Business Loans Glossary

504 Loan Program
Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the Certified Development Company (CDC) (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The maximum SBA debenture is $1,000,000 for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $35,000 provided by the SBA. The maximum SBA debenture is $1.3 million for meeting a public policy goal. (last updated 03/19/2004)

7(a) Loan Guaranty
The 7(a) Loan Guaranty Program is one of SBA's primary lending programs. It provides 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, in turn, guaranteed by the SBA -- the Agency has no funds for direct lending or grants. (last updated 03/19/2004)

Affiliates
Business concerns, organizations, or individuals that control each other or that are controlled by a third party. Control may include shared management or ownership; common use of facilities, equipment, and employees; or family interest. The calculation of a firm's size includes the employees or receipts of all affiliates. Affiliation with another business concern is based on the power to control, whether exercised or not. Such factors as common ownership, common management and identity of interest (often found in members of the same family), among others, are indicators of affiliation. Power to control exists when a party or parties have 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement or when one or more parties own a large share compared to other parties. The affiliated business concerns need not be in the same line of business. (last updated 03/19/2004)

Asset
The entire property of a person, association, corporation, or estate applicable or subject to the payment of debts. (last updated 03/19/2004)

Balance Sheet
Financial statement listing a company's assets, liabilities, and equity on a specific date. (last updated 03/19/2004)

Book Value
The value of an item or property at a specific time after deducting depreciation from original cost. (last updated 03/19/2004)

Break-Even Point
The break-even point in any business is that point at which the volume of sales or revenues exactly equals total expenses -- the point at which there is neither a profit nor loss -- under varying levels of activity. The break-even point tells the manager what level of output or activity is required before the firm can make a profit; reflects the relationship between costs, volume and profits. (last updated 03/19/2004)

Business Plan
A comprehensive planning document which clearly describes the business developmental objective of an existing or proposed business applying for assistance in SBA's 8(a) or lending Programs. The plan outlines what and how and from where the resources needed to accomplish the objective will be obtained and utilized. (last updated 03/19/2004)

Capital
1. Assets less liabilities, representing the ownership interest in a business; 2. A stock of accumulated goods, especially at a specified time and in contrast to income received during a specified time period; 3. Accumulated goods devoted to the production of goods; 4. Accumulated possessions calculated to bring income. (last updated 03/19/2004)

Carrying Costs
Inventory costs associated with capital, storage, handling expenses, insurance, taxes and obsolescence. (last updated 03/19/2004)

Cash Flow
The movement of money into and out of your business. (last updated 03/19/2004)

Cash Flow Statement
An accounting presentation showing how much of the cash generated by the business remains after both expenses (including interest) and principal repayment on financing are paid. A projected cash flow statement indicates whether the business will have cash to pay its expenses, loans, and make a profit. Cash flows can be calculated for any given period of time, normally done on a monthly basis. Also, one of the Five "Cs" evaluated in determining a loan applicant's credit-worthiness (last updated 03/19/2004)

Certified Development Company (CDC)
The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area. (last updated 03/19/2004)

Community Adjustment and Investment Program (CAIP)
The United States Community Adjustment and Investment Program was created to help communities that suffered job losses due to changing trade patterns with Mexico and Canada following the North American Free Trade Agreement (NAFTA). The CAIP promotes economic implementation of the adjustment by increasing the availability and flow of credit and encourages business development and expansion in impacted areas. Through the CAIP, credit is available to businesses in eligible communities to create new, sustainable jobs or to preserve existing jobs. The CAIP works with the SBA in both their 7(a) Loan Guarantee Program and 504 Program to reduce borrower costs and increase the availability of these proven business assistance programs. (last updated 03/19/2004)

Compromise
The settlement of a claim resulting from a defaulted loan for less than the full amount due. Compromise settlement is a procedure available for use only in instances where the government cannot collect the full amount due within a reasonable time, by enforced collection proceedings or where the cost of such proceedings would not justify such effort. (last updated 03/19/2004)

Current Ratio
The ratio of current assets to liabilities. Also called "quick ratio." (last updated 03/19/2004)

Debenture
Debt instrument evidencing the holder's right to receive interest and principal installments from the named obligor. Applies to all forms of unsecured, long-term debt evidenced by a certificate of debt. (last updated 03/19/2004)

Debt Capital
Business financing that normally requires periodic interest payments and repayment of the principal within a specified time. (last updated 03/19/2004)

Debt Financing
The provision of long term loans to small business concerns in exchange for debt securities or a note. (last updated 03/19/2004)

Debt to Total Assets Ratio
Total debt divided by total assets. (last updated 03/19/2004)

Equity
An accounting term used to describe the net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities. (last updated 03/19/2004)

Equity Financing
The provision of funds for capital or operating expenses in exchange for capital stock, stock purchase warrants and options in the business financed, without any guaranteed return, but with the opportunity to share in the company's profits. Equity financing includes long-term subordinated securities containing stock options and/or warrants. Utilized in SBIC financing activities. (last updated 03/19/2004)

Equity Partnership
A limited partnership arrangement for providing start-up and seed capital to businesses. (last updated 03/19/2004)

Fair Market Value
What a qualified buyer will pay for goods, services, or property. (last updated 03/19/2004)

Fair and Reasonable Price
A price that is fair to both parties, considering the agreed-upon conditions, promised quality, and timeliness of contract performance. "Fair and reasonable" price is subject to statutory and regulatory limitations. (last updated 03/19/2004)

Financial Plan
An outline for how to use the money (capital) you have and how to raise the money you will need. (last updated 03/19/2004)

