FGCapital Home

Corporate Headquarters
8350 Wilshire Boulevard
Suite 200
Beverly Hills, CA 90211

Mailing Address
8306 Wilshire Boulevard
Suite 2047
Beverly Hills, CA 90211

Phone
310-739-7669

Fax
310-893-6401

Glossary of Financial Terms
A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Abstract (Of Title): A summary of the public records relating to the title to a particular piece of land. If there are any title defects they must be cleared before a buyer can purchase clear, marketable, and insurable title.

Acceleration Clause: Allows the lender to speed up the rate at which your loan comes due or even to demand immediate payment of the entire balance of the loan should you default on you loan.

Accounts Payable: The current outstanding balance that your company owes to other companies for supplies or services rendered.

Accounts Receivable: The current outstanding balance that other organizations owe to your company for supplies or services rendered. Accounts receivable represent a current asset for your business.

Accounts Receivable Turnover: The average amount of time that it takes for your accounts receivable or credit to get paid off. This ratio indicates how effectively your company manages its accounts receivable. This can be calculated by:

A/R Turnover = Sales/Accounts Receivable
Or in Days: A/R Turnover (Days) = 365/(Sales/Accounts Receivable)

Accrual Basis of Accounting: The accounting basis in which revenue and expenses are recorded in the period in which they are earned or incurred regardless of whether cash is received or disbursed in that period. This is the accounting basis that usually is required to be used in order to conform to generally accepted accounting principles (GAAP) in preparing financial statements for external users.

Adjustable Rate Mortgage (ARM): A mortgage in which the interest rate is adjusted periodically based on an index. Also known as the renegotiable rate mortgage, the variable rate mortgage or the Canadian rollover mortgage.

Adjustment Interval: On an adjustable rate mortgage, the time between changes in the interest rate and/or monthly payment, usually one, three or five years.

Advance Lease Payments: Many leasing transactions call for one, two, or more payments in advance. As a rule, when advance payments are required for more than just the first periodic payment, the additional advances will apply to payments due at the end of the lease. If payments are made monthly, for example, one advance will apply to the first month's payment while any additional advances will be applied to payments due at the end of the lease term. Advance payments are payable at, or prior to, lease inception.

After-tax Net Income: The total amount of money that your business makes annually after subtracting expenses and taxes from revenue.

Agreement of Sale: Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under specific terms spelled out in writing and signed by both parties.

Amortization: 1. The gradual reduction of a debt by means of equal periodic payments sufficient to meet current interest and liquidate the debt at maturity. When the debt involves real property, often the periodic payments include a sum sufficient to pay taxes and hazard insurance on the property. 2. The process of spreading the cost of an intangible asset over the expected useful life of the asset. Similar to depreciation, the idea of measuring the "consumption" of the economic value of long-term assets like equipment or buildings.

Amount of Financing Needed: The amount of financing that you need for your equipment or asset.

Annual After-tax Net Income: The total amount of money that your business makes annually after subtracting expenses and taxes from revenue.

Annual Fee: The amount a lender charges on an annual basis to cover administrative costs of financing.

Annual Percentage Rate (APR): The effective rate taking into account compounding and other fees. The nominal rate of interest for a specified period (usually one year).

Annual Revenue: The total amount of money that your business was paid in the most recent fiscal year. This is also known as Annual Sales. If your company has not been in business for a year, please estimate your company's annual revenue for this year.

Annual Salary: The total amount of personal income that you make annually.

Appraised Value: A professional opinion, usually written, of the market value of an asset whose market price is not easily determined.

Appraisal Fee: The charge for estimating the value of property.

Asset: Property and items of value owned by a person or business. The primary classifications of assets are: current assets, long-term assets, prepaid and deferred assets, and intangible assets. Current assets are cash and other liquid instruments, including accounts receivable that can be converted to cash within one year at maximum. Long-term assets are plants, equipment, real estate and other capital assets, and net of depreciation. Prepaid and deferred assets include expenditures for future costs or expenses, such as insurance, interest or rent, that are set up as assets to be amortized over an applicable period. Intangible assets are assets with a determined value, but which may not be scalable, such as goodwill, patents, copyrights, and brand name recognition.

Assumption: The agreement between buyer and seller where the buyer takes over the payments on an existing mortgage from the seller. Assuming a loan can usually save the buyer money since this is an existing mortgage debt.

Audit Quality: The accounting quality of the financials used. These numbers can either be derived from an audit by a third party, classified as "Audited" or "reviewed," or derived from within the company, classified as "Unaudited".

