When you’re a small business owner, you get used to learning on-the-go. There’s not usually someone around to help you figure out how things work, and you become an amateur bookkeeper, repair person, IT pro, PR expert, or whatever you need to at the moment. The Google search bar is your best friend, and you learned long ago to say, “Let me find out” instead of “I don’t know.” If you’re ready to expand or need an emergency influx of capital to keep your business running smoothly, you’re entering a whole new world of quick funding solutions.
Here are some common terms you’ll hear in the industry when you’re applying for capital.
Assets: are anything of value belonging to a company. If a borrower were to default on a loan, they could use their assets to repay the debt. Typical assets include equipment, real estate, inventory, or even intellectual property.
Bridge Loan: also known as a caveat loan or a swing loan, these short-term loans get a company from a challenging situation into permanent financing. Their terms are anywhere between just a few weeks up to a few years.
Cash Flow Financing: cash flow financing is a loan made to a company backed by anticipated cash flow, such as from revenue, rather than assets or equity. These loans are essential to businesses with high cash flow, without many physical assets.
Current Assets: everything that a company expects to sell, consume, use, or otherwise get rid of because of standard business operations in a fiscal year. These might include cash, inventory, or other liquid assets.
Due Diligence: every entity in an agreement does this before entering into a contract; for a lender, it includes confirming the income, financial statements, and assets of a borrower.
Equity: when a business has assets that exceed its debts, the value of that excess is called equity. It’s the portion returned to investors after the company settles its debts.
Guaranteed Loan: involves a third party who promises (or, guarantees) to pay a loan if a borrower cannot honor the debt. They’re common for borrowers with poor credit and minimal assets.
Intermediaries: these can be nonprofits or traditional for-profit companies who organize excess capital from foundations and funders and find companies who need those funds. They can develop specialized knowledge about an industry that conventional lenders can’t.
Loan Agreement: the specific written contract between a borrower and lender outlines the rights and responsibilities of both parties. It’s within the due diligence of both to review the loan agreement before signing.
Principal: this is the sum of the loan that’s received by the borrower, without interest. The principal amount is the value that collects interest and must be repaid to the lender.
Senior and Subordinate Debt: a business can carry two kinds of debt; senior debt takes priority and must be paid off before the subordinate debt in case of default. Senior creditors may claim assets before subordinate creditors.
Working Capital: also called operating liquidity, is the difference between a company’s liabilities and accounts payable and its assets such as cash, accounts receivable, raw materials, and inventory.
Traditional funding through a bank doesn’t work for every business. The long, complicated approval process and the waiting period before you can access funds can cause undue stress and hardship on small businesses that need cash flow now.
Capital Dude offers an easy online application, where you can get up to $750,000 in less than 48 hours. Whether you need help to make payroll, expand your business, secure equipment, or load up on inventory, we offer easy funding to the companies who need it. Get started with our online application today.
