Accounting – The recording, classifying, summarizing and interpreting in a significant manner and in terms of money, transactions and events of a financial character.

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.

Accounts Receivable Financing – A loan gained by borrowing against receivables. Loans are paid down as receivables are collected.

Acid Ratio – Current assets less inventories divided by current liabilities. Also known as “Quick Ratio.”

Acquisition – The acquiring of supplies or services by the federal government with appropriated funds through purchase or lease.

Adjustable Rate Mortgage – Mortgage where the interest rate adjusts periodically up or down through a set index. Also called a floating rate mortgage.

Adjusted Gross Income – Gross income of a building if fully rented, less an allowance for estimated vacancies.

Adjustment Interval – The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are one year, three and five years.

Affiliates – Business concerns, organizations, or individuals that control each other or that are controlled by a third party. Control may include shared management or ownership; common use of facilities, equipment, and employees; or family interest. The calculation of a firm’s size includes the employees or receipts of all affiliates. Affiliation with another business concern is based on the power to control, whether exercised or not. Such factors as common ownership, common management and identity of interest (often found in members of the same family), among others, are indicators of affiliation. Power to control exists when a party or parties have 50 percent or more ownership. It may also exist with considerably less than 50 percent ownership by contractual arrangement or when one or more parties own a large share compared to other parties. The affiliated business concerns need not be in the same line of business.

Amortization – Gradual reduction of term debt by periodic payment sufficient to pay current interest and to eliminate the principal at maturity.

Ancillary Bond – A type of surety bond where the surety company guarantees other factors which are incidental and essential to the performance of a contract.

Annual Percentage Rate -The cost of credit as a yearly rate.

Annual Receipts – Receipts are averaged over a firm’s latest 3 completed fiscal years to determine its average annual receipts. “Receipts” means the firm’s gross or total income, plus cost of goods sold, as defined by or reported on the firm’s Federal Income Tax return. The term does not include, however, net capital gains or losses, nor taxes collected for and remitted to a taxing authority if included in gross or total income. The firm may not deduct income taxes, property taxes, cost of materials or funds paid to subcontractors. Travel, real estate and advertising agents, providers of conference management services, freight forwarders and customs brokers may deduct amounts they collect on behalf of another. If a firm has not been in business for 3 years, the average weekly receipts for the number of weeks the firm has been in business is multiplied by 52 to determine its average annual receipts.

Appraised Value – The value placed on an item, product or business by an appraiser, recognized for experience in a particular field.

ARM – See Adjustable Rate Mortgage.

Assets – The entire property of a person, association, corporation, or estate applicable or subject to the payment of debts.

Asset-Based Lending -Financing secured by pledging assets (inventory, receivables, or collateral other than real estate.

Assumable Loans – Loans that can be transferred to a new owner if a home is sold.

Assumptions – The act of assuming/undertaking another’s debts or obligations.

Auction – A public sale of goods to the highest bidder.

Balance Sheet – Financial statement listing a company’s assets, liabilities, and equity on a specific date.

Balloon (Payment) Mortgage – Usually a short-term fixed-rate loan which involves small payments for a certain period of time and one large payment for the remaining principal balance, due at a time specified in the contract.

Basis Points (BP) – 1/100th of 1% expressed as margin over index rate.

Bid Bond – A type of surety bond wherein the surety company guarantees the bidder will enter into a contract and furnish the required payment and performance bonds.

Book Value – The value of an item or property at a specific time after deducting depreciation from original cost.

Bridge Loan – Financing which expected to be paid back relatively quickly, such as by a subsequent longer – term loan. Also called a swing loan.

Business Concern – A business concern eligible for assistance as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or makes a significant contribution to the US economy through payment of taxes or use of American products, materials, or labor.

Buydown – The process of paying additional points on the loan to reduce the monthly mortgage. There are typically two specific types

Cap – The maximum which an adjustable-rate mortgage may increase, regardless of index changes. An interest rate cap limits the amount the interest can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.

Cap Rate – A net yield set by an investor to determine the value of an income producing property.

Capital – 1. Assets less liabilities, representing the ownership interest in a business; 2. A stock of accumulated goods, especially at a specified time and in contrast to income received during a specified time period; 3. Accumulated goods devoted to the production of goods; 4. Accumulated possessions calculated to bring income.

