Glossary of Loan and Finance Terms, Part 2

Factoring: A company has already performed the service or provided the product, but has not received payment. In this case, the customer owes money to the company. Financial organizations are the factor. They buy your accounts receivables, but not at full value. For example, you have an outstanding invoice for $100. Some factors pay you $75 and take over the invoice along with its risks. Though you lose all or part of the $25, you don't have to wait 30, 60 or more days to see the cash. You have it faster and it may help you grow your business. It's a way to get paid without waiting on the customer.

Financial organizations: Financial organizations go beyond banks and credit unions. These organizations provide financial services and may be more flexible than banks. Their loan qualification requirements also differ from banks. Some financial organizations can move the paperwork and provide the cash faster than a bank. It can be as fast as within one week. These institutions may not require companies to put up collateral to get a loan and interest rates vary.

Income statement: Helps a business look at different parts to see where it has been, where it is now, and where it is heading. The income statement (also known as profit and loss (P&L) statement does this job by showing the amount of money that came into and went out of the business. These statements cover a timeframe so you can compare the previous month's and current month's statements. They'll tell you how the business is doing and whether profits went up or down.

Line of credit or Business line of credit: Receive money from a financial organization for short-term needs. Pay interest only on the funds taken out. A business line of credit works like a checking account where it receives a loan into an account and can write checks as needed to cover expenses including salaries, vendor invoices, inventory, and more. A line of credit generally doesn't require putting up collateral, or assets such as equipment and buildings.

Micro loans: Loans with a minimum and maximum amount of money you can get. These loans tend not to go higher than $50,000.

Peer-to-peer loans: Loans from colleagues and family or using online loan sites. While you can shop around for bids, these may not have much protection or such loaners don't have the knowledge that comes with business finances. Interest rates vary.

Profit and loss statement: See income statement.

Short-term loans: Consists of an extended credit from a bank and comes with a fixed repayment period and interest rates. These loans usually take up no more than one year and some require putting up collateral.

Venture capital (VC): An organization or institution rather than an individual (angel investor) that invests large sums into a business. Start-ups needing millions of dollars of investment and plan to grow on a large scale tend to use VCs.

Working capital: A business' current assets subtracted by its current liabilities determines the working capital. A positive working capital allows the company to pay its short-term liabilities. But with a negative working capital - a company's current liabilities is higher than its assets - the company could have trouble paying creditors or worst, go bankrupt. Having working capital ensures a company pays its bills even while waiting for payment for sales or services.