stock. Turnaround loans are designed to be repaid promptly and are usually succeeded by revolving financing.
UNSECURED CREDIT Loans made to companies or individuals without using any specific assets as security. Excellent credit is needed and rates may be higher due to the lack of security.
VENTURE CAPITAL A source of equity financing for small businesses with major growth potential. Involves the sale of part ownership and usually for amounts greater than $250,000.
WHOLESALE CONTRACTS Sale of loan or mortgage contracts from one lender to another.
WORKING CAPITAL Loans for business expenses such as, advertising, wages, rents, and other operational costs. Often these loans are secured by tangible assets or, in the case of long-standing good credit, by the "full faith and credit" of the company.
*Disclaimer: There can be many different definitions and interpretations of the above terms. It is highly advisable to speak to your chosen lender to arrive at a clear understanding.