Capital Expenditures – Line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, driveways, etc.

Capitalization – The basic resources of a company including the owner’s equity, retained earnings and fixed assets. One of the “Five C’s” of Credit

Capitalization Rate – A method used to estimate the value of a property based on the rate of return on investment.

Cash Flow – The movement of money into and out of your business.

Cash Flow Statement – 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. Also, one of the Five “Cs” evaluated in determining a loan applicant’s credit-worthiness

CDC-Certified Development Company – The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area.

Certified Lender Program – CLP- The most active and expert lenders qualify for the SBA’s streamlined lending programs. Under these programs, lenders are delegated partial or full authority to approve loans, which results in faster service from SBA. Certified lenders are those who have been heavily involved in regular SBA loan-guaranty processing and have met certain other criteria. They receive a partial delegation of authority and are given a three-day turnaround by the SBA on their applications (they may also use regular SBA loan processing). Certified lenders account for nearly a third of all SBA business loan guaranties.

Character – The degree to which a potential borrower feels a moral obligation to repay debts as evidenced by the borrower’s credit and payment history. One of the “Five Cs” used in a lending officer’s determination of a particular loan applicant’s credit-worthiness.

Closing – The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also referred to as “settlement”.

Closing Costs – The cost and fees associated with the official change in ownership of the property and with obtaining the mortgage, that are assessed at the closing or settlement.

Collateral – Something of value–securities, evidence of deposit or other property–pledged to support the repayment of an obligation. Also one of the Five “Cs” used in determining a loan applicant’s credit worthiness.

Collateral Document – A legal document covering the item(s) pledged as collateral on a loan, i.e., note, mortgages, assignment, etc.

Collateral Value -Value of pledged asset(s) as determined by an appraisal or other methods of valuation. Lenders often discount collateral by a certain percentage.

Commercial Conduit – Direct link to an institutional lending source.

Commercial Paper – Unsecured promissory notes of large corporations.

Commitment -When a lender agrees to lend a specific amount, with rates, terms, conditions and covenants, in writing.

Comparative Market Analysis – An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.

Concentration -When a lender’s loan portfolio is heavy in a particular industry or type of business.

Conditions – External factors such as government regulation, competition, industry trends, national economic trends, that can affect the success of a business. One of the “Five Cs” of credit.

Conduit -The financial intermediary that sponsors the conduit between the lender(s) originating loans and he ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwriting and documents and then, when sufficient volume has been obtained, pools the loans for sale to investors in the CBMS markets.

Construction Loan - A short term loan to pay for the construction of commercial buildings. These loans typically provide periodic disbursements to the builder as each stage of the building is completed. When construction is completed a take-out or permanent loan is used to pay off the construction loan.

Convertible – An option available on some adjustable rate mortgages (ARM’s) that allows the loan to be converted to fixed rate mortgage. Conversion usually involves paying a one-time fee and conversion may be limited to within a certain time – frame.

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.

Co-Signer – Someone who is willing to sign mortgage loan obligation with you in case you default on your monthly payments. Normally, the cosigner is required to go through the same application and approval process as the original signer of the loan.

Cost Of Good Sold – Cost to make a product, including materials, labor, and related overhead.

Covenant – A prescription for action in a loan document.

Covenant Not To Compete – The agreement by the seller of a business, not to enter into competition with the buyer of the business within a specific area for a specific period of time.

Credit – Time allowed for the payment of goods or services sold on trust as well as confidence in the buyer’s ability and intention to fulfill their financial obligations.

Credit Company – A lending organization that obtains it source of funds from the commercial market.

Credit Enhancements – A loan to provide improvements to the property.

Credit Report – Financial history supplied by a credit information company like Dun and Bradstreet, Equifax, Experian or TransUnion. Contains credit information on a business or an individual, including payment history of bank cards, store cards, mortgages, student loans, and trade payments.

Credit Scoring – The evaluation system used by lending institutions to determine relative credit riskiness of a business or consumer. When evaluating businesses, it generally considers factors such as credit payment history, new credit sought by owner of business, and financial strength and longevity of business.

