Loan Glossary and Mortgage Terms


Some terms could be confuse to people who wants to get a Loan. Terms as bridge loan, guaranteed loan, equity or fund balance. There is a list with the most loan terms and words related to.

Any interest in real or personal property which can be appropriated for the payment of debt and has value.

Bad Debt
A debt that is worthless to the creditor because it is not collectible.

Balance Sheet
Documentation showing total assets, liabilities and owner’s equity or net worth of business firm or nonprofit organization as of a specific moment in time.

Bridge Loan
Short-term loan to provide temporary financing until more permanent financing is available.

Business Plan
Document describing an organization’s present status and plans for years to come. It usually forecasts future opportunities for the organization and maps strategies that will enable the organization to achieve its goals.

All the money and other property of a corporation or other enterprise used in transacting its business, so basically assets available for use in the production of further assets.

This is the process of adding interest that is not paid to the total balance of the loan, it will increase the principal balance of the loan and also may increase the monthly payment.

Capital Markets
Markets for medium to longer term investments which include institutions and individuals that exchange securities, especially long-term debt instruments.

Cash Flow Financing
Short-term loan providing extra cash to protect cash shortfalls in anticipation of revenue, such as the payment of receivables.

Assets that are pledged as an assurance to lender until a loan is repaid.

An accord or promise to do or not to do specific events; to enter into a formal agreement; a promise incidental to a deed or contract.

Current Asset
Assets that are expected to be turned into cash within the next year.

Current Liability
A liability that has to be paid within 12 months.

Current Ratio
A measurement of liquidity. Current assets divided by current liabilities.

An amount owed for funds borrowed.

Debt Service
Payment that is due on a regular basis that complies with a prior agreement made between lender and borrower.

Debt Service Reserve
Cash that has been set aside by the borrower to repay debt in the event that cash produced by operations is insufficient.

A failure to release a responsibility. For example, the failure of the mortgagor to pay a mortgage installment, or to comply with mortgage agreements.

Being unpaid or is overdue on something that has been made payable.

Due Diligence
Investigation and verifying all critical assumptions and facts as told by a borrower. Includes verification of income, accuracy of financial statements, value of assets that serve as collateral, and any other material facts as told by the borrower.

Endowment or Trust
A fund that contains assets whose function is limited only to the income earned by these assets.

When the value of a property is greater than the total debt against it. Investment equities are usually in the form of an owner’s share in the business.

Equity Participation
Interests in a firm or organization in the form of equities or investments. Returns on the investment are dependent on the profitability of the organization or venture.

Fund Balance
Cash remaining in a fund at the end of a specified time, usually at the end of the fiscal year. Total assets minus total liabilities.

General Recourse
Rights to order payment from the common assets of the debtor, without seniority in access to any specific assets.

Guaranteed Loan
A promise to cover the payment or debt if the borrower who is liable fails to do so. If a third party guarantees a loan they are promising to pay in event of delinquency by the borrower.

Interim Financing
A loan given over a short duration to offer temporary financing until more permanent financing is available.

Companies that raise funds for business enterprises, usually are paid a commission when the money is raised.

The ability to control large dollar amounts by using long-term debt to secure funding. In the investment world it refers to financial contribution by other sources (private, public, or individual.)

Liabilities, Total Liabilities
Entire worth of financial declaration on a firm's assets. Equals entire assets minus net worth.

Limited Liability
This is a type of investment is which shareholders cannot lose more than the amount in which they invested.

Limited Recourse
An arrangement where the lender is allowed to request repayment for a sponsor if the borrower neglects to meet their payment obligations. Usually only applies to a specific and limited amount.

Line of Credit
Contract made by a bank that a company may borrow funds at any time up to designated limit.

Linked Deposit
A deposit placed into an account with a financial institution to encourage that institution’s assistance for projects.

Loan Agreement
A written agreement between a lender and a borrower that sets out the privileges and obligations of each party regarding a specified loan.

Loss Reserves
Funds that are unavailable for lending purposes and are set aside as a reserve against possible loan losses.

Market Rate
The rate of interest a company must pay to borrow funds.

Negative Covenants
Declaration of actions or happening by the borrower that must be prevented from happening. For example, additional borrowing without the lender's consent.

Net Working Capital
Current assets minus current liabilities.

Net Worth (Fund Balance in nonprofit organizations)
Cumulative net value of the organization. Total assets minus total liabilities.

Opportunity Cost
The cost of passing up the next best option when making a decision.

A grouping of assets held for its investment advantages, including financial and non-financial returns. The mix is usually wide-ranging in kind and size to maintain an acceptable level of risk and return.

The intial amount of a debt on which interest is calculated.

Program-Related Enterprise
A business or enterprise designed to encourage the social purpose aims of an organization as well as produce revenue. Among nonprofits, products and services are usually identified with the purpose of the organization. Activities can range from fee-for-service charges to full-scale commercial ventures.

Program-Related Investment
A way of offering support to an organization, consistent with program objectives and involving the potential return of capital within an established time frame. Examples are loans, loan guarantees, equity investments, asset purchases or the conversion of asset(s) to charitable use, linked deposits, and, in some cases, recoverable grants.

Promissory Note
This is a written agreement between lender and borrower that is signed by the borrower which provides proof of the borrower’s indebtedness to the lender. Promise to pay.

Amount that is owed to the business by clientele as a result of the ordinary extension of credit.

Refers to a loan in which an undersigner is responsible for payment if the borrower is unable to make payment or defaults. A full recourse loan refers to the right of the lender to take any assets of the borrower if repayment is not made. A limited recourse loan only allows the lender to take assets named in the loan agreement. A non-recourse