Fixed Assets
Equipment, buildings, etc., which are purchased and used for long-term purposes. (last updated 03/19/2004)

Fixed Costs
Costs of doing business such as rent, utilities, depreciation, taxes, etc., that remain generally the same regardless of the amount of sales of goods or services. (last updated 03/19/2004)

Franchise Registry
SBA's Franchise Registry is a good example of helping small businesses owners through cooperation between government and industry. The dedicated efforts of SBA employees, franchisees, franchisors, and lenders have led to streamlined eligibility guidelines and operating procedures that will reduce costs and processing time and help SBA serve its customers better. (last updated 03/19/2004)

Goodwill
An intangible asset of a business that relates to a favorable relationship with customers, and excess earning power. (last updated 03/19/2004)

Income Statement
Financial statement showing a company's sales, expense and net income or loss for a specific period of time. (last updated 03/19/2004)

Incubator
A facility designed to encourage entrepreneurship and minimize obstacles to new business formation and growth, particularly for high technology firms, by housing a number of fledgling enterprises that share an array of services. These shared services may include meeting areas, secretarial services, accounting services, research libraries, on-site financial and management counseling and word processing facilities. (last updated 03/19/2004)

Intermediary Organization
Organizations that play a fundamental role in encouraging, promoting, and facilitating business-to-business linkages and mentor-protégé partnerships. These can include both nonprofit and for-profit organizations: chambers of commerce; trade associations; local, civic, and community groups; state and local governments; academic institutions; and private corporations. (last updated 03/19/2004)

Inventory
Merchandise that is purchased and/or produced and stored for eventual sale. (last updated 03/19/2004)

Inventory Turnover
How often the inventory is sold and replenished over the course of a year. (last updated 03/19/2004)

Lease
A contract between the owner (lessor) and the tenant (lessee) stating the conditions under which the tenant may occupy or use real estate or equipment. Terms usually include a specific period of time and a predetermined rate. (last updated 03/19/2004)

Liability
Debt owed by the company such as bank loans or accounts payable. (last updated 03/19/2004)

Line of Credit
A short-term loan, usually less than one year. (last updated 03/19/2004)

Liquid Assets
Cash, checks and easily-convertible securities available to meet immediate and emergency needs. (last updated 03/19/2004)

Market Value
What a willing buyer will pay for goods, services, a property or a business. (last updated 03/19/2004)

Microloan Program
The MicroLoan Program provides very small loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $10,500. Applications are submitted to the local intermediary and all credit decisions are made on the local level. (last updated 03/19/2004)

Negative Net Worth
A business condition when total liabilities exceed total assets. (last updated 03/19/2004)

Net Worth
Property owned (assets), minus debts and obligations owed (liabilities), is the owner's equity (net worth). (last updated 03/19/2004)

North American Industry Classification System (NAICS)
The North American Industry Classification System (NAICS) is replacing the U.S. Standard Industrial Classification (SIC) system. NAICS will reshape the way we view our changing economy. NAICS was developed jointly by the U.S., Canada, and Mexico to provide new comparability in statistics about business activity across North America. (last updated 03/19/2004)

Quick Ratio
Current assets less inventories divided by current liabilities. Also called "acid ratio." (last updated 03/19/2004)

Return on Investment
The amount of profit (return) based on the amount of resources (funds) used to produce it. Also, the ability of a given investment to earn a return for its use. (last updated 03/19/2004)

Revolving Credit Account
A formal line of credit offered to larger businesses in exchange for up-front fees and standard interest payments. (last updated 03/19/2004)

SBA Loan
The SBA enables its lending partners to provide financing to small businesses when funding is otherwise unavailable on reasonable terms by guaranteeing major portions of loans made to small businesses. (last updated 03/19/2004)

Size Standards
The term "size standard" describes the numerical definition of a small business. In other words, a business is considered "small" if it meets or is below an established "size standard." (last updated 03/19/2004)

Small Business Investment Company (SBIC)
SBICs, licensed by the Small Business Administration, are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With their own capital and with funds borrowed at favorable rates through the Federal Government, SBICs provide venture capital to small independent businesses, both new and already established. (last updated 03/19/2004)

Standard Industrial Classification (SIC) Code
A code representing a category within the Standard Industrial Classification System administered by the Statistical Policy Division of the U.S. Office of Management and Budget. The system was established to classify all industries in the US economy. A two-digit code designates each major industry group, which is coupled with a second two-digit code representing subcategories. (last updated 03/19/2004)

Trade Name
The term used to identify a company. Any type of business may call itself a company. (last updated 03/19/2004)

Trademark
Words, names, symbols or devises, or any combination of these, used to identify the goods of a business and to distinguish these goods from the goods of others. (last updated 03/19/2004)

Turnover
Turnover is the number of times that an average inventory of goods is sold during a fiscal year or some designated period. Care must be taken to ensure that the average inventory and net sales are both reduced to the same denominator; that is, divide inventory at cost into sales at cost into sales at cost or divide inventory at selling price into sales at selling price. The turnover when accurately computed, is one measure of the efficiency of a business. (last updated 03/19/2004)

Variable Costs
Those costs of doing business such as cost of goods, shipping, handling and storage, sales commissions, etc., which are directly related to the sales of goods or services. (last updated 03/19/2004)

Venture Capital
Money used to support new or unusual commercial undertakings; equity, risk or speculative capital. This funding is provided to new or existing firms that exhibit above-average growth rates, a significant potential for market expansion and the need for additional financing for business maintenance or expansion. (last updated 03/19/2004)

Working Capital
Cash and short-term assets that can be used for current needs -- bills, etc. (last updated 03/19/2004)