Glossary
This glossary is a listing of financial terms that you may run across in different web sites and in your business development process. The following is another website that also has a glossary with additional micro enterprise terms that you may find useful.
http://www.microenterpriseworks.org/links/glossary/indexofterms.htm
- Acceleration Clause
- A loan contract clause stating that if you are in default, your creditor can demand payment of the entire balance of your loan at once, before its scheduled maturity.
- Accounts Payable
- The amount of money that you owe for goods or services that you bought.
- Accounts Receivable
- The amount of money that people or companies owe you.
- Accrual Accounting
- An accounting method and business practic which accounts for income as it is earned or due instead of when received or incurred.
- AHFC Loan
- A loan purchased by the Alaska Housing Finance Corporation from any mortgage lending institution qualified to make such loans.
- Amortization
- Repayment of a loan in installments of principal and interest, rather than interest-only payments.
- Annual Percentage Rate (APR)
- Cost of credit expressed as a yearly rate.
- Appraisal
- A report made by a qualified person giving an opinion or estimate of value.
- Appreciation
- An increase in the value of an item, for instance a business, due to changes in market conditions or other causes.
- Assets
- All property to include equipment, materials, vehicles, vessels, cash, investments, and other items you or your business owns.
- Assumption of Mortgage
- A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. Ordinarily, assumptions require a lender’s written consent and the original buyer may not be released from the liability.
- Balance Sheet
- A total list of all assets and liabilities in the business. The difference between them is owner equity.
- Balloon Payment
- A lump-sum principal payment due during the term of or at the end of a loan. It is substantially larger than the other payments.
- Blind Work Expenses
- An SSI work incentive which allows a person to exclude disability related work expenses when calculating the SSI cash payment.
- Break Even
- The status of a business when you have made enough money to cover all costs, but not making any profit. The total sales in dollars equal the total costs. Break even for people on Supplemental Security Income refers to when a person is earning enough from employment to no longer receive a cash payment.
- Capital
- Another word for “money”.
- Capitalization
- How you are going to raise money for your business.
- Cash Accounting Method
- An accounting practice which records income when received and paid.
- Cash Flow
- The movement of money into and out of a business as it sells products and services and pays expenses.
- Cash Flow Projection
- An estimate into the future of how cash will move through the business during a period of time.
- Collateral
- Assets that can be sold to repay a loan in the event of failure of the business.
- Consolidation Loan
- The process of paying off several smaller obligations with the proceeds of a new loan, usually with lower interest monthly payments than the combined total of the obligations being paid off.
- Contribution
- The difference between the selling price of a product and the cost to make that product. The amount of money that remains to pay fixed costs. After you break even, contribution is the amount of money from each sale of your product or service that now is counted as profit.
- Contribution Margin
- The percentage of the selling price that can be used to pay fixed costs. If a product is sold for $1.00 and it costs 70 cents to make the product, 30 cents is the contribution that can be used to pay fixed costs and 30 % or .3 is the contribution margin. 70 cents pays for the variable costs.
- Credit Rating
- An evaluation of your qualifications to receive credit, based largely on your past credit history.
- Credit Report
- A report given by a credit-reporting agency about your credit worthiness based on your present financial condition, experience and past credit history.
- Current Assets
- Cash or other assets you expect to use in the operation of the firm within one year.
- Current Liabilities
- Debts payable within one year, including current portions of any long-term debt.
- Debt-Financing
- A method of financing by borrowing money; a loan that must be repaid, such as a bank loan.
- Declining Balance
- The decreasing amount you owe on a debt as you make installment payments.
- Default
- Failure to pay a debt when due, or otherwise failing to comply with an essential term of a loan payment.
- Delinquent
- A credit account which is past due.
- Equity
- The difference between the market value of a property and the outstanding mortgage balance.
- Escrow
- An account established to monitor the repayment of an owner-financed type of contract while holding the transfer document – sometimes known as a contract-collections loan. These accounts can be bought, sold or used as collateral for bank-held loans.
- FHA Loan
- A loan insured by the Federal Housing Administration, which may be made by any mortgage lending institution qualified to make such loans.
- Finance Charge
- According to federal regulations, the total cost in dollar terms a borrower must pay, directly or indirectly, to obtain credit. The lender must disclose it.
- Fixed Costs
- Expenses that do not change during the normal operation of the business. These expenses remain constant regardless of the changes in sales.
- Fixed Interest Rate Loan
- A loan on which the interest rate is set or constant for the term of the loan.
- Homeowner’s Insurance
- An insurance policy that combines liability coverage and hazard insurance.
- Impairment related work expense
- An SSI and SSDI work incentive which excluded expenses related to disability and necessary for work.
- Income Statement
- An accounting form that reports business revenues, expenses and the resulting profit or loss for a particular period of time. Also called profit-and-loss statement or statement of income and expenses.