Audited Financial Statements: A company's financial statements, which have been prepared and certified by a Certified Public Accountant.

Auto: The amount of debt that you have left to pay off on your car(s) (if applicable).

Automated Teller Machines (ATMs): Electronic terminals through which customers may make deposits, withdrawals, or other transactions as they would through a bank teller.

Average Balance: The average monthly balance that your company's checking account has in the bank.

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B

Balance Sheet: An itemized financial statement that lists a company's total assets, liabilities, and capital at a given moment of time. Generally, amounts shown on a balance sheet are the historic cost of items and not their current values.

Balloon (Payment) Mortgage: Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining amount of the principal at a specific time.

Binder or "Offer to Purchase": A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded.

Billing Error: Any mistake in your monthly statement as defined by the Fair Credit Billing Act.

Book Value: An accounting term. Book value of an asset is determined by the amount it was purchased for less any depreciation. This may vary from the market value of the asset, which is the amount the asset is valued at when sold.

Borrowing: A way of acquiring necessary capital. One form of borrowing is when an individual or company asks a bank to loan them a certain amount of money, over a certain period of time, and agrees to pay a certain amount of interest.

Broker: An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself.

Building Line or Setback: Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be set by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Business Days: Find out from your institution to find out what days it counts as business days under the Truth in Lending and Electronic Fund Transfer Acts.

Buydown: When the lender and/or the home builder subsidizes the mortgage by lowering the interest rate during the first few years of the loan. While the payments are initially low, they will increase when the subsidy expires.

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C

Cash Basis of Accounting: The accounting basis in which revenue and expenses are recorded in the period they are actually received or expended in cash. Use of the cash basis is not considered to be in conformity with generally accepted accounting principles (GAAP) and is therefore used only in selected situations, such as for very small businesses and (when permitted) for income tax reporting. See also Accrual Basis of Accounting.

Cash Equivalents: The current approximate value of any personal holdings in the bank, in cash, in stock, or in securities.

Cash Flow: Reported net income of a corporation plus amounts charged for depreciation, depletion, amortization, and extraordinary charges to reserves, which are bookkeeping deductions and not paid out in actual dollars and cents. Because cash flow is so vital to your business, many lenders and investors will want to see cash flow projections two to three years in the future.

Caps (Interest): Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage may change per year and/or the life of the loan.

Caps (Payment): Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change.

Certificate of Title: A certificate issued by a title company or a written opinion by an attorney that the seller has good marketable and insurable title to the property which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence.

Certificate of Delivery & Acceptance: A document whereby the lessee acknowledges that the equipment to be leased has been delivered to him, is acceptable to him, and has been manufactured or constructed in accordance with specifications.

Closing: The meeting between the buyer, seller and lender where the property and funds legally change hands. Also called settlement.

Closing Costs: Includes a loan origination fee, points, appraisal fee, title search and insurance, survey, taxes, deed recording fee, credit report charge and other costs assessed at settlement. The closing costs usually are about 2 percent to 6 percent of the mortgage amount.

Closing Day: The day on which the formalities of a real estate sale are finished. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely reiterates the original agreement reached in the agreement of sale.

Cloud (On Title): An outstanding claim which negatively affects the marketability of title.

Collateral: Securities or other property pledged by a borrower to secure repayment of a loan.

Commission: Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

Commitment: An agreement, often in writing, between a lender and a borrower to loan money at a future date subject to the stated conditions.

Compiled Financial Statements: A company's financial statements which have been prepared by a Certified Public Accountant containing the CPA's opinion and disclaimer.

Condemnation: A determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium: Individual ownership of a unit and an individual interest in the common areas and facilities which serve the project.

Construction Loan: A short term interim loan for financing the cost of construction. The lender advances funds to the builder as the work progresses.

Contractor: A person who contracts to erect buildings. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building and others.

Conventional Loan: A mortgage not insured by FHA or guarantee by the VA or Farmers Home Administration (FmHA).

Cooperative Housing: An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Corporation: A business organization chartered by a state and given many of the legal rights as a separate entity.

Cosigner: Another person who signs your loan and assumes equal responsibility for it.

Cost of Goods Sold (COGS): The cost of materials and supplies that go into producing the company's products. This can be found by subtracting the value of your company's ending inventory from the sum of the beginning inventory and the net purchases for the fiscal period. COGS = (Beginning Inv. + Purchases) - Ending Inv.

