Glossary of Lending Terms

  • Assets - Any interest in real or personal property which can, if necessary, be appropriated for the repayment of debt.
  • Bad Debt - A debt that is not collectible and is therefore worthless to the creditor. (See also Write-Off.)
  • Balance Sheet - A financial statement showing measures of the assets, liabilities and owner's equity or net worth of a business firm or nonprofit organization as of a specific moment in time.
  • Business Plan - A document that describes an organization's current status and plans for several years into the future. It generally projects future opportunities and maps the financial, operational and marketing strategies that will enable the organization to achieve its goals.
  • Capital - The money and other property of a corporation or other enterprise used in transacting its business.
  • Cash Flow Financing - A short-term loan which provides additional cash to cover shortfalls in anticipation of future revenue, such as the payment of receivables.
  • Collateral - Assets pledged to secure the repayment of a loan.
  • Current Asset - An asset that will normally be turned into cash within a year.
  • Current Liability - A liability that will normally be repaid within a year.
  • Current Ratio - A measure of liquidity equal to current assets divided by current liabilities. The higher the ratio, the greater the cushion between a company’s current obligations and its ability to meet them.
  • Debt - An amount owed for funds borrowed. It may be owed to an organization's own reserves, to private individuals, banks, or other institutions. Generally, the debt is secured by a note (see Promissory Note), bond, mortgage, or other instrument that states repayment and interest provisions. The note, in turn, may be secured by a lien against real or personal property or other assets.
  • Default - Failure to discharge a covenanted duty. The term is most often used to describe the occurrence of an event that impedes the rights or remedies of one of the parties to an agreement or legal dispute; for example, the failure to make a monthly loan payment.
  • Delinquent - A debt that has become due and payable but remains overdue and unpaid.
  • Liabilities - Financial claims against an individual’s or firm's assets; amounts owed to creditors.
  • Liquidity - The quality of being readily convertible into cash.
  • Principal - The amount of a loan from which interest is calculated.
  • Promissory Note - Also known as a note; literally, a promise to pay. A written contract between a borrower and lender which is signed by the borrower and provides evidence of the borrower's indebtedness to the lender.
  • Security - A pledge made to secure the performance of a contract or the fulfillment of an obligation, such as the repayment of a loan. Examples of securities include real estate, equipment, stocks or a co-signer.
  • Term - The maturity or length of time for final repayment of a loan, bond, sale or other contractual obligation.

Write-Off - Refers to the action of a lender charging the outstanding amount of a defaulted or seriously delinquent and uncollectible loan as a business expense or loss; the bad debt itself. (See also Bad Debt.)

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