Glossary of Common Terms

Factoring:
A method of obtaining cash through the sale of accounts receivable or transfer of title of accounts receivable. The receivables are sold without recourse -- which means the buyer of the accounts receivable cannot go back to the seller for reimbursement if the receivables are not collectable.

Accounts receivable:
Money owed to a business by its customers for goods and services sold but not yet collected.

Accounts receivable financing: A short-term loan collaterized by accounts receivable.

Funding source:
An investor, financial institution or an investment company that provides money or capital to a business.

Cash flow:
The income generated by a business from its operation. A positive cash flow means that a business has sufficient income to cover expenses. A negative cash flow means that expenses are exceeding income or revenue.

Bridge loan:
A short-term loan, also known as a "swing loan" or "gap-loan", until medium or long-term financing can be arranged. It is used in conjunction with deals, where medium or long-term financing requires more time for closing.

Collateral:
An asset or something of value that is pledged by a borrower to secure a loan.

Alternative financing:
Non-traditional or unconventional financing. Usually such financing is not available through banks or other traditional lenders. Venture capital funding, purchase order financing and non-recourse factoring are just a few examples of alternative financing.

Asset based loans:
Short-term loans collateralized by a company's assets -- such as accounts receivable, inventory, equipment/machinery or real estate. In default, the lender may claim the assets.

Assets:
Something of value that is owned by or owed to a business. It includes inventory, accounts receivable, known as current assets and includes land, buildings and equipment, known as fixed assets.

Capital:
Refers to a business's total wealth or net assets. Capital can also refer to funds used to start a busines or the rights (equity) of the owners in a company.

Receivable aging: A schedule or report of accounts receivable according to the length of time they have been outstanding. It shows which accounts are not being paid in a timely manner.

Line of credit:
An agreement wherein a lender commits itself to lend up to a specified amount over a certain period without requiring the borrower to file another application.

Sale-leaseback:
A transaction that involves the sale of equipment to a leasing company and subsequent lease of the same equipment back to its original owner, who continues to use the equipment. Only equipment with a very high sustainable value is considered for such a transaction. Sale-leaseback also occurs in real estate, whereby an owner sells property to an investor, then leases the property back, usually for a 20-year term or longer. Companies in need of working capital can benefit from this practice.

Lease:
An agreement in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate. It is commonly used in equipment and real estate transactions.

Equity financing:
A method of raising business capital in which a portion of a business and its future profits is sold to an investor or investment company.

Inventory:
Goods in stock, either finished goods or material to be used to manufacture goods.

Working Capital:
The amount of capital that a business uses to finance day-to-day operations. It is calculated by taking current liabilities from current assets.

Letter of credit:
A guarantee by a bank that a customer's bills for a certain amount will be paid. It is frequently used in international trade.