Covenants and Conditions: Loan covenants and conditions will specify things that you can and can't do if you agree to the loan. Most covenants will set financial targets such as profit or cash flow targets, maximum debt-to-worth ratios, minimum net worth, etc., with penalties for violating them.

CPA: Certified Public Accountant.

Credit: The right granted by a creditor to pay in the future in order to buy or borrow in the present; also, a sum of money owed to a person or business.

Credit Rating: A published ranking, based on detailed financial analysis by a credit bureau, of a company or an individual's financial history, specifically as it relates to one's ability to meet debt obligations. Lenders will approve or deny a loan based on this information. The highest credit rating is usually AAA, and the lowest is D.

Credit Ratio: The ratio, expressed as a percentage, which results when a borrower's monthly payment obligation on long-term debts is divided by his or her net income (FHA/VA loans) or gross monthly income (Conventional loans)

Credit-related Insurance: Health, life, or accident insurance designed to pay the outstanding balance of debt.

Credit Report: A financial history compiled by a credit information company that contains financial and credit information on an individual or company.

Credit Scoring: A statistical technique used by lenders to determine whether to extend credit (and if so, how much) to a borrower. As a result of Credit Scoring, the borrower is given a credit rating.

Creditor: A person or business from whom you borrow or to whom you owe money.

Creditworthiness: Past and future ability to repay debts.

Current Assets: Those assets of a company that are reasonably expected to be realized in cash, sold, or consumed during the normal operating cycle of the business (usually one year). Such assets include cash, accounts receivable and money due usually within one year, short-term investments, U.S. government bonds, inventories, and prepaid expenses.

Current Liabilities: Money owed and payable by a company, usually within one year.

Current Portion of Long Term Debt (CPLTD): The portion of long-term obligations, which is due within the next fiscal year.

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D

Debit Card (EFT Card): A plastic card, looks similar to a credit card, that consumers may use to make purchases, withdrawals, or other types of electronic fund transfers.

Debt Financing: Financing by selling bonds, bills or notes to individuals or institutions.

Debt to Income Ratio: A measurement used by sole proprietors that divides their total debt by income, expressed as a percentage.

Debt to Worth Ratio: A measurement of debt liability on a company that divides the amount of debt by the company's net worth or equity, expressed as a percentage

Deed: A formal written instrument by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust , general warranty deed , quitclaim deed , and special warranty deed .)

Deed of Trust: In many states, this document is used in place of a mortgage to secure the payment of a note.

Default: Failure to repay a loan or otherwise meet the terms of your credit agreement.

Deferred Interest: See Negative Amortization .

Delinquency: Failure to make payments on time. This can lead to foreclosure.

Department of Veterans Affairs (VA): An independent agency of the federal government which guarantees long-term, low- or no-down payment mortgages to eligible veterans.

Depreciation: The amount of expense charged against earnings by a company to write off the cost of a plant or machine over its useful life, giving consideration to wear and tear, obsolescence, and salvage value. If the expense is assumed to be incurred in equal amounts in each business period over the life of the asset, the depreciation method used is straight line (SL). If the expense is assumed to be incurred in decreasing amounts in each business period over the life of the asset, the method used is said to be accelerated. Two commonly used variations of the accelerated method of depreciating an asset are the sum-of-years digits (SYD) and the double-declining balance (DDB) methods. Frequently, accelerated depreciation is chosen for a business' tax expense but straight line is chosen for its financial reporting purposes.

Detailed Description of Loan Purpose: In order for lenders to give you an offer for your financing need, they need to understand all the reasons that you have for borrowing money. Please explain why your company needs to borrow money, including both direct and indirect reasons, and describe how you will spend the proceeds.

Detailed Use of Proceeds: In order for lenders to give you an offer for your financing need, they need to understand all the reasons that you have for borrowing money. Please explain why your company needs to borrow money, including both direct and indirect reasons, and describe how you will spend the proceeds.

Disclosures: Information that must be given to consumers about their financial dealings.

Discount Points: Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g. two points on a $100,000 mortgage would cost $2,000).

Dividends/Withdrawals: The current outstanding balance of any of your company's loans, including both current and long-term debt. This represents the total amount that still needs to be paid off.

Documentary Stamps: A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment: Money paid to make up the difference between the purchase price and mortgage amount. Down payments usually are 10 percent to 20 percent of the sales price on Conventional loans, and no money down up to 5 percent on FHA and VA loans.

