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Glossary of Terms
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ACCOUNTS PAYABLE
Trade accounts of businesses representing obligations to pay
for goods and services received.
ACCOUNTS RECEIVABLE
Trade accounts of businesses representing moneys due for goods
sold or services rendered evidenced by notes, statements, invoices,
or other written evidence of a present obligation.
ACCOUNTING
The recording, classifying, summarizing, and interpreting in
a significant manner and in terms of money, transactions, and
events of a financial character.
ASSUMPTIONS
The act of assuming/undertaking another's debts or obligations.
AUCTION
A public sale of goods to the highest bidder.
AUTOMATIC DATA PROCESSING
Data processing largely performed by automatic means.
The discipline which deals with methods and techniques of automatic
data processing.
Pertaining to data processing equipment such as electrical accounting
machines and electronic data processing equipment.
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BANKRUPTCY
A condition in which a business cannot meet its debt obligations
and petitions a federal district court for either reorganization
of its debts or liquidation of its assets. In the action the
property of a debtor is taken over by a receiver or trustee
in bankruptcy for the benefit of the creditors. This action
is conducted as prescribed by the National Bankruptcy Act, and
may be voluntary or involuntary.
BREAKEVEN POINT
The breakeven point in any business is that point at which the
volume of sales or revenues exactly equals total expenses -
the point at which there is neither a profit nor loss - under
varying levels of activity. The breakeven point tells the manager
what level of output or activity is required before the firm
can make a profit; reflects the relationship between costs,
volume, and profits.
BUSINESS BIRTH
Formation of a new establishment or enterprise.
BUSINESS DEATH
Voluntary or involuntary closure of a firm or establishment.
BUSINESS DISSOLUTION
For enumeration purposes, the absence from any current record
of a business that was present in a prior time period.
BUSINESS FAILURE
The closure of a business causing a loss to at least one creditor.
BUSINESS PLAN
A comprehensive planning document which clearly describes the
business developmental objective of an existing or proposed
business applying for assistance in SBA's 8(a) or lending programs.
The plan outlines what and how and from where the resources
needed to accomplish the objective will be obtained and utilized.
BUSINESS START
For enumeration purposes, a business with a name or similar
designation that did not exist in a prior time period.
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CANCELED LOAN
The annulment or rescission of an approved loan prior to disbursement.
CAPITAL
Assets less liabilities, representing the ownership interest
in a business;
a stock of accumulated goods, especially at a specified time
and in contrast to income received during a specified time period;
accumulated goods devoted to the production of goods; (4) accumulated
possessions calculated to bring income.
CAPITAL EXPENDITURES
Business spending on additional plant equipment and inventory.
CAPITALIZED PROPERTY
Personal property of the agency which has an average dollar
value of $300.00 or more and a life expectancy of one year or
more. Capitalized property shall be depreciated annually over
the expected useful life to the agency.
CASH DISCOUNT
An incentive offered by the seller to encourage the buyer to
pay within a stipulated time. For example, if the terms are
2/10/N 30, the buyer may deduct 2 percent from the amount of
the invoice (if paid within 10 days); otherwise, the full amount
is due in 30 days.
CASH FLOW
An accounting presentation showing how much of the cash generated
by the business remains after both expenses (including interest)
and principal repayment on financing are paid. A projected cash
flow statement indicates whether the business will have cash
to pay its expenses, loans, and make a profit. Cash flows can
be calculated for any given period of time, normally done on
a monthly basis.
CHARACTER
A letter, digit, or other symbol that is a part of the organization,
control, or representation of data used in computer systems.
CHARGE-OFF
An accounting transaction removing an uncollectible balance
from the active receivable accounts.
CHARGED OFF LOAN
An uncollectible loan for which the principal and accrued interest
were removed from the receivable accounts.
CLOSING
Actions and procedures required to affect the documentation
and disbursement of loan funds after the application has been
approved and the execution of all required documentation and
its filing and recording where required.
CLOSED LOAN
Any loan for which funds have been disbursed and all required
documentation has been executed, received, and reviewed. For
statistical purposes, first or total disbursement is counted
as a closed loan.
COLLATERAL
Something of value - securities, evidence of deposit, or other
property - pledged to support the repayment of an obligation.
COLLATERAL DOCUMENT
A legal document covering the item(s) pledged as collateral
on a loan, i.e., note, mortgages, assignment, etc.
CONSORTIUM
A coalition of organizations, such as banks and corporations,
set up to fund ventures requiring large capital resources.
