The Terms Related To Short-Term Business Finance That You Should Know
Every one of us can be in a financial crisis at some point or the other. Borrowing money may be a way out. You can borrow funds to finance your business, start a company, buy equipment, or for any other worthwhile purpose.
When you apply for a 2nd mortgage loan or any other funding for the first time, you may encounter several new words that you have never heard before. Phrases like assets, collateral, APR, working capital, and many more like these can form financial jargon. Today, we will be exploring this jargon and help you learn some loan terms that you should be aware of.
Terms related to Short-term business finance
Let us look at the terms that you should have an idea about before applying for business finance.
Collateral is an asset that the borrower pledges as security for repayment of a loan. This asset is forfeited if the borrower does not repay the money.
It is a financial product where the borrower pledges collateral. It can be any acceptable asset such as a house, car, land, or motorcycle. The lender has the full right to seize that asset in the event of a payment default. Traditional institutes like banks and some private financial institutions offer secured loans.
Unlike a secured loan, here the borrower does not have to use any assets like a vehicle or property as collateral for getting business finance in NZ. So this financial product is for all those who do not wish to provide assets as collateral for a loan.
It is a loan with short repayment terms. The loan term varies between 3 to 18 months, depending on what the client and lender select.
A loan that has an extended repayment period is a long-term loan. The repayment tenure can vary from 12 months up to 30 years, depending on the amount borrowed and needs of the client.
Business Credit Card
Another term you must be aware of if you are applying for 2nd mortgage loan is a business credit card. It is similar to personal credit cards. The only difference is that it is designed specifically for business or work requirements. You cannot use it for personal expenses.
Invoice financing is also known as receivables financing. In this financial term, the lender allows the borrower to use the money owed as a loan asset. This way, they can get paid for outstanding invoices right away. Since you are using your remaining invoices as collateral for the loan, it is a secured short-term business loan.
A business microloan is a loan product with a small loan amount, ranging from $100 to $50,000. The repayment schedule is also shorter.
This is a business loan that aims specifically at business equipment purchases. To get what you need, simply use any existing equipment or the asset you want to purchase as collateral.
Line of Credit
A line of credit means that you have a limit of available funds and draw and re-pay funds into the loan as your needs change. You only have to make payments based on the credit that you have used.
Merchant Cash Advance
This short term business finance product is designed for retailers receiving a high payment proportion via EFTPOS or credit cards, such as cafes, shops, and restaurants.
An overdraft is a type of business loan. It is connected to the existing bank account of the user. This type of loan works similarly to a line of credit with a credit limit allowing you to spend more money than you have put into the account.
An asset is an item of property that a company or an individual owns. It has some significant value, for example, a car, real estate, or a piece of equipment.
Another common term in business finance in the NZ dictionary is a traditional lender. This term refers to financial institutes like banks known as financial providers traditionally.
An alternative lender is also known as a non-traditional lender. This term describes a company that aims to work outside the traditional business financing model. They utilize real-time data and technology to achieve this, making the application procedure and acquiring loans much easier.
In relation to a the 2nd mortgage loan, accounts receivable refers to the money owed to a company by its debtors.
This refers to the money owed by a company to its creditors.
Cash Flow Statement
A cash flow statement is a financial statement measuring the cash generated or used by a company in a particular tenure.
APR stands for Annual Percentage Rate. Although it is not the same as the interest rate, APR measures the cost of a mortgage over a one-year term.
The blanket lien gives a lender the right to seize in the situation of non-payment. They can capture all the assets served as collateral by a debtor.
Fixed Interest Rate
This interest rate remains the same for the entire loan term and is known as a fixed interest rate.
Variable Interest Rate
A variable rate of interest fluctuates over time based on the market conditions.
It refers to your business structure like a sole trader, Pty Ltd, Limited, etc.
A loan agreement is a contract between a lender and a borrower that contains all of the loan details.
Refers to the final payment date of the loan.
So, these are some of the business finance NZ terms that you must be aware of. If you are interested in any more loan terms that you are unaware of, comment below, and we will try to answer them. Thanks for reading our blog!