Financing Glossary
Business financing is full of specialized terms. We've compiled the key concepts with explanations here so you can better understand the language of the financing world.
Found 46 terms
A
Annual Percentage Rate (APR)
The total cost of a loan per year as a percentage. Includes interest plus all mandatory fees and charges.
Arrangement fee
A one-time fee charged for granting a loan. Usually 0-2% of the loan amount.
B
Bank
A credit institution that accepts deposits and grants loans. Operates under the supervision of the Financial Supervisory Authority.
Bridge loan
A short-term loan that helps a company cope with a temporary cash flow problem or wait for permanent financing.
Business acquisition financing
Financing for buying another company. Can be secured with the assets and cash flow of the company being acquired.
Business financing
External capital that a company needs to run, grow, or invest in its operations. Can be loans, leasing, factoring, or other financing.
Business loan
A long-term loan for company investments or growth financing. Repaid in agreed installments with interest.
C
Cash flow
The difference between a company's income and expenses over a specific period. Positive cash flow means more money is coming in than going out.
Collateral
Property given to a lender as security for loan repayment. Can be real estate, machinery, inventory, or other valuable assets.
Comparison
A process of seeking quotes from multiple financiers to find the best option.
Credit decision
A financier's decision to grant or reject a loan. Based on the applicant's creditworthiness and application information.
Credit line
A flexible form of financing where a company has access to a certain amount of money and pays interest only on the portion used.
Credit rating
An assessment of a company's or person's ability to repay their debts. Based on payment history, financial situation, and other factors.
Crisis financing
Quick financing for a sudden cash flow problem or crisis situation. Usually short-term and more expensive.
D
Debt-to-equity ratio
The ratio of debt to equity. Indicates how much the company is indebted relative to its equity.
Due diligence
A thorough review of a company's financial situation, risks, and future prospects before a financing decision.
E
Early repayment
Repaying a loan before the agreed time. May include an early repayment fee.
EBITDA
Earnings before interest, taxes, depreciation, and amortization. Indicates the profitability of a company's operational activities.
Equipment leasing
Rental of machinery and equipment on a long-term contract. Often includes maintenance and may include a purchase option.
Equity ratio
The share of equity in a company's total capital as a percentage. Indicates the company's financial stability.
F
Factoring
A form of financing where a company sells its invoice receivables to a finance company and receives the money immediately. The factoring company handles invoicing and collection.
Factoring company
A company that buys invoice receivables from other companies and handles invoicing and collection.
Finance broker
A company that helps find suitable financing by comparing offers from different financiers.
Finance company
A company that offers various financing services such as loans, leasing, and factoring. Not a bank.
G
Gross margin
Revenue minus variable costs. Indicates how much money remains to cover fixed costs.
Growth financing
Financing designed for the needs of growing companies. Often combines loans and equity.
Guarantee
A commitment to be responsible for another person's or company's obligations if they cannot pay. Can be personal or corporate guarantee.
I
Interest
The price of a loan paid to the lender for the use of the loan. Usually expressed as an annual interest rate as a percentage of the loan amount.
International expansion financing
Financing for expanding abroad. Covers market research, establishing offices, and marketing.
Inventory financing
Financing where inventory serves as collateral. Suitable for companies with a lot of capital tied up in inventory.
Investment company
A company that invests money in other companies to finance growth. May also offer advisory services.
Investment financing
Long-term financing for acquiring machinery, equipment, premises, or other investments.
Invoice financing
A form of financing where a company receives money based on its invoices before they mature. Similar to factoring.
L
Leasing
A rental agreement where a company rents machinery, equipment, or a vehicle on a long-term basis. Lease payments are expenses for tax purposes.
Leasing company
A company that rents machinery, equipment, and vehicles on long-term contracts.
Liquidity
A company's ability to pay its short-term debts. Often measured by quick ratio or current ratio.
P
Payment default entry
An entry in the credit register for an unpaid debt. Negatively affects creditworthiness and access to financing.
Payment period
The time within which the loan is repaid. Can vary from a few months to several years.
Q
Quick ratio
A company's ability to pay its short-term debts with quickly convertible assets. Does not include inventory.
R
Repayment
Repayment of the loan principal. Can be equal installments (same amount each month) or annuity (same total payment).
Restructuring financing
Longer-term financing to correct a company's financial situation and reorganize business.
ROI (Return on Investment)
Return on invested capital. Indicates how profitably a company uses its capital.
S
Seasonal financing
Financing to balance seasonal fluctuations. Helps when sales vary according to seasons.
Startup financing
Financing for new, fast-growing companies. Often based on a business plan rather than history.
V
Vehicle leasing
Vehicle rental for business use. Usually includes insurance, maintenance, and tire service.
W
Working capital
The difference between a company's short-term assets and liabilities. Indicates how much money the company has available for daily operations.
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