CORPORATION
A group of persons granted a state charter legally recognizing
them as a separate entity having its own rights, privileges,
and liabilities distinct from those of its members. The process
of incorporating should be completed with the state's secretary
of state or state corporate counsel, and usually requires the
services of an attorney.
COMPROMISE
The settlement of a claim resulting from a defaulted loan for
less than the full amount due. Compromise settlement is a procedure
available for use only in instances where the government cannot
collect the full amount due within a reasonable time, by enforced
collection proceedings, or where the cost of such proceedings
would not justify such effort.
CONTINGENT LIABILITY
A potential obligation that may be incurred dependent upon the
occurrence of a future event. Two examples are: (1) the liability
of an endorser or guarantor of a note if the primary borrower
fails to pay as agreed and (2) the liability that would be incurred
if a pending lawsuit is resolved in the other party's favor.
COSTS
Money obligated for goods and services received during a given
period of time, regardless of when ordered or whether paid for.
CREDIT RATING
A grade assigned to a business concern to denote the net worth
and credit standing to which the concern is entitled in the
opinion of the rating agency as a result of its investigation.
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DATA ELEMENT
The basic unit of identifiable and definable information. A
data element occupies the space provided by fields in a record
or blocks on a form. It has an identifying name and value or
values for expressing a specific fact. For example, a data element
named "Color of Eyes" could have recorded values of
"Blue (a name)," "Bl (an abbreviation),"
"06 (a code)." Similarly, a data element named "Age
of Employee" could have a recorded value of "28"
(a numeric value).
DEBENTURE
Debt instrument evidencing the holder's right to receive interest
and principal installments from the named obligor. Applies to
all forms of unsecured, long-term debt evidenced by a certificate
of debt.
DEBT CAPITAL
Business financing that normally requires periodic interest
payments and repayment of the principal within a specified time.
DEBT FINANCING
The provision of long term loans to small business concerns
in exchange for debt securities or a note.
DEED OF TRUST
A document under seal which, when delivered, transfers a present
interest in property. May be held as collateral.
DEFAULTS
The nonpayment of principal and/or interest on the due date
as provided by the terms and conditions of the note.
DEFERRED LOAN
Loans whose principal and or interest installments are postponed
for a specified period of time.
DISBURSEMENT
The actual payout to borrower of loan funds, in whole or part.
It may be concurrent with the closing or follow it.
DISBURSING OFFICER
An employee authorized to pay out cash or issue checks in settlement
of vouchers approved by a certifying officer.
DIVESTITURE
Change of ownership and/or control of a business from a majority
(non-disadvantaged) to disadvantaged persons.
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EARNING POWER
The demonstrated ability of a business to earn a profit, over
time, while following good accounting practices. When a business
shows a reasonable profit on invested capital after fully maintaining
the business property, appropriately compensating its owner
and employees, servicing its obligations, and fully recognizing
its costs, the business may be said to have demonstrated earning
power. Demonstrated earning power is the foremost test of the
business risk in pressing upon an application for a loan.
EASEMENT
A right or privilege that a person may have on another's land,
as the right of a way or ingress or egress.
EMPLOYEE ASSISTANCE PROGRAM (EAP) COORDINATOR
Coordinates the activities of Central Office or regional counselors,
maintains a community resource list of available professional
assistance to troubled employees, and a current roster of EAP
counselors for the area of his/her jurisdiction.
EAP COUNSELOR
Conducts confidential consultations with troubled employees
who so request, who are referred for objective analysis of a
personal problem, and for identification of the best available
assistance and/or professional services needed to resolve the
employee's problem.
ENTERPRISE
Aggregation of all establishments owned by a parent company.
An enterprise can consist of a single, independent establishment
or it can include subsidiaries or other branch establishments
under the same ownership and control.
ENTREPRENEUR
One who assumes the financial risk of the initiation, operation,
and management of a given business or undertaking.
EQUITY
An ownership interest in a business.
EQUITY FINANCING
The provision of funds for capital or operating expenses in
exchange for capital stock, stock purchase warrants, and options
in the business financed without any guaranteed return, but
with the opportunity to share in the company's profits. Equity
financing includes long-term subordinated securities containing
stock options and/or warrants. Utilized in SBIC financing activities.
EQUITY PARTNERSHIP
A limited partnership arrangement for providing startup and
seed capital to businesses.
ESCROW ACCOUNTS
Funds placed in trust with a third party by a borrower for a
specific purpose and to be delivered to the borrower only upon
the fulfillment of certain conditions.
ESTABLISHMENT
A single-location business unit, which may be independent -
called a single- establishment enterprise - or owned by a parent
enterprise.
