This represents what a business owes to its suppliers and other creditors at a given point in time.
This represents the amount due to a business by its customers at a given point in time.
ACCOUNTS RECEIVABLE FINANCING
A loan gained by borrowing against receivables. Loans are paid down as receivables are collected.
A method of bookkeeping in which income and expenses are allocated to periods to which they apply, regardless of when actually received or paid. For example, when an invoice is rendered, its value is added to income immediately, even though it has not been paid. (Also see CASH ACCOUNTING)
The amount charged by the lender each year to cover the administrative costs of the loan/line.
Verification of financial records and accounting procedures generally conducted by a CPA or accounting firm or if you’re really unlucky, the IRS.
A third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. Types of bonds include LICENSE, PERFORMANCE, BID, and INDEMNITY & PAYMENT. (Also see SURETY BOND)
The point at which sales equal total costs.
BUSINESS CREDIT CARD
An amount of money, which a business can borrow against at times it needs capital. Using a card accesses the money.
The simplest form of accounting in which income is considered earned when received and expenses are not taken into account until paid.
“Let the buyer beware”
An asset that can be sold for cash and which has been pledged to a creditor to secure a future obligation. (For example, if you finance a car it is the collateral for the loan).
COMMERCIAL REAL ESTATE LOANS
Similar to residential mortgages, but collateral is business property. Interest rates are usually fixed; the length of the loan can range from 5-20 years and payments due monthly.
Interest earned on previously accumulated interest plus the original principal. Most spread sheets can calculate this easily for you but for the curious, the formula is C = P(1 + r/n)n, where C=compound amount, P=original principal, r=annual interest rate, n=total number of periods over which interest is compounded.
An agreement between two (or more) parties in which each promises to perform in some way. Contracts can be complex and should always be reviewed by an attorney. A contract may not be binding if not correctly drafted and executed.
A predictor of the ability to pay back a loan. The credit rating is a result of credit scoring.
A listing of an individual or company’s history of repaying past loans and other liabilities.
The evaluation system used by lending institutions to determine relative credit riskiness of a business or consumer.
Decrease in the value of equipment over time. Depreciation of equipment used for business is a tax-deductible expense.
A shipment directly from the manufacturer to the end user.
DUNS (Data Universal Numbering System)
A database maintained by Dun and Bradstreet that is used by the Government to identify each contractor and their location(s). This number is required to register with the Central Contractor Register (CCR) that is used by the government’s electronic commerce/electronic data interchange (EC/EDI) system called FACNET. You can obtain a DUNS number at no cost by calling Dun and Bradstreet at 800-333-0505.
Someone who is willing to assume the responsibility, risk and rewards of starting and operating a business.
Leases allowing companies to purchase new equipment.
This involves “selling” a portion of your company to an outside investor. You have no obligation to repay the funds. In general, venture capital firms provide this type of funding.
Temporary monetary deposit with an independent third party by agreement between two parties. The escrow money is released when certain agreed conditions have been met.
(Employee Stock Ownership Plan). A plan where employees have a vested interest (stock ownership) in the company
A person or company entrusted with assets owned by another party (beneficiary), and responsible for investing the assets until they are turned over to the beneficiary.
Any 12-month period used by a company or government as an accounting period.
A production cost which does not vary significantly with the volume of output. An example would be administrative costs. (Also see VARIABLE COST).
FIXED INTEREST RATE
An interest rate that is the same throughout the life of a loan.
A franchise is a form of licensing. The franchiser provides his services through a series of franchisees. Before investing in any franchise, check with the International Franchise Association at 1 800 543 1038 to see if the franchise is a member in good standing.
FREE ON BOARD (FOB)
Commercial term in which the seller’s obligations are fulfilled when the goods reach a point specified in the contract.
Pledge by a third party to repay a loan in the event that the borrower cannot. A special case is a PERSONAL guarantee in which you personally guarantee an obligation.
Programs in which the federal government makes an arrangement to indemnify a lender against part or all of any defaults by those responsible for repayment of loans. An example is a small business loan guaranteed by the SBA.
The amount charged by a lender for the money borrowed. It can be fixed or variable
Money borrowed on the basis of finished inventory. The loan is paid as inventory is sold.
LINE OF CREDIT
An amount of money, which a business can borrow against at times it needs capital. Often accessed by check, ATM or business card.
Sale of the assets of a business to pay off debts.
The length of time the borrower has to repay debt.
