The world of business finance can be confusing at the best of times. There is a plethora of different terms that are thrown around, some befuddling, others easier to comprehend. Hopefully this article will be able to present a glossary containing some of the more common business finance terms.
Annual fees are relatively simple. They are charged by the lender each and every year and ultimately pay for the administrative costs related to the loan.
Commercial term loans are a type of finance package that refer directly to business. Typically this term is used in conjunction with both unsecured and secured classification of loans for small to medium size businesses.
A credit report is a financial history provided to the lender from an external party; normally a credit reporting company or similar entity. This report will normally contain information on the number of loans an individual has taken, whether their mortgage repayments are made on time and whether non payment has ever been an issue. Ultimately it is this report that can limit the options when it comes to obtaining business finance.
Equipment leases are a type of financing that are specifically used for the purchasing of equipment. This could be manufacturing machinery or even computer equipment.
Inventory financing is a common option for business owners and is a term most often used to describe a situation where a business has borrowed funds against the value of a completed inventory. Fundamentally the finance package is only completed once the inventory has been finished.
Lines of credit act much like an overdraft and allow a business to borrow in an ad hoc manner. They are extremely useful for companies that have irregular cash flow and must maintain a financial platform to pay staff and suppliers.
Long term debt is a term often used. It describes a type of finance used to improve a company’s assets and facilities. Normally this type of loan will be large and hence the period of repayment is longer.
A short term debt on the other hand is typically used for day to day payments, for example for an inventory. The period of the finance package is shorter because the loan amount is smaller.
Term loan refers to a finance package that is for a specific amount of money. Normally this type of loan will have a fixed or variable interest rate and is typically paid back over a period of one to ten years.
It is hoped that this brief glossary has explained some of the terms used within the business finance sector. By understanding this terminology it is possible to make an informed and knowledgeable decision when it comes to finding a loan.