Due-On-Sale Clause: A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the mortgage holder sells the home.

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E

Earnest Money: Money given by a buyer to a seller as part of the purchase price to bind a transaction or assure payment.

Easement Rights: A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Elderly Applicant: As defined in the Equal Credit Opportunity Act, a person 62 or older.

Electronic Fund Transfer (EFT) Systems: A variety of systems and technologies for transferring funds electronically rather than by check.

Encroachment: An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance: A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Equal Credit Opportunity Act (ECOA): Is a federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status or receipt of income from public assistance programs.

Equipment Assets: The current value of the equipment that your company owns.

Equity: The ownership interest of common and preferred stockholders in a company. You have equity in a company when you invest your own capital into the company.

Escrow: Refers to a neutral third party who carries out the instructions of both the buyer and seller to handle all the paperwork of settlement or "closing." Escrow may also refer to an account held by the lender into which the homebuyer pays money for tax or insurance payments.

Estimated Liquidation Value: The value of the asset you would like financed, once it has reached its estimated useful life. This is also known as an asset's residual value.

Estimated Useful Life: The estimated amount of time (in years) that you will use the asset that you need to finance.

Extraordinary Gain/(Loss): The current approximate value of any other assets that your company holds.

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F

Fair Market Value Lease (True Lease): A lease which includes an option to either renew the lease at a fair market value renewal or purchase the equipment for its fair market value at the end of the lease term.

Fannie Mae: See Federal National Mortgage Association .

Farmers Home Administration (FmHA): Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

Federal Home Loan Mortgage Corporation (FHLMC): Also called Freddie Mac, is a quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

Federal Housing Administration (FHA): A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standard for underwriting mortgages.

Federal National Mortgage Association (FNMA): Also known as Fannie Mae. A tax-paying corporation created by Congress that purchases and sells conventional residential mortgages as well as those insured by FHA or guaranteed by VA. This institution, which provides funds for one in seven mortgages, makes mortgage money more available and more affordable.

FHA Loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderate-priced homes almost anywhere in the country.

FHA Mortgage Insurance: Requires a small fee (up to 3 percent of the loan amount) paid at closing or a portion of this fee added to each monthly payment of an FHA loan to insure the loan with FHA. On a 9.5 percent $75,000 30-year fixed-rate FHA loan, this fee would amount t o either $2,250 at closing or an extra $31 a month for the life of the loan. In addition, FHA mortgage insurance requires an annual fee of 0.5 percent of the current loan amount, the more years the fee must be paid.

Finance Charge: The total dollar amount credit will cost.

Financial Statement(s): Financial reporting for a company that includes an income statement, balance sheet and cash flow statement.

Fixed Interest Rate: An interest rate that is established at a specific figure for the entire length of a loan.

Foreclosure: A legal procedure in which property securing debt is sold by the lender to pay a defaulting borrower's debt .

Freddie Mac: See Federal Home Loan Mortgage Corporation .

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G

General Warranty Deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Ginnie Mae: See Government National Mortgage Association .

Goodwill: An intangible possession which enables a business to continue to earn a profit that is in excess of the normal or basic rate of profit earned by other businesses of similar type. The goodwill of a business may be due to a particularly favorable location, its reputation in the community, or the quality of its employer and employees. The evidence that goodwill exists is the proven ability to earn excess profits. Goodwill is created on the books of a newly purchased company to the extent that the purchase price of the company is greater than the value of its net tangible assets.

Government National Mortgage Association (GNMA): Also known as Ginnie Mae, provides sources of funds for residential mortgages, insured or guaranteed by FHA or VA.

Graduated Payment Mortgage (GPM): A type of flexible-payment mortgage where the payments increase for a specified period of time and then level off. This type of mortgage has negative amortization built into it.

Grantee: That party in the deed who is the buyer or recipient.

Grantor: That party in the deed who is the seller or giver.

Gross Monthly Income: The total amount the borrower earns per month, before any expenses are deducted.

Guarantee: A promise by one party to pay a debt or perform an obligation contracted by another if the original party fails to pay or perform according to a contract.

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H

Hazard Insurance: A form of insurance in which the insurance company protects the insured from specified losses, such as fire, windstorm and the like.

Home Equity Line of Credit: A form of open end credit in which the home serves as collateral.

Household Ownership: The current status of your personal residence - whether it is owned, rented, or being bought through a mortgage.

