Finance Terms You Should Know When Applying for Business Loans
As a business owner, you will most likely apply for business loans or some other form of financing at some point. To make sure you understand what is going on in the business loan application process, you should be familiar with these commonly used finance terms:
Line of Credit: A business line of credit is a fixed amount of money that lenders are set to provide for borrowers to draw down from when the borrowers need money. Borrowers can withdraw any amount whenever they want and interest will only be charged on the amount withdrawn.
Assets: Assets are anything you own that can be used as collateral for a loan. This can range from accounts receivable, real estate, equipment, inventory, amongst others.
Liabilities: Liabilities are financial debts and obligations that are associated with your company.
Principal: The principal amount is the total amount of money borrowed not including interest and fees.
Collateral: Collaterals are assets that you pledge as security for your financing. Most assets can be used as collateral. In the event of nonpayment, the lender can seize your pledged assets.
Unsecured Loan: This is a loan where the borrower does not ask for collateral. Unsecured loans will likely have higher interest rates and fees than secured loans (loans secured by collateral).
Business Credit Score: This is the credit score of your business and is different than your personal credit score. While both scores can be tied together, it is best to separate your business and personal financing as soon as possible. As such, new business owners should work towards building a reputable business credit score with credit bureaus as one priority.
Cash Flow: Cash flow measures how much money enters and exits your business accounts during a specific period of time. Positive cash flow is when your incoming cash, mostly from sales, is greater than the outflow of cash through payroll, bills, and other expenses. Cash flow is not the same as profit and is an indicator of your business’s financial performance.
Profit and Loss Statement: Also called an Income Statement, this is a report that summarizes a business’s revenue and expenses.
Invoice Factoring: Invoice factoring is an alternative to a bank loan and a popular financing option used by businesses that rely on invoices. Due to the unreliability of invoice repayment, selling invoices to a factor for immediate upfront cash is a commonly chosen option.
Accel Business Funding has provided invoice factoring and has funded many businesses for more than $380 million. When banks say NO, we say YES to funding in 24 hours!