Current Assets -Assets that can be converted into cash in one year. Non-Current Assets take one year or more.

Current Liabilities -Money you agreed to repay by signing notes, or by being a co-maker or guarantor of loans. Lenders want to know how much money you are liable for if the loan results in legal actions or contested taxes.

Current Ratio – The ratio of current assets to liabilities. Also called “quick ratio.”

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 To Total Assets Ratio – Total debt divided by total assets.

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.

Debt Service Coverage Ratio (DSC) – A 1.0 means breakeven. The ratio is calculated by taking the net operating income and dividing it by the mortgage payments. Most lenders look for a ratio of 1.25 or higher.

Debt Service -The periodic payments (principal and interest) made on a loan.

Debt Ratio – One of several financial calculations performed by your lender to determine if you can afford a particular monthly payment. The debt ratio (also known as the obligations ratio) is the sum of all your monthly debt payments including your total monthly mortgage payment divided by your total monthly income. Typically acceptable debt ratios for Conventional Loan are 36 – 38%, FHA Loans are 41 – 43%, and VA Loans Are 41%.

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.

Depreciation -Except for land, asses wear out. The value goes down and can be deducted from your business as an expense. Present values of assets are shown as original cost less depreciation. Market value, or the price you could sell it for, could differ from this figure.

Depreciation Schedule – An accounting procedure for determining the amount of value left in a piece of equipment.

Discount Interest Rate – One in which the amount of interest is deducted from the face value of the loan with the borrower receiving the remainder.

Divestiture – Change of ownership and/or control of a business from a majority (non-disadvantaged) to disadvantaged persons.

Down Payment – The amount of money you put down, normally anywhere from 15% – 35%.

Dun & Bradstreet – Leading provider of business credit information.

Easement – A right or privilege that a person may have on another’s land, as the right of a way or ingress or egress.

Effective Gross Income – Gross income of a building if fully rented, less an allowance for estimated vacancies

Engineering Report – Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, i.e., HVAC, parking lot, roof, etc. The report also determines an amount for calculating replacement reserves, if needed.

Environmental Report – Report generated by an qualified environmental firm to determine potential environmental hazards in a building’s region or within the building itself.

Environmental Risk – Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB’s, radon or leaking underground storage tanks (LUSTS) on a property.

Equifax – One of three leading providers of personal credit information.

Equity – An accounting term used to describe the net investment of owners or stockholders in a business. Under the accounting equation, equity also represents the result of assets less liabilities.

Equity Capital – Capital raised from owners. In a commercial real estate case, a lender will also provide equity capital for a percentage of ownership.

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.

Equity Partnership – A limited partnership arrangement for providing start-up and seed capital to businesses.

Escrow Account – 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.

Experian – One of three leading providers of personal and business credit information.

Fair Market Value – What a qualified buyer will pay for goods, services, or property.

Fannie Mae – A congressionally chartered corporation which buys mortgages on the secondary market from Banks, Savings & Loans, Etc; pools them and sells them as mortgage-backed securities to investors on the open market. Monthly principal and interest payments are guaranteed by FNMA but not by the U.S. Government.

FHA – Federal Housing Administration, a government agency.

Financial Ratios – Measures of capital, including debt to asset, current, and debt to worth. See individual definitions for “acid,” “current,” “quick” ratios.

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.

Financial Statement -Reports showing the financial condition of a business on a particular date or for a period of time (such as one year). Lenders review the Balance Sheets and Income Statements.

Fixed Assets – Equipment, buildings, etc., which are purchased and used for long-term purposes.

Fixed Costs – Costs of doing business such as rent, utilities, depreciation, taxes, etc., that remain generally the same regardless of the amount of sales of goods or services.

Fixed Rate Mortgage – A mortgage with an interest rate that remains constant for the life of the loan. The most common fixed-rate mortgage is repaid over a period of 30 years; 15-year fixed-rate mortgage are also available.

Floating Rate Mortgage – See Adjustable Rate Mortgage.

Floor – To – Area Ratio (FAR) – The relationship between the total amount of floor space in a multi – story building and the base of that building. FAR’s are dictated by zoning laws and vary from one neighborhood to another, in effect stipulating the maximum number of stories a building may have.