Housing Expenses-to-Income Ratio: The ratio, expressed as a percentage, which results when a borrower's housing expenses are divided by his/her net effective income (FHA/VA loans) or gross monthly income (Conventional loans).

HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

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I

Impound: That portion of a borrower's monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.

Income Statement: A report on a company's financial status over a period of time. It totals profits, subtracts expenses and pinpoints how much money the company can reinvest.

Income Tax: The amount of taxes that you currently owe.

Index: A published interest rate against which lenders measure the difference between the current interest rate on an adjustable rate mortgage and that earned by other investments (such as one- three-, and five-year U.S. Treasury Security yields, the monthly average interest rate on loans closed by savings and loan institutions, and the monthly average Costs-of-Funds incurred by savings and loans), which is then used to adjust the interest rate on an adjustable mortgage up or down.

Intangibles/Goodwill: Any non-physical assets that have been accrued from buying or selling divisions, branding, marketing, etc.

Interest: A charge paid for borrowing money.

Interest Expense: The amount of money that your company pays in interest for any current and long-term debt obligations during the fiscal period.

Interest Rate: The price, calculated as a percentage of the money loaned, that lenders charge the borrower for the use of the money loaned. The interest rate can be fixed or variable (also known as "floating"). Most floating interest rates are priced using indexes such as PRIME or LIBOR, which fluctuate over time in response to market conditions. These rates are published daily in The Wall Street Journal.

Interim Rent: Daily rental accruing from delivery, acceptance and/or funding until a later starting date for a basic term. Often used when a number of items of equipment to be leased under a single lease are delivered over a period of time.

Inventory: The current value of any supplies that your company has in stock which have not been sold to date.

Investor: Money source for a lender.

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J

Joint Account: A credit account held by two or more people so that all can use the account and all assume legal responsibility to repay.

Jumbo Loan: A loan which is larger (more than $203,150) than the limits set by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation . Because jumbo loans cannot be funded by these two agencies, they usually carry a higher interest rate.

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L

Late Payment: A payment made later than agreed upon in a credit contract and on which additional charges may be imposed.

Lease: A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.

Lease Rate (Rental Payment): The periodic rental payment to a lessor for the use of assets. Others may define lease rate as the implicit interest rate in minimum lease payments.

Lease Term: The fixed, non-cancelable term of a lease. Includes, for accounting purposes, all periods covered by fixed-rate renewal options which for economic reasons appear likely to be exercised at the inception of the lease. Includes for tax purposes, all periods covered by fixed-rate renewal options.

Lessee: The user of the equipment being leased.

Lessor: The party to a lease agreement who has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term, and is entitled to the rentals.

Leverage Ratio: Measures the relative contribution of stockholders and creditors, and of the company's ability to pay financing charges. Lenders use a debt-to-worth ratio to measure a company's leverage. Leverage represents the level of capital contributed by creditors to owners' capital contributions. Generally, higher leverage leads to higher risk for the company and, therefore, for the lender. For more information, see Debt to Worth Ratio.

Liabilities: All claims against the assets of a company. Liabilities can include accounts, wages and salaries payable; dividends declared; accrued taxes; and fixed or long-term debt such as bonds and bank loans.

Lien: A claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan Balances: The current outstanding balance of any of your company's loans, including both current and long-term debt. This represents the total amount that still needs to be paid off.

Loan to Value (LTV): The amount borrowed divided by the appraised value of the collateral, expressed as a percentage.

Lock Term: A lender's guarantee of an interest rate for a set period of time. The time period is usually that between loan application approval and loan closing. The lock-in protects you against rate increases during that time.

Long Term Debt: 1. The outstanding value of any long-term debt which has a maturity of greater than one year. 2. Loans and obligations with a maturity of longer than one year; usually accompanied by interest payments.

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M

Margin: The amount a lender adds to the index on an adjustable rate mortgage to establish the adjusted interest rate.

Market Value: The highest price that a buyer would pay and the lowest price a seller would accept on a property. Market value may be different from the price a property could actually be sold for at a given time.

Marketable Title: A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Maturity: The date on which a debt becomes due for payment.

Monthly Rent or Mortgage Payment: The amount that you pay monthly in rent or mortgage for your current personal residence.

Mortgages: A mortgage is a secured loan that is used to finance the purchasing of property. This number represents the amount of debt that you have left to pay off on your home (if applicable).

Mortgage Commitment: A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance: Money paid to insure the mortgage when the down payment is less than 20 percent. See Private Mortgage Insurance or FHA Mortgage Insurance .

Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage (Open-End): A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgagee: The lender.

Mortgagor: The borrower or homeowner.

MSRP: Stands for Manufacturer's Suggested Retail Price. It represents the manufacturer's recommended selling price for a vehicle and each of its options.

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N

Negative Amortization: Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid balance of the loan. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Net Discretionary Income (NDI): The amount of a company or individual's income available after all liabilities are covered. Also known as Disposable Income.

Net Income: The current approximate value of your company's plant, property (or real estate), and equipment. This value would be after you subtract any depreciation from these assets. Property, Plant, & Equipment is often known as Fixed Assets or Non-Current Assets.

Non-Assumption Clause: A statement in a mortgage contract forbidding the assumption of the mortgage without the prior approval of the lender.

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O

Off Balance Sheet Financing: Any financing that is not required to be shown as a liability in a company's balance sheet, such as an operating lease.

Open-End Credit: A line of credit that may be used over and over again, including credit cards, overdraft credit accounts, and home equity lines.

Open-End Lease: A lease which may involve a balloon payment based on the value of the property when it is returned.

Operating Expenses: Operating Expenses include the total amount of selling, administrative, and general expenses that your company incurs to keep in operation.

Origination Fee: The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of face value of the loan.

Other: 1. Any other assets that you or your company owns which you would like to use as collateral for your loan. 2. Any other liability that represents a monetary obligation for your company.

Other Assets: The value of any other assets that you hold personally.

Other Current Assets: The current approximate value of any other assets that your company holds.

Other Current Liabilities: Any other liability that represents a monetary obligation for your company.

Other Expense: Any other sources of expenses that your company generates independent of its normal operations.

Other Household Income: Any other form of income that your household makes annually.

Other Income: Any other sources of income that your company generates independent of its normal operations.

Other Loans: The amount of debt that you have left to pay off on any loans outstanding (if applicable).

Other Non-current Assets: Any other assets that have long term value for your company.

Other Non-current Liablities: Any other liability that represents a monetary obligation for your company.

Overdraft Checking: A line of credit that allows you to write checks or draw funds by means of an EFT card for more than your actual balance, with an interest charge on the overdraft.

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P

Partnership: An unincorporated business that has more than one owner. It is different from a sole proprietorship in that a sole proprietorship can have only one owner.

Percentage of Business Owned: The percentage of equity or stock that you have in the company relative to the total equity holdings of the company. This represents your ownership percentage.

Personal Guarantee: At times, business owners (especially in the case of proprietorships, partnerships, closely-held corporations, or small businesses) may be required to personally guarantee a lease or loan transaction by pledging personal assets. Personal guarantees are usually structured as "joint and several" meaning that each guarantor is wholly responsible for the whole loan. So even a 20 percent owner/guarantor is responsible for the whole loan not just 20 percent of it.

Personal Net Worth: The difference between an individual's total liabilities and assets.

PITI: Principal, interest, taxes, and insurance. Also called monthly housing expense.

Plat: A map or chart of a lot, subdivision or community drawn by a surveyor showing boundary lines, buildings, improvements on the land, and easements.

Plant, Property, & Equipment: The current approximate value of your company's plant, property (or real estate), and equipment. This value would be after you subtract any depreciation from these assets. Property, Plant, & Equipment is often known as Fixed Assets or Non-Current Assets.

Points: Discount Points

Point-of-Sale (POS): A method by which consumers can pay for purchases by having their deposit accounts debited electronically without the use of checks.

Power of Attorney: A legal document authorizing one person to act on behalf of another.

Preferred Rate: The type of interest rate that you would like to have to pay off your loan. Some interest rates are fixed, meaning that your payment is tied to a standard interest rate number that doesn't change. Other rates are variable, meaning that your interest rate will actually fluctuate in respect to market conditions. Variable rates are often tied to an indice such as Prime or LIBOR.

Preferred Term: The length of time you would like to have to pay back your loan. Terms of loans often range from 1 year to 5 years.

Prepaids: Expenses necessary to create an escrow account or to adjust the seller's existing escrow account. Can include taxes, hazard insurance, private mortgage insurance and special assessments.

Prepayment: A privilege in a mortgage permitting the borrower to make payments in advance of their due date.

Prepayment Penalty: Money charged for an early repayment of debt. Prepayment penalties are allowed in some form (but not necessarily imposed) in 36 states and the District of Columbia.