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FINANCIAL REPORTS
Reports commonly required from applicants request for financial
assistance, e.g.:
Balance Sheet - A report of the status of a firm's assets, liabilities
and owner's equity at a given time.
Income Statement - A report of revenue and expense which shows
the results of business operations or net income for a specified
period of time.
Cash Flow
A report which analyzes the actual or projected source and disposition
of cash during a past or future accounting period.
FINANCING
New funds provided to a business, by either loans, purchase
of debt securities, or capital stock.
FLOW CHART
A graphical representation for the definition, analysis, or
solution of a problem, in which symbols are used to represent
operations, data, flow, equipment, etc.
FORECLOSURE
The act by the mortgagee or trustee upon default in the payment
of interest or principal of a mortgage of enforcing payment
of the debt by selling the underlying security.
FRANCHISING
A continuing relationship in which the franchisor provides a
licensed privilege to the franchisee to do business and offers
assistance in organizing, training, merchandising, marketing,
and managing in return for a consideration. Franchising is a
form of business by which the owner (franchisor) of a product,
service, or method obtains distribution through affiliated dealers
(franchisees). The product, method, or service being marketed
is usually identified by the franchisor's brand name, and the
holder of the privilege (franchisee) is often given exclusive
access to a defined geographical area.
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GROSS DOMESTIC PRODUCT (GDP)
The most comprehensive single measure of aggregate economic
output. Represents the market value of the total output of the
goods and services produced by a nation's economy.
GROSS NATIONAL PRODUCT (GNP)
A measure of a nation's aggregate economic output. Since 1991
GDP, a slightly different calculation, has replaced GNP as a
measure of U.S. economic output.
GUARANTEED LOAN
A loan made and serviced by a lending institution under agreement
that a governmental agency will purchase the guaranteed portion
if the borrower defaults.
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HARDWARE
A term used to describe the mechanical, electrical, and electronic
elements of a data processing system.
HAZARD INSURANCE
Insurance required showing lender as loss payee covering certain
risks on real and personal property used for securing loans.
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INCUBATOR
A facility designed to encourage entrepreneurship and minimize
obstacles to new business formation and growth, particularly
for high technology firms, by housing a number of fledgling
enterprises that share an array of services. These shared services
may include meeting areas, secretarial services, accounting
services, research libraries, on-site financial and management
counseling, and word processing facilities.
INDEPENDENT AND QUALIFIED PUBLIC ACCOUNTANTS
Public accountants are independent when neither they nor any
of their family have a material, direct, or indirect financial
interest in the borrower other than as an accountant. They are
qualified, unless there is contrary evidence, when they are
either (1) certified, licensed, or otherwise registered if so
required by the state in which they work, or (2) have worked
as a public accountant for at least five years and are accepted
by SBA.
INDUSTRIAL REVENUE BOND (IRB)
A tax-exempt bond issued by a state or local government agency
to finance industrial or commercial projects that serve a public
good. The bond usually is not backed by the full faith and credit
of the government that issues it, but is repaid solely from
the revenues of the project and requires a private sector commitment
for repayment.
INNOVATION
Introduction of a new idea into the marketplace in the form
of a new product or service or an improvement in organization
or process.
INSOLVENCY
The inability of a borrower to meet financial obligations as
they mature or having insufficient assets to pay legal debts.
INTEREST
An amount paid a lender for the use of funds.
INVERSE ORDER OF MATURITY
When payments are received from borrowers that are larger than
the authorized repayment schedules, the overpayment is credited
to the final installments of the principal, which reduces the
maturity of the loan and does not affect the original repayment
schedule.
INVESTMENT BANKING
Businesses specializing in the formation of capital. This is
done by outright purchase and sale of securities offered by
the issuer, standby underwriting, or "best efforts selling."
INVITATION FOR BIDS
Formal solicitations for offerings to perform procurements by
competitive bids when the specifications describe the requirements
of the government clearly, accurately, and completely, but avoiding
unnecessarily restrictive specifications or requirements which
might unduly limit the number of bidders.
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JOB DESCRIPTION
A written statement listing the elements of a particular job
or occupation, e.g., purpose, duties, equipment used, qualifications,
training, physical and mental demands, working conditions, etc.
JUDGMENT
Judicial determination of the existence of an indebtedness or
other legal liability.
JUDGMENT BY CONFESSION
The act of debtors permitting judgment to be entered against
them for a given sum with a statement to that effect, without
the institution of legal proceedings.