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.

Forward Commitment – A written promise from a lender to provide a loan at a future time.

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.

Freddie Mac (Federal Home Loan Mortgage Corporation) – Entity buys loans from conventional lenders and packages them for sale to investors as securities.

Freestanding Retail - A building which contains only one retail business. Fast-food franchises and retail stores are often freestanding buildings.

Goodwill – An intangible asset of a business that relates to a favorable relationship with customers, and excess earning power.

Gross Profit -Gross sales less cost of goods sold. This is your mark-up. Also called gross margin.

Gross Sales -Revenue or income from sales before returns and allowances.

Government Loans – One of two loan types called FHA or VA loan. These loans are partially backed by the government and can help veterans and low-to-moderate income families afford homes. The advantages of these types of loans in that they often have a lower interest rate, are easier to qualify for, have lower down-payment requirements, and can be assumed by someone else if the home is sold. Many mortgage bankers can obtain these type of loans for you.

Graduated Payment Mortgages – A type of mortgage where the monthly payments start low but increases by a fixed amount each year for the first five years. The payment shortfall or negative amortization is added to the principal balance due on the loan. The advantages if this type of loan is a lower monthly payment at the beginning of the loan term. This disadvantages are typically a slightly higher rate than traditional fixed rate mortgage loan and lenders usually require a larger down payment. In addition, the negative amortized amount increases the balance due on the total loan which can be a problem if the value of the home declines.

Gross Income – Total income, before deducting taxes and expenses. The scheduled (total) income, either actual or estimated, derived from a business or property.

Growing Equity Mortgage – A type of mortgage where the monthly payments start low but increase by a fixed amount each year for the entire life of the loan as compared to five years with a Graduate Payment Mortgage. The advantage of this type of loan is that the loan can usually be paid off in a short duration than a traditional fixed rate loan. This disadvantage of this loan is that the payment continues to go up irrelevant of the income of the borrower.

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.

Guarantor – A guarantor has the same responsibilities as a co-signer. If the loan goes into default and is not paid by the signer(s) of the loan, the guarantor is responsible.

Guaranty – Promise by an individual or organization to repay a loan in the event of default.

Hard Equity – High interest rate financing.

HUD – Housing and Urban Development, a federal government agency.

Income Statement – Financial statement showing a company’s sales, expense and net income or loss for a specific period of time.

Index – An economic indicator, usually a published interest rate, that determines changes in the interest rate of an adjustable – rate mortgage. ARM rates are adjusted to reflect changes in the index. The margin is the amount a lender adds to the index to establish the actual interest rate on an ARM.

Interest – The sum paid for borrowing money, which pays the lender’s costs of doing business.

Interest Rate – The sum charged for borrowing money, expressed as a percentage.

Interest Rate Cap – Limits the interest rate or the interest rate adjustment to a specified maximum. This protects the borrower from increasing rates.Interest Shortfallthe aggregate amount of interest payments from borrowers that is less than the accrued interest on the certificate.

Investment Banker – An individual or institution which, acts as an underwriter or agent for corporations and municipalities issuing securities, but which does not accept deposits or make loans. Most also maintain broker/dealer operations, maintain markets for previously issued securities, and offer advisory services to investors also called investment banker. See also bank, commercial bank, and originator, syndicate.

Joint Venture – An agreement by two or more individuals or entities to engage in a single project or undertaking. Joint ventures are used in real estate development as a means of raising capital and spreading risk. For all practical purposes a joint venture is similar to a general partnership. However, once the purpose of the joint venture has been accomplished, the entity ceases to exist.

Lease – A contract between the owner (lessor) and the tenant (lessee) stating the conditions under which the tenant may occupy or use real estate or equipment. Terms usually include a specific period of time and a predetermined rate.

Lease Assignment – An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender.

Leasehold Improvements – Improving your leased business location, at your own expense.

Lessee – The user of equipment or property being leased.

Lender Margin – This is simply the profit the lender expects to receive from the loan. You can ask your lender what the margin is on an adjustable rate mortgage. Typically, lenders use a discount rate initially as a “teaser” rate. You must be sure to get the normal margin after the discount period is over.

