Glossary
# | A | B | C | D | E | F | G | I | M | P | R | S
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401(k) plan
A flexible retirement plan for businesses with employees. Investors in the plan don’t have to pay taxes on the income they invest until they withdraw the funds at retirement age.
A
Accounting, bookkeeping
To keep an exact listing or record of financial transactions. Also called bookkeeping.
Adjustable-rate loan
A loan that allows the lender to make changes in the interest rate, and the resulting principal and interest payments charged to the borrower. These rate changes are usually tied to the rise and fall of a financial statistic (called an index), such as the prime rate or Treasury Bill rate. The initial interest rates on ARMs are lower than rates on fixed-rate mortgages, as the borrower is taking the risk of the interest rate rising over time. The borrower is protected by a maximum interest rate, which the lender may reset annually. There may be a limit on the number and amount of increases or decreases to the interest rate at each change date or over the life of the loan.
Asset
Anything of value owned by a person or company. For example, a person’s assets might include cash, a house, a car, and stocks. A business’s assets might include cash, equipment, and inventory.
B
Break-even point
The point at which a business has brought in enough money to cover its costs of manufacturing and selling during a specific time period (usually a month, quarter, or year). Money brought in above the break-even point is profit.
C
C corporation
A separate tax-paying entity with any number of stockholders and multiple types of stock.
Capital
The assets a borrower owns, for example a car, or cash in a savings account minus your liabilities. If a borrower is unable to make his or her loan payments, a lender might use these assets to pay the debt. Capital is also known as collateral or assets.
Cash flow
A measure of the changes in a company’s cash during a specific period of time (usually a month, quarter, or year). Specifically, a company’s cash income minus the cash payments it makes.
Collateral
Any assets of a borrower (for example, a home) that a lender has a right to take ownership of if the borrower doesn’t repay the loan as agreed.
Consumer
An individual who buys products or services for personal or household use.
Corporation
A type of business where prospective shareholders exchange money, property or both, for the corporation’s capital stock.
Cost of goods sold
A company’s cost of purchasing raw materials and manufacturing finished products.
D
Debt financing
Borrowing money that is repaid over a period of time, usually with interest. This can either be short-term (less than one year) or long-term financing.
Deferred compensation
When a portion of your income is paid out at a date after the income was earned.
Defined Benefit Plan
A corporate retirement plan that pays employees a fixed retirement benefit either as a lump sum or as a pension (a lifetime payment) Payments are determined by salary earned and length of employment.
Defined contribution plan
A corporate retirement plan, such as a 401 (k) or 403 (b), where employees defer a percentage of their salaries and invest for retirement.
E
Entrepreneur
An individual who launches a business or product venture.
Equity financing
An exchange of money for a share of business ownership.
F
Fixed costs
For an individual, a fixed cost is an expense that stays the same each month, such as rent or a car payment. For a business, a fixed cost is an expense that does not vary depending on production or sales levels, such as an equipment lease or property tax.
G
Guarantor
An individual or company who has a legal obligation to pay a debt.
I
Incorporated
When a company incorporates it means that the business is now legally a separate entity from its owners. This may limit potential personal liability.
M
Maturity
The length (time) of the loan terms.
P
Personal guarantee/ guaranty
When a business owner gets a loan for his or her company, and makes a promise that legally requires him or her to repay the debt if the business fails to do so.
Public relations
This means a business’ efforts to maintain a positive public image. Often conducted through various media channels.
R
Return on investment (ROI)
The income that an investment produces for the investor.
S
Secured credit
The ability of an individual or a business to borrow money using assets, such as cash or real estate, as collateral. This means that if the borrower does not repay the debt as agreed, the lender has the right to take ownership of the assets.
Small Business Administration (SBA)
An independent agency of the Federal Government whose purpose is to help people get in business, stay in business, and grow.
Small Business Development Centers (SBDC)
Locally operated SBA training centers for new and small business owners.
Succession planning
Process of planning the transition of ownership and management of a company to new owners and/or family members.