Primary Product/Service: The main focus of your business which derives a majority of your revenue.

Prime Rate: The rate at which lenders lend to their most favored customers.

Principal: The amount of debt, not counting interest, left on a loan.

Private Mortgage Insurance (PMI): In the event that you do not have a 20 percent down payments, lenders will allow a smaller down payment-as low as 5 percent in some cases. With the smaller down payments loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will require an initial premium payment of 1.0 percent to 5.0 percent of your mortgage amount and may require an additional monthly fee depending on your loan's structure. On a $75,000 house with a 10 percent down payments, this would mean either an initial premium payment of $2,025 to $3,375, or an initial premium of $675 to $1,130 combined with a monthly payment of $25 to $30.

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Q

Quitclaim Deed: A deed which transfers whatever interest the maker of the deed may have in the particular parcel of land. A quitclaim deed is often given to clear the title when the grantor's interest in a property is questionable. By accepting such a deed the buyer assumes all the risks. Such a deed makes no warranties as to the title, but simply transfers to the buyer whatever interest the grantor has.

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R

Rate: See Interest Rate.

Real Estate: The current approximate value of real estate that you or your company owns.

Real Estate Broker: A middle man or agent who buys and sells real estate for a company, firm, or individual on a commission basis. The broker does not have title to the property, but generally represents the owner.

Real Estate Settlement Procedures Act (RESPA): RESPA is a federal law that allows consumers to review information on known or estimated settlement costs once after application and once prior to or at settlement. The law requires lenders to furnish information after application only.

Realtor: A real estate broker or an associate holding active membership in a local real estate board affiliated with the National Association of Realtors.

Recision: The cancellation of a contract. With respect to mortgage refinancing, the law that gives the homeowner three days to cancel a contract in some cases once it is signed if the transaction uses equity in the home as security.

Recording Fees: Money paid to the lender for recording a home sale with the local authorities, thereby making it part of the public records.

Refinancing: The process of the same mortgagor paying off one loan with the proceeds from another loan.

Renegotiable Rate Mortgage (RRM): A loan in which the interest rate is adjusted periodically. See Adjustable Rate Mortgage .

Residual Value: The value of an asset at the conclusion of a lease.

Restrictive Covenants: Private restrictions limiting the use of real property. Restrictive covenants are created by deed and may "run with the land," binding all subsequent purchasers of the land, or may be "personal" and binding only between the original seller and buyer. The determination whether a covenant runs with the land or is personal is governed by the language of the covenant, the intent of the parties, and the law in the State where the land is situated. Restrictive covenants that run with the land are encumbrances and may affect the value and marketability of title. Restrictive covenants may limit the density of buildings per acre, regulate size, style or price range of buildings to be erected, or prevent particular businesses from operating or minority groups from owning or occupying homes in a given area. (This latter discriminatory covenant is unconstitutional and has been declared unenforceable by the U.S. Supreme Court.)

Retained Earnings: Profits a company keeps for its operations, after paying taxes and dividends.

Retirement Accounts: The current approximate value of any personal retirement accounts including 401(k), securities, and IRAs.

Revenue: The total amount of money that your business was paid in the most recent fiscal year. This is also known as Annual Sales. If your company has not been in business for a year, please estimate your company's annual revenue for this year.

Reverse Annuity Mortgage (RAM): A form of mortgage in which the lender makes periodic payments to the borrower using the borrower's equity in the home as security.

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S

Savings/CDs: The current approximate balance of any company or personal bank accounts.

Secured Loan: A loan which, in the event of default, has first claim on specified assets.

Security: Property pledged to the creditor in case of a default on a loan; see collateral.

Securities/Stock: The current market value of any stock or securities that you or your company owns.

Security Interest: The creditor's right to take property or a portion of property offered as security.

Service Charge: A component of some finance charges, such as the fee for triggering an overdraft checking account into use.

Servicing: All the steps and operations a lender perform to keep a loan in good standing, such as collection of payments, payment of taxes, insurance, property inspections and the like.

Settlement: See Closing .

Settlement Costs: See Closing Costs .

Shared Appreciation Mortgage (SAM): A mortgage in which a borrower receives a below-market interest rate in return for which a lender (or another investor such as a family member or other partner) receives a portion of the future appreciation in the value of the property. May also apply to mortgages where the borrower shares the monthly principal and interest payments with another party in exchange for a part of the appreciation.

Short Term Debt: Loans or liabilities that mature within the year; usually accompanied by interest payments.