LONG TERM DEBT
Financing used to purchase or improve assets such as plant, facilities, large equipment and real estate.
A loan’s maturity is the life of the loan; that is, how long you have to repay the loan. Usually applies to term loans and not lines of credit.
The Small Business Administration defines minorities as those who are “socially and economically disadvantaged.” The U.S. Code of Federal Regulations (CFR) contains the specific requirements.
MLM (Multi Level Marketing)
Multilevel marketing (MLM) plans are a way of selling goods or services through distributors. These plans promise that if you sign up as a distributor, you will receive commissions — for both your sales of the plan’s goods or services and those of other people you recruit to join the distributors. Be careful of plans that offer to pay commissions for recruiting new distributors. This is called “pyramiding” and is illegal in most states.
OSDBU (Office of Small and Disadvantaged Business Utilization)
These offices offer small business information on procurement opportunities, guidance on procurement procedures, and identification of both prime and subcontracting opportunities with the United States Government.
Business expenses not directly related to a particular good or service produced. An example would be utilities.
This is the Procurement Automated Source System managed by the Small Business Administration. Registering with this central referral system of small businesses interested in selling to the government can bring you business with almost no effort. Registration is free. Call 1 800 231 7277.
A guarantee that the primary owner will assume personal responsibility for repayment of the loan, should the company not repay the loan.
POWER OF ATTORNEY
An agreement authorizing someone (generally an attorney) to act as your agent. This agreement may be general (complete authority) or special (limited authority).
The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime lending rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. The rates reported below are based upon the prime rates on the first day of each respective month
PROFIT & LOSS (P & L) STATEMENT
A listing of income, expenses, and the resulting net profit or loss. This is also called an income statement.
PROMPT PAYMENT ACT
A federal law that requires federal agencies to pay interest to companies on bills not paid within 30 days of invoice or completion of work.
Loans to small businesses unable to secure financing on reasonable terms through normal lending channels. The program operates through private-sector lenders that provide loans, which are guaranteed by the Small Business Administration (SBA) — the SBA has no funds for direct lending or grants.
Small Business Development Centers are located throughout the United States and are administered by the SBA. They provide management assistance to entrepreneurs and new business owners.
SBIC (Small Business Investment Corporation)
SBICs are licensed by the SBA as federally funded private venture capital firms. Money is available to small businesses under a variety of agreements.
The Service Corps of Retired Executives is a volunteer management assistance program of the SBA. SCORE volunteers provide one-on-one counseling and workshops and seminars for small businesses. There are hundreds of SCORE offices throughout the United States.
A loan secured by specific collateral. Creditors may foreclose and seize the specific property that is collateral to satisfy an unpaid secured loan.
SHORT TERM DEBT
Financing used to secure cash for accounts payable and inventory.
SIC (Standard Industrial Classification Code)
A four-digit number assigned to identify a business based on the type of business or trade involved. The first two digits correspond to major groups such as construction and manufacturing, while the last two digits correspond to subgroups such as constructing homes versus constructing highways. A business can determine it’s SIC number by looking it up in a directory published by the Department of Commerce, or by checking in the SIC book in the reference section of a local library. SBA size standards are based on SIC codes.
Interest paid only on the principal of a loan.
SMALL BUSINESS ADMINISTRATION
Established by Congress, the SBA provides financial, technical and management assistance to help Americans start, run, and grow their businesses.
The simplest (and most popular) form of business organization. The individual is personally liable for all debts of the business to the full extent of his or her property. On the other hand, the owner has complete control of the business.
Surety bonds provide reimbursement to an individual, company or the government if a firm fails to complete a contract. SBA guarantees surety bonds in a program much like SBA’s guaranteed loan program.
A common form of “investment.” This refers to the investment in time owners make, with no salary, to a new business.
A brokerage or bank account whose cash balance is automatically transferred into an interest-bearing investment, such as a money market fund. Use sweep accounts to earn interest on surplus cash. At the end of each business day, a sweep account would transfer excess funds into an interest-bearing account, earn overnight interest, and make the funds available the next day.
A loan for a specific amount of money.
Rental type in which the tenant pays rent to the landlord and additionally assumes all costs regarding the operation, taxes and maintenance of the premises and building.
An interest rate that changes during the life of the line when prime rate changes.
Money used to support new or unusual undertakings; equity, risk or speculative investment capital. This funding is provided to new or existing firms which exhibit potential for above-average growth.