JUNK BOND
A high-yield corporate bond issue with a below-investment rating
that became a growing source of corporate funding in the 1980s.
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LEASE
A contract between the owner (leassor) and the tenant (leassee)
stating the conditions under which the tenant may occupy or
use the property.
LEGAL RATE OF INTEREST
The maximum rate of interest fixed by the laws of the various
states which a lender may charge a borrower for the use of money.
LENDING INSTITUTION
Any institution, including a commercial bank, savings and loan
association, commercial finance company, or other lender qualified
to participate with SBA in the making of loans.
LEVERAGED BUY-OUT
The purchase of a business with financing provided largely by
borrowed money, often in the form of junk bonds.
LIEN
A charge upon or security interest in real or personal property
maintained to ensure the satisfaction of a debt or duty ordinarily
arising by operation of law.
LIQUIDATION
The disposal, at maximum prices, of the collateral securing
a loan and the voluntary and enforced collection of the remaining
loan balance from the obligators and/or guarantors.
LIQUIDATION VALUE
The net value realizable in the sale (ordinarily a forced sale)
of a business or a particular asset.
LITIGATION
Refers to a loan in "liquidation status" which has
been referred to attorneys for legal action.
Also: The practice of taking legal action through the judicial
process.
LOAN AGREEMENT
Agreement to be executed by borrower, containing pertinent terms,
conditions, covenants, and restrictions.
LOAN PAYOFF AMOUNT
The total amount of money needed to meet a borrower's obligation
on a loan. It is arrived at by accruing gross interest for one
day and multiplying this figure by the number of days that exist
between the date of the last repayment and the date on which
the loan is to be completely paid off. This amount, known as
accrued interest, is combined with the latest principal and
escrow balances that are applicable to what is now referred
to as the loan payoff amount. In the case where prepaid interest
exceeds the accrued interest, the latter is subtracted from
the former and the difference is used to reduce the total amount
owed.
LOSS RATE
A rate developed by comparing the ratio of total loans charged
off to the total loans disbursed from inception of the program
to the present date.
LOSS RESERVE ADJUSTMENT RATE A reserve rate based upon the ratio
of the aggregate net chargeoffs (chargeoffs less recoveries)
for the most
recent five years to the total average loans outstanding for
the comparable 5-year period.
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MARKUP
Markup is the difference between invoice cost and selling price.
It may be expressed either as a percentage of the selling price
or the cost price and is supposed to cover all the costs of
doing business plus a profit. Whether markup is based on the
selling price or the cost price, the base is always equal to
100 percent.
MATURITY
As applied to securities and commercial paper, the period end
date when payment of principal is due.
MATURITY EXTENSIONS
Extensions of payment beyond the original period established
for repayment of a loan.
MERGER
A combination of two or more corporations wherein the dominant
unit absorbs the passive ones, the former continuing operation
usually under the same name. In a consolidation two units combine
and are succeeded by a new corporation, usually with a new title.
MORTGAGE
An instrument giving legal title to secure the repayment of
a loan made by the mortgagee (lender). In legal contemplation
there are two types: (1) title theory - operates as a transfer
of the legal title of the property to the mortgagee, and (2)
lien theory - creates a lien upon the property in favor of the
mortgagee.
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NEGOTIATION
The face to face process used by local unions and the employer
to exchange their views on those matters involving personnel
policies and practices or other matters affecting the working
conditions of employees in the unit and reduced to a written
binding agreement. Used also by contracting officers to reach
agreement with potential contractors.
NEGOTIATION DISPUTE
That point in negotiations where labor and management cannot
come to an agreement on some or all of the issues on the bargaining
table and the services of the FMCS have not been utilized.
NEGOTIATED GRIEVANCE PROCEDURE
The sole and exclusive procedure available to all employees
in a bargaining unit and the employer for processing grievances
and disputes.
NET WORTH
Property owned (assets), minus debts and obligations owed (liabilities),
is the owner's equity (net worth).
NOTES AND ACCOUNTS RECEIVABLE
A secured or unsecured receivable evidenced by a note or open
account arising from activities involving liquidation and disposal
of loan collateral.
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OBLIGATIONS
Technically defined as "amount of orders placed, contracts
awarded, services received, and similar transactions during
a given period which will require payments during the same or
a future period."
ORDINARY INTEREST
Simple interest based on a year of 360 days, contrasting with
exact interest having a base year of 365 days.
OUTLAYS
Net disbursements (cash payments in excess of cash receipts)
for administrative expenses and for loans and related costs
and expenses (e.g., gross disbursements for loans and expenses
minus loan repayments, interest and fee income collected, and
reimbursements received for services performed for other agencies).
