Financial glossary - Future Finance

A

Affordability - your ability to afford debt. This is usually expressed in terms of your ability to pay the monthly repayments.

Asset Funding / Finance - using assets to obtain a loan or borrow money. The borrower provides a security interest in the assets to the lender. This differs from traditional financing methods, such as issuing debt or equity securities, as the company pledges some of its assets in exchange for a cash loan. 

B

Bankrupt – is when an individual cannot pay their debts and aren't able to reach an agreement with their creditors.

C

Cash flow - the measure of actual cash flowing in and out of a business.

Creditor - a person or company to whom one owes money. A creditor may be a bank or another company.

D

Debt - money owed by one party, the debtor, to a second party, the creditor. Debt is generally subject to contractual terms regarding the amount and timing of repayments.

Debt Consolidation - rolling multiple debts into a single monthly payment, making debt easier to manage.

E

Equity Release - a means of retaining use of your house or other asset, whilst obtaining a lump sum or a steady stream of income, using the value of the house.

Equity Finance - money provided to a business in exchange for part ownership of the business. This can be money invested by the business owners, friends, family, or investors like venture capitalists.

F

Factoring - is when a factor company buys a business' outstanding invoices and then chases up the debtors. Factoring is a way to get quick access to cash.

Finance - money used to fund a business or high value purchase.

Fixed Asset – a physical asset used in the running of a business.

Fixed interest rate – this is when the interest rate of a loan stays the same for duration of the term of the loan or a specific agreed timeframe.

G

Goodwill - an intangible asset that represents the value of a business' reputation.

Gross income - the total money earned by a business before expenses are deducted.

Gross profit - the difference between sales and the direct cost of making the sales.

Guarantor - a person who promises to pay a loan in the event the borrower cannot meet the repayments. 

H

Hire-purchase - when goods are purchased through an initial deposit and then rented while the goods are paid off in instalments plus interest charges. Once fully paid, the ownership of the goods transfers to the purchaser.

I

Intangible assets - non-physical assets with no fixed value, such as goodwill and intellectual property rights.

Interest - the cost of borrowing money on a loan.

Interest rate - a percentage used to calculate the cost of borrowing money or the amount you will earn. Rates vary from product to product and generally the higher the risk of the loan, the higher the interest rate. 

Invoice finance - is finance offered based on the strength of a business' accounts receivable. This form of financing is similar to factoring, except that the invoices or accounts receivables remain with the business. 

L

Leasing - guarantees the lessee (the renter) use of an asset and guarantees the lessor (the property owner) by providing regular payments from the lessee for a specified number of months or years. See Hire-purchase.

Liability - an obligation that legally binds an individual or company to settle a debt. 

Liquidity - how quickly assets can be converted into cash.

Loan to value ratio (LVR) – is your loan amount shown as a percentage of the market value of the property or asset that will be purchased. The ratio helps a lender work out if the loan amount can be recouped in the event a loan goes into default.

M

Margin - is the difference between the price of the product or service and the profit. 

Maturity date – is when a loan's term ends and all payments are due.

O

Overheads - the fixed costs associated with operating a business such as rent, marketing, utilities and administrative costs.

P

Professional Fee Funding - enabling professionals to spread the fees of necessary services, such as indemnity insurance, over a period of time.

Profit - the total revenue a business earns minus the total expenses.

R

Refinance - when a new loan is taken out to pay off an existing one. Refinancing is often done to extend the original loan over a longer period of time, reduce fees or interest rates, switch banks, or move from a fixed to variable loan.

 

Repossess - the process of a bank or other lender taking ownership of property/assets for the purpose of paying off a loan in default.

W

Working capital - the cash available to a business for day to day expenses.

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