Letter Of Credit – (L/C)- Payments to a third party by the lender, on the owner’s behalf.

Liability – Debt owed by the company such as bank loans or accounts payable.

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.

Line Of Credit – A short-term loan, usually less than one year.

Liquid Assets – Cash, checks and easily-convertible securities available to meet immediate and emergency needs.

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.

Loan Origination Fee – The fee charged by a lender, to prepare all the documents associated with your mortgage.

Loan Processing Fee – The fee charged by a lender, to prepare all the documents associated with your mortgage.Loan-To-Value (LTV)the ratio between the principal amount of the mortgage balance, at origination or thereafter, to the current value of the underlying real estate collateral. The ratio is commonly expressed to a potential borrower as the percentage of value a lending institution is willing to finance. The ratio is dynamic, and varies by lending institution, property type, geographic location, property size, etc.

Lock – In – The process of fixing the interest rate for a specific period of time irrelevant of future or impending economical changes to the interest rate. This process may require a fee or premium as it reduces your risk that the monthly payments will change while the loan paperwork is filed.

Lock – Out Period – A period of time after loan origination during which a borrower cannot prepay the mortgage loan without paying the full amount of interest due for the prescribed time period.

London Interbank Offered Rate (LIBOR) – The short – term rate (1year or less) at which banks will lend to each other in London. Commonly used as a benchmark for adjustable – rate financing.

Long-Term Liabilities -Expenses, loans, and payables due after one year.

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 charge-offs (charge-offs less recoveries) for the most recent five years to the total average loans outstanding for the comparable 5-year period.

Margin – The amount that is added to an index rate to determine the total interest rate.

Market Value – What a willing buyer will pay for goods, services, a property or a business.

Maturity – A loan’s maturity is the life of the loan; that is, how long you have to repay the loan. It usually applies to term loans and not lines of credit.

Mezzanine – Late-stage capital financing.

Mortgage Insurance – A type of insurance changed by most lenders to offset the risk of your loan when your down payment is less than 20% of the value of the home.

Multi – Family Property Class A – Properties are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and / or accessibility; generally are professionally managed by national or large regional management companies.

Multi – Family Property Class B – Properties frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; unit sizes are usually larger than current standards.

Multi – Family Property Class C – Properties provide functional housing; exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and B tenants.

Negative Amortization – Occurs when interest accrued during a payment period is greater that the scheduled payment and the excess amount is added to the outstanding loan balance (e.g., if the interest rate on ARM exceeds the interest rate cap, then the borrower’s payment will be sufficient to cover the interest accrued during the billing period – the unpaid interest is then added to the outstanding loan balance).

Net Effective Rent – Rental rate adjusted for lease concessions.

Net Operating Income (NOI) – Total income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements and leasing commissions.

Net – Net Lease (NN) – Usually requires the tenant to pay for property taxes and insurance in addition to the rent.

Net Worth – Property owned (assets), minus debts and obligations owed (liabilities), is the owner’s equity (net worth).

No Income No Asset (NINA) Loans – No income stated or verified with no asset stated or verified.

No Income Verified Asset (NIVA) Loans – No income stated or verified with asset verification.

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.

Notice of Default (NOD) – To initiate a non – judicial foreclosure proceeding involving a public sale of the real property securing the deed of trust. The trustee under the deed of trust records a Notice of Default and Election to Sell (“NOD”) the real property collateral in the public records.

Non – Recourse – A finance term. A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. A loan not allowing for a deficiency judgment. The lender’s only recourse in the event of default is the security (property) and the borrower is not personally liable.

Operating Expense – Periodic expenses necessary to the operation and maintenance of an enterprise (e.g., taxes, salaries, insurance, maintenance). Often used as a basis for rent increases.

Participation – A type of mortgage where the lender receives a percentage of the gross revenue in addition to the mortgage payments.

Percentage Lease – Commonly used for large retail stores. Rent payments include a minimum or “base rent” plus a percentage of the gross sales “overage.” Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume.

Performance Bond – A type of surety bond where the surety company guarantees the contractor will fulfill the contract in accordance with its terms.

Personal Guarantee -A guarantee that the primary owner will assume personal responsibility for repayment of the loan, should the company not repay the loan.