- Installment
- One of a series of payments to pay off a loan.
- Interest
- Money paid for the use of money, usually expressed as an annual percentage.
- Leverage
- Debt in relation to equity in a firm’s capital structure. Measured by the debt-to-equity ratio. The more debt, the greater the leverage.
- Liabilities
- Loans and other debts that you or the business must pay.
- Lien
- A legal claim or hold on property as security for repayment of a debt.
- Line of Credit
- A predetermined amount of credit immediately accessible to use as you need, and pay for only as you use.
- Loan-to-Value Ratio
- The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.
- Loan Terms
- Details and conditions of a loan contract, including finance charges, payment schedule, due date, annual percentage rate, etc.
- Micro-Loan
- Can be defined in terms of the size of the business loan amount requested; usually micro-loans are considered loans in the range of $1,000-$10,000.
- Mortgage
- A written pledge of real property to assure payment of a debt, allowing for sale of the real property to satisfy the debt, in event of default. Also known as "deed of trust."
- Net Earnings from Self Employment
- NESE is the subtraction of all IRS allowed business expenses from the gross profits.
- Note
- A written, signed promise to pay that lists the details of the repayment agreement.
- Origination Fee
- A charge for taking and processing a loan. This charge is also called a “bank fee.”
- Outstanding Indebtedness
- The still unpaid part of a loan.
- Owner Equity
- The difference, if any between total assets and total liabilities on a balance sheet. If assets are more than liabilities, the owner has that amount of equity it the business.
- Plan for Acheiving Self Support
- PASS is a work incentive for SSI beneficiaries which allows them to save money towards and employment goal without effecting their benefits.
- Payment Obligation
- An amount of money one is legally bound to pay.
- Prepayment
- Repaying part or all of a loan in advance of the due date, with or without penalty. Penalties for prepayment in full are often prohibited on consumer loans.
- Price
- The amount of money that a business charges for its product or service. The price must be enough to cover all costs and give the owner a desired return on his or her investment in the business.
- Prime Rate
- An interest rate formally announced by a bank, the lowest available at a particular time to its most creditworthy customers. The U.S. Small Business Administration uses the prime rate published in The Wall Street Journal.
- Principal
- The amount of money you borrow, or the amount of credit you receive exclusive of interest.
- Profit
- The amount of money that remains after all expenses (total costs) are paid.
- Property Essential for Self Support
- PESS is a resource exclusion for people on SSI benefits which allows all business assets to be excluded from SSI and Medicaid eligibility. Those assets will effect the cash payment but will allow for continued eligibility and Medicaid coverage.
- Refinance
- Revision of a loan by making a new loan with new terms.
- Return On Investment
- An amount of money that is included in the price of a product or service. It can be considered an expense since the business is expected to make enough money to pay this amount to the original investors. Return on investment is normally shown as a percent. For example, let’s say you put up $1,000 to start up a small business and you wanted a 10 percent return after one year for that investment. You are expecting the business to be able to pay all expenses, still have your original $1,000 plus an additional 10 % or $100 for a total of $1,100. A 10% return on an investment of $1,000 is $100.
- Revolving Credit
- A credit source such as a credit card agreement, which may be used to make additional purchases before repaying the existing debt in full. It is a type of line of credit in that interest is only charged on the monthly-unpaid balance, and only a portion of the unpaid balance need be repaid each month.
- Sales, Volume Sales, Revenue
- Terms that are used to represent the amount of money that is produced when a business sells products or services.
- Social Security Administration
- SSA is the main benefit program for people with disabilities in the United States. These benefits include SSI and SSDI.
- Social Security Disability Insurance
- A benefit program which pays a monthly benefit to people who have paid into the system. Benefits are determined based on the amount paid into the Social Security Trust fund and from Social Security Taxes.
- Supplemental Security Income
- SSI is a benefit program for people with disabilities who are in financial need.
- Substantial Gainful Activity
- SGA is the amount set by the SSA to determine eligibility for benefits based on work activity.
- Term
- The prescribed time you have in which to make payments under a loan contract.
- Underwriting
- The process of evaluating a loan application to determine the risk involved for the lender.
- Unpaid Balance
- The difference between the amount of money borrowed, including charges, and the amount of money paid to date.
- Unsecured Loan
- A loan extended solely on the borrower’s ability and promise to repay.
- VA Loan
- A mortgage loan guaranteed by the Department of Veterans Affairs and made by a private lender.
- Variable Costs
- Expenses that increase or decrease as sales increase or decrease. The expenses that are necessary to make the products or provide the services that you sell are variable costs. The more you sell, the more variable costs you must pay.
- Variable Rate Loan
- A loan that allows the lender to adjust the interest up or down with the market within the terms of the note. Your banker determines rates.
- Working Capital
- The money you use to keep your business running. In accounting, working capital is the difference between current assets and current liabilities.