|
If you have never taken a bank loan, it would be helpful for you to learn some basic lending terminology before meeting with your lender. Ask your lender to explain all documentation that they are asking you to sign and also run it by your accountant and your attorney what you are doing. Since small businesses have closely held ownership many lenders seek information about the borrowers personal assets, as well as the assets of the company. Have a clear understanding as to when you are giving the bank the power to sell your personal assets such as your home or stock as repayment of a loan that was made to the business.
Asset: an item of value; anything on a company's books considered as having a positive monetary value
Bankruptcy: The Condition of being financially insolvent
Chapter 7 Bankruptcy: also known as involuntary bankruptcy because the debtor must turn over all non-exempt assets for liquidation from which the cash is used to pay off debt to creditors Following the process, the debtor receives a discharge from all dischargeable debts
Chapter 11 Bankruptcy: allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.
Collateral: property used as security against a loan that may be sold or liquidated in the event the borrower is unable to repay the debtIt
Guarantee: the acceptance of responsibility for the debt of another party in the event that the original debtor is unable to repay
Insolvent: the state of being unable to pay one?s bills or debts when owed and due
Interest: a surcharge on the repayment of debt (borrowed money); the return derived from an investment; the right to claim in a corporation such as that of an owner or creditor.
Letter of Credit: a document issued by a bank guaranteeing that a buyer?s payment to a seller will be paid on time and in full; most commonly used in international transactions where buyer and seller never meet and distance and language prevent the two parties from establishing credit terms directly
Liability: An obligation to pay; indebtedness: an obligation to pay money to another party
Lien the right to sell property of a debtor in the event the debtor fails to pay their debt
Line of Credit: the amount set by a bank or financial lender as to the maximum amount of money they will lend to a borrower; the borrower has the latitude to use all or part of the amount extended at any time
Prime Rate: The lowest interest rate charged by commercial banks to their most credit-worthy customers; each borrowers credit is individually evaluated and charged at or some fraction above prime to adjust for risk
Promissory Note: Contract between a borrower and a lender that includes all the terms and conditions under which the borrower promises to repay the loan.
Term Loan: a bank loan for a set amount that is repaid following a specific schedule, generally for periods of one to ten years and set up to finance an asset whose useful life depreciates over the course of the loan |