Phase I – An assessment and report prepared by a professional environmental consultant who reviews the property – both land and improvements – to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCB’s, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an mitigation efforts that should be undertaken.

PITI – Principal, interest, taxes and insurance. Your calculated estimated of monthly payments.

Points – Loan fees paid by the borrower. One point is 1% of the loan amount.

Preferred Lender Program – PLP – The most active and expert lenders qualify for the SBA’s streamlined lending programs. Under these programs, lenders are delegated partial or full authority to approve loans, which results in faster service from SBA. Preferred lenders are chosen from among the SBA’s best lenders and enjoy full delegation of lending authority in exchange for a lower rate of guaranty. This lending authority must be renewed at least every two years, and the lender’s portfolio is examined by the SBA periodically. Preferred loans account for more than 10 percent of SBA loans.

Prepayment Penalty – Fees paid by borrowers for the privilege of retiring a loan early.

Pre – Qualification – The process of determining the amount of money a particular lender will let you borrow. You should strive to obtain pre-qualification with at least two or three lenders.

Prime Rate – Interest rate which is charged business borrowers having the highest credit ratings, for short term borrowing. As published daily in the Wall Street Journal, it is the basis for rates to other lenders.

Principal – 1. The amount of debt, not including interest, left on a loan. 2. The face amount of the mortgage.

Pro Forma -Forecasting future income, expenses, or cash flow with projections.
Retained Earnings -Net profits accumulated through the company’s life and reported in the net worth or equity section of the balance sheet. Note: Can be negative if losses occur.

Property Classification – Most lenders will classify a property by its age and needed maintenance. As an example many insurance companies will only loan on properties that are class A, meaning that the properties age is 10 years old or less and is not in need of repair.

Property Tax – Taxes based on the market value of a property. Property taxes vary from state to state.

Rate Index – An index used to adjust the interest rate of an adjustable mortgage loan (e.g., the changes in U.S. Treasury securities (T-bill) with 1-year maturity. The weekly average yield on said securities, adjustable to a constant maturity of 1 year, which is the result of weekly sales, may be obtain weekly from the Federal Reserve Statistical Release H.15 (519). This changes in interest rates is the “index” for the change in a specific Adjustable Mortgage Loan).

Recourse – A loan for which the borrower is personally liable for payment is the borrower defaults.

REIT - (Real Estate Investment Trust)Pooled funds that purchase and hold commercial real estate.RefinanceThe renewal of an existing loan by the some borrower.

Rent Step – Up – A lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease.Replacement ReservesMonthly deposits that a lender may require a borrower to a reserve in an account, along with principal and interest payments for future capital improvements of major building systems; i.e., HVAC, parking lot, carpets, roof, etc.

Reserve Funds – A portion of the proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement (also referred to as “reserve accounts”).

Residual Income – The amount of money left over after you have paid all of your ordinary and necessary debts including the mortgage. This calculation is typically used with VA loans.

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.

Revolving Credit – It is the same thing as a line of credit: an amount of money, which a business can borrow against at times it needs capital. Often accessed by check, ATM, or business card.

Sale / Lease Back – When a lenders buys a property and leases it back to the seller for an extended period of time.

Savings & Loans – A federally or state charted financial institution that takes deposits from individuals, funds mortgages, and pays dividends.

SBA – Small Business Administration, a federal government agency.

SBAExpress – Makes it easier and faster for lenders to provide small business loans of $150,000 or less; allows lenders to use their own forms and processes to approve loans guaranteed by the U.S. Small Business Administration; provides a rapid response from the SBA – within 36 hours of receiving your complete application; lets lenders take advantage of electronic loan processing; and helps lenders provide smaller revolving loans.

SBA Low Doc – streamlines the making of small business loans. The maximum loan-$150,000. Calls for a response from the SBA within 36 hours of receiving a complete application. Guaranty percent follows 7(a) policy.

SBIC-Small Business Investment Company- Licensed by the Small Business Administration, SBICs are privately owned and managed investment firms. They are participants in a vital partnership between government and the private sector economy. With their own capital and with funds borrowed at favorable rates through the Federal Government, SBICs provide venture capital to small independent businesses, both new and already established.