Sole Proprietor: An unincorporated business organization having only one owner for the business.

Source of Additional Income: List all the sources of any additional household income.

Special Assessments: A special tax imposed on property, individual lots or all property in the immediate area, for road construction, sidewalks, sewers, streetlights, etc.

Special Lien: A lien that binds a specified piece of property, unlike a general lien, which is levied against all one's assets. It creates a right to retain something of value belonging to another person as compensation for labor, material, or money expended in that person's behalf. In some localities it is called "particular" lien or "specific" lien. Also see lien .

Special Warranty Deed: A deed in which the grantor conveys title to the grantee and agrees to protect the grantee against title defects or claims asserted by the grantor and those persons whose right to assert a claim against the title arose during the period the grantor held title to the property. In a special warranty deed the grantor guarantees to the grantee that he has done nothing during the time he held title to the property which has, or which might in the future, impair the grantee's title.

Subordinated Debt: Any debt or obligation that hold a junior claim to all other debt listed. This is the debt that would get paid-off after all senior claims are satisfied.

Survey: A measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to known points, its dimensions, and the location and dimensions of any building.

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T

Tax: As applied to real estate, an enforced charge imposed on persons, property or income, to be used to support the State. The governing body in turn utilizes the funds in the best interest of the general public.

Term: The period of time between the beginning loan date on the legal documents and the date the entire balance of the loan is due.

Term Mortgage: See Balloon Payment Mortgage.

Title: A document that gives evidence of an individual's ownership of property.

Title Insurance: A policy, usually issued by a Title Insurance company, which insures a homebuyer against errors in the title search. The cost of the policy is usually a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search: An examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.

Total Cost: The total amount paid for the equipment or asset you would like to finance.

Trustee: A party who is given legal responsibility to hold property in the best interest of or "for the benefit of" another. The trustee is one placed in a position of responsibility for another, a responsibility enforceable in a court of law.

Truth-in-Lending: A federal law requiring disclosure of the Annual Percentage Rate to homebuyers shortly after they apply for the loan.

Two-Step Mortgage: A mortgage in which the borrower receives a below-market interest rate for a specified number of years (most often seven or 10 years), and then receives a new interest rate adjusted (within certain limits) to market conditions at that time. The lender sometimes has the option to call the loan, due within 30 days notice at the end of seven or 10 years. Also called "Super Seven" or "Premier" mortgage.

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U

UCC: The Uniform Commercial Code which has been adopted by most states to govern commercial transactions.

UCC Financing Statement: A document filed with the Secretary of State (and sometimes with the county) to provide public notice of a security interest in personal property.

Underwriting: The decision whether to make a loan to a potential homebuyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Unpaid Taxes: The amount of taxes that you currently owe.

Unsecured Loan: A loan granted without collateral.

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V

VA Loan: A long-term, low-or no-down payment loan guaranteed by the Department of Veterans Affairs. Restricted to individuals qualified by military service or other entitlements.

VA Mortgage Funding Fee: A premium of up to 2 percent (depending on the size of the down payment) paid on a VA-backed loan. On a $75,000 30-year fixed-rate mortgage with no down payment, this would amount to $1,406 either paid at closing or added to the amount financed.

Variable Interest Rate: An interest rate will vary with a set indicator (such as the prime rate) during the length of a loan.

Variable Rate Mortgage (VRM): See Adjustable Rate Mortgage .

Vehicles: The current approximate value of any cars, trucks, tractors, or vehicles that you or your company owns.

Vendor Name: The name of the business from which you purchased your equipment or asset.

Verification of Deposit (VOD): A document signed by the borrower's financial institution verifying the status and balance of his/her financial accounts.

Verification of Employment: A document signed by the borrower's employer verifying his/her position and salary.

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W

Working Capital (WC): The difference between current assets and current liabilities which measures the margin of protection for current creditors. It reflects the ability to finance current operations. The term is commonly used as synonymous with net working capital.

Wraparound: Results when an existing assumable loan is combined with a new loan, resulting in an interest rate somewhere between the old rate and the current market rate. The payments are made to a second lender or the previous homeowner, who then forwards the payments to the first lender after taking the additional amount off the top.

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Y

Years in Business: The approximate length in time that your company has been conducting business since it was created.

Years in Current Residence: The approximate length of time that you have been in your current residence.


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Z

Zoning Ordinances: The acts of an authorized local government establishing building codes, and setting forth regulations for property land usage.


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