Running a retail business comes with constant learning curves: Whether you’re a rookie entrepreneur just starting out with a big potential, or a seasoned pro looking to expand. As a business owner, you should always be learning because regardless of career stage, there is always a new tool to master or problem to solve. One such factor is financial terminology which changes with the times. It is so important to consistently educate yourself on key financial concepts. So here is a handy glossary of financial terms to make sure that jargon doesn’t get in the way of opportunity:
1. Asset:
Some small business loan providers require something of value that is owned by either the business or its owner. This can be used as security for certain types of secured lending products.
2. Cash advance:
A lending product that has a fixed cost to access the funds but also comes with very flexible repayment terms and simpler qualification criteria.
3. Cash flow:
This refers to the funds that go in and out of a business in order to keep it running. Positive cash flow means the business has cash on hand to cover ongoing expenses. This requires delicate balance to manage and is often an entrepreneur’s lifeline to fund growth and respond to ever-changing factors.
4. Credit score:
In unsecured cash advances and loans, funding providers often run a ‘credit check’ on the business owners responsible for paying back the amount provided. There is a positive correlation between the height of your credit score and the terms you get on the facility you qualify for. Remember that you don’t need a perfect credit score to qualify for a merchant cash advance.
5. Collateral:
This is an asset that an applicant uses in order to qualify for a secured loan. In the case of a borrower defaulting on the agreement in a secured loan scenario, the lender has the ability to take possession of these assets. As a cash advance is an unsecured product, it does not require collateral. This is a win for new businesses that don’t yet have a lot of assets.
6. Default:
This refers to the failure to keep up with the agreed terms of a cash advance or loan.
7. Gross profit:
Often represented in a %, this is the total profit from selling your products after taking the cost incurred selling the product into account.
8. Fixed cost:
This is an expense that never changes. When applying for a cash advance this refers to the cost of the funding.
9. Interest rate:
Also expressed as a %, this is the rate, which is owed on an amount lent over a fixed term. This is a key element that differentiates a loan from and a cash advance because with a cash advance there is no interest. There is a fixed cost to access funds, which never changes regardless of the term. Conversely, with a loan, there is an interest rate, which fluctuates in response to external factors.
10. Loan:
A lending product that has a set interest rate and term in which it has to be repaid.
11. Secured loan:
A financial product that requires the borrower to put up assets as security to prevent the business from skipping repayments.
12. Split processing:
This is a unique technology-based repayment system that literally splits point-of-sale/card payments between two parties. This allows the borrower to repay an advance (directly to the lender) as a percentage of each card swipe. This is an alternative to a traditional debit order repayment and a key feature of a cash advance.
13. Stacking:
When a single lender takes a second (or even third) cash advance or similar funding type over and above an existing cash advance. This is considered an irresponsible lending practice and therefore not allowed by SASFA and its members.
14. Term:
This refers to the amount of time it takes to pay back the total amount borrowed from a funding provider. This term may be set and known as a ‘fixed term loan’. Alternatively it may be flexible, like a merchant cash advance, which allows funds to be paid back in line with the business’ turnover and therefore uses an estimated repayment period.
15. Unsecured loan:
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.