Second Mortgage – A mortgage on real estate, which has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights, which are subordinate to those of the first.

Secondary Financing – A loan secured by a mortgage or trust deed, in which the lien is junior, or secondary, to another mortgage or trust deed.

Secondary Market – Entities who purchase an interest in a loan from an original lender, such as banks, institutional investors, insurance companies, credit unions and pension funds.

Secured Loan -Loan secured by collateral (which will be liquidated if the borrower defaults on the loan).

Short Term Debt – Financing used to secure cash for accounts payable and inventory.

Sole Proprietorship – Ownership of a business, with no formal entity as a vehicle or structure.

Spread – Number of basis points over a base rate index.

Standby Commitment – A formal offer by a lender making explicit the terms under which it agrees to lend money to a borrower over a certain period of time.

Stated Income Stated Asset (SISA) Loans - No income verification with no asset verification

Stated Income Verified Asset (SIVA) Loans - No income verification with asset verification

Surety Bond – A three-way agreement between a surety company, a contractor and the project owner. If the contractor fails to comply with the contract, the surety assumes responsibility and ensures that the project is completed. By law, prime contractors to the federal government must post surety bonds on federal construction projects valued at $25,000 or more. Many state, county, city and private-sector projects require bonding as well.

T-Bills – Treasury Bills – Short term obligations of the U.S. government.

Tangible Asset -Real property such as buildings and machinery. Trademarks, goodwill, or accounts receivable are not considered tangible assets.

Tax & Insurance Impound – Monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.

Tenant Improvements (TI) – The expense to physically improve the property to attract new tenants to new or vacated space which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance desired by the tenant.

Term -A loan’s maturity, stated in months or years.

Term Loan -Loan, given in one lump sum, is provided at the closing. Repayment is monthly.

Third Party Costs – Costs resulting from third party reports, whether it be appraisal reports, environmental reports or structural engineering reports.

Title – The actual legal document conferring ownership of a piece of real estate.

Title Insurance – An insurance policy which insures you against errors in the title search – essentially guaranteeing your and your lender’s, financial interest in the property.

TransUnion Corporation – One of three leading providers of personal credit information.

Triple – Net Lease – A lease that requires the tenant to pay for property taxes, insurance and maintenance in addition to the rent (also referred to as ” Net Net Net Lease”).

Underwriting – The process of deciding whether to make a loan based on credit, employment, assets and / or other factors.

Uniform Residential Loan Application (1003) – This application, also called a URL – 1003 is the standard loan application used by all lenders.

Underwriter – The underwriter is the lender or company who actually provides the money for you loan. A mortgage broker “brokers” and represents several different underwriters and depending on your situation they choose the “best” underwriter for you and your lender.

Unsecured Loan – A loan granted upon the good credit of the borrower. No collateral involved.

Upfront Fees – Generally refer to fees charges to pay for third party costs like appraisals.

Usury – Interest which exceeds the legal rate charged to a borrower for the use of money.

Variable Interest Rate – An interest rate that changes during the life of a loan.

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.

Working Capital – Cash and short-term assets that can be used for current needs — bills, etc.

Workouts – Attempts to resolve a problematic situation, such as a bad loan.

Yield Maintenance – A prepayment premium that allows investors to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. Yield maintenance premiums are designed to make investors indifferent to prepayments and to make refinancing unattractive and uneconomical to borrowers.

Yield To Average Life – Yield calculation used, in lieu of “Yield to Maturity” or “Yield to Call,” where books are retired systematically during the life of the issue, as in the case of a “Sinking Fund,” with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirement if the bonds are trading below Par, there is, to that extent, automatic price support for such bonds; they therefore tend to trade on a yield – to – average – life basis.

Yield To Maturity (YTM) – Concepts used to determine the rate of return an investor will receive if a long – term, interest – bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield and the time between interest payments. Recognizing time value of money, it is the discount tare at which the present value of all future payments would equal the present price of the bond (also referred to as “internal rate of return”). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM cam be approximated using a bond value table (also referred as a “bond yield table”) or can be determined using a programmable calculator equipped for bond mathematics calculations.


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