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PARTNERSHIP
A legal relationship existing between two or more persons contractually
associated as joint principals in a business.
PATENT
A patent for an invention is the grant of a property right to
the inventor, issued by the Patent and Trademark Office. The
term of a new patent is 20 years from the date on which the
application for the patent was filed in the United States or,
in special cases, from the date an earlier related application
was filed, subject to the payment of maintenance fees. US patent
grants are effective only within the US, US territories, and
US possessions.
PRIME RATE
Interest rate which is charged to business borrowers having
the highest credit ratings for short term borrowing.
PRO-Net
An Internet-based database of information of small, disadvantaged,
8(a), and women-owned businesses seeking procurement contracts.
PRODUCT LIABILITY
Type of tort or civil liability that applies to product manufacturers
and sellers.
PROFESSIONAL AND TRADE ASSOCIATIONS
Non-profit, cooperative, and voluntary organizations that are
designed to help their members in dealing with problems of mutual
interest. In many instances, professional and trade associations
enter into an agreement with the SBA to provide volunteer counseling
to the small business community.
PROPRIETORSHIP
The most common legal form of business ownership; about 85 percent
of all small businesses are proprietorships. The liability of
the owner is unlimited in this form of ownership.
PROTEST
A statement in writing by any bidder or offeror on a particular
procurement alleging that another bidder or offeror on such
procurement is not a small business concern.
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RATIO
Denotes relationships of items within and between financial
statements, e.g., current ratio, quick ratio, inventory turnover
ratio, and debt/net worth ratios.
REQUEST FOR PROPOSALS
Solicitations for offerings for competitive negotiated procurements
when it is impossible to draft an invitation for bids containing
adequate detailed description of the required property and services.
There are 15 circumstances in the Federal Acquisition Regulations
(FAR) which permit negotiated procurements.
RETURN ON INVESTMENT
The amount of profit (return) based on the amount of resources
(funds) used to produce it. Also the ability of a given investment
to earn a return for its use.
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SECONDARY MARKET
Those who purchase an interest in a loan from an original lender,
such as banks, institutional investors, insurance companies,
credit unions, and pension funds.
SERVICE CORPS OF RETIRED EXECUTIVES (SCORE)
Retired and working successful business persons who volunteer
to render assistance in counseling, training, and guiding small
business clients.
SMALL BUSINESS DEVELOPMENT CENTERS (SBDC)
The SBDC is a university-based center for the delivery of joint
government, academic, and private sector services for the benefit
of small business and the national welfare. It is committed
to the development and productivity of business and the economy
in specific geographical regions.
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TURNOVER (Business)
Turnover is the number of times that an average inventory of
goods is sold during a fiscal year or some designated period.
Care must be taken to ensure that the average inventory and
net sales are both reduced to the same denominator; that is,
divide inventory at cost into sales at cost or divide inventory
at selling price into sales at selling price. Do not mix cost
price with selling price. The turnover, when accurately computed,
is one measure of the efficiency of a business.
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UNDELIVERED ORDERS
The amount of orders for goods and services outstanding for
which the liability has not yet accrued. For practical purposes,
represents obligations incurred for which goods have not been
delivered or services not performed.
UNFAIR LABOR PRACTICE
Action by either the employer or union which violates the provisions
of EO 11491 as amended.
UNIFORM COMMERCIAL CODE
Codification of uniform laws concerning commercial transactions.
In SBA parlance, generally refers to a uniform method of recording
and enforcing a security interest or charge upon existing or
to be acquired personal property.
USURY
Interest which exceeds the legal rate charged to a borrower
for the use of money.
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VENTURE CAPITAL
Money used to support new or unusual commercial undertakings;
equity, risk, or speculative capital. This funding is provided
to new or existing firms that exhibit above-average growth rates,
a significant potential for market expansion, and the need for
additional financing for business maintenance or expansion.
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WORD PROCESSING
The efficient and effective production of written communications
at the lowest possible cost through the combined use of systems
management procedures, automated technology, and accomplished
personnel. The equipment used in word processing applications
includes but is not limited to the following: dictation and
transcription equipment, automatic repetitive typewriters, visual
display text editing typewriters, keyboard terminals, etc.
WORKERS' COMPENSATION
A state-mandated form of insurance covering workers injured
in job-related accidents. In some states the state is the insurer;
in other states insurance must be acquired from commercial insurance
firms. Insurance rates are based on a number of factors, including
salaries, firm history, and risk of occupation.
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