Entrepreneurs and business owners have a lot to juggle with little time left to master the skills they need to keep the cogs turning. When it comes to business and finance, Beyond Merchant Capital is here to help. That’s why we prepared a list of financial terms that every business owner needs to know. Short explanations provided in plain English for fast mental consumption!
Glossary of key financial terms for business owners:
This refers to any computer program that tracks your small business financing and transactions. It will also provide automated reports and analysis.
When a company purchases goods on credit, they need to be paid back within a short period of time.
Accounts receivable (AR):
This refers to when the balance of money due to a supplier for services delivered, has not yet been paid.
Annual percentage rate (APR):
This refers to measuring the full cost a lender charges per year for funds. APR combines the total amount of interest payable and the cost of other fees and charges.
An asset is something of value which owned by the business. It functions as security against secured lending products.
This is a snapshot of a company’s net worth. The balance sheet is based on the fundamental equation: Assets = Liabilities + Equity.
This refers to the systematic recording of all small business financing and transactions.
This refers to the funding of startups and growth using personal finances and revenue from the business. Bootstrapping gives a business owner much more control over decision-making.
Business credit score:
This is based on a business’ credit and repayment history. It includes legal filings, size, and length of time in business. Equifax, Experian, and Dun and Bradstreet are the three major business credit scoring companies in Australia.
The wealth of a business as captured in its accounts, assets and investments. In small business financing, capital refers to money invested in a business (in the form of debt or equity) to generate income.
Cloud-based accounting software:
Cloud accounting software is similar to traditional software on your physical premises. But accounting software is hosted on remote servers. Data is sent to “the cloud,” where it is processed and returned to the user.
Credit limit refers to the maximum amount of credit a lender will extend to a client. It is also the maximum amount a credit card company allows a borrower to spend on a single card.
Debt consolidation is the process of combining all of your unsecured debts into a single monthly payment.
This occurs when a company borrows money to be paid back at a future date with interest. It could be in the form of a secured or unsecured loan.
Equity financing occurs when a company sells shares in order to raise capital.
This is a collection of records of a business’s financial activities, over a specified period. There are 4 main reports: the income statement, the balance sheet, the statement of cash flows and the statement of shareholder’s equity.
Fixed interest rate:
A fixed interest rate holds steady throughout the term of the loan. It does not change with the market.
Floating interest rate:
A floating interest rate, also known as a variable or adjustable rate, changes with the market over time.
A financial report that addresses the bottom line directly, by reporting how much a company has earned and spent over a period of time. If the difference between the gains and losses is positive, the statement shows net income. If the net amount is negative, the business suffers a net loss.
A percentage that represents the current rate of borrowing or the amount earned on an interest-bearing account. For loans, higher interest rates generally represent higher risk. They can be fixed or variable.
Raising capital for your business by selling unpaid invoices at a discount.
This refers to the legal obligation to settle a debt. Each of these liabilities is recorded on a company’s balance sheet. They can include accounts payable, taxes, wages, accrued expenses, and deferred revenues.
A lien is the legal claim of a creditor to the collateral of a debtor who does not meet the obligations of their signed contract.
A line of credit:
A line of credit is an account you have with a lender that allows you to borrow money when you need it. It will have a limit in place Interest is only charged once you borrow money. When you pay back any borrowed funds, your available credit line is replenished.
An MCA is a short-term loan based on a business’ monthly sales volume. Repayment is made through a fixed or percentage. It is taken off daily or weekly sales.
Personal credit report:
A personal credit report is prepared by a credit bureau. It contains detailed information about an individual’s financial history with banks, credit card companies, collection agencies, and government bodies. Credit scores are based on the information in a credit report.
Personal credit score:
A credit score is a numerical score that shows lenders how trustworthy your reputation is as a borrower. You can check your credit score for free using the national credit reporting bodies (CRBs) listed on the government website.
A financial product that requires the borrower to put up assets as security to prevent the business from skipping repayments.
Small business financing:
Small business financing refers to the means by which a small business owner obtains money to start a new business, purchase an existing one or bring money into an existing operation, to finance current or future business activity.
When a single lender takes a second (or even third) cash advance or similar funding type over and above an existing cash advance. Stacking is considered an irresponsible lending practice.
Government agencies use tax liens to collect outstanding debt. A business may get rid of a lien by getting the debt dismissed in bankruptcy court. They can also pay what is owed or establish an offer in compromise with tax authorities.
This refers to the amount of time it takes to pay back the total amount borrowed from a funding provider. A term may be fixed or flexible. A merchant cash advance allows funds to be paid back in line with the business’ turnover. This uses an estimated repayment period.
This is a lending option where the borrower does not have to put up any collateral as security- but often signs personal surety for the amount taken. It also attracts a higher interest rate than a secured option.
Working capital is the life force of any small business. It refers to the cash available for day-to-day operations. There are trusted lenders who are able to help you secure fast working capital to take your small business to the next level.
Speak with a lending specialist today about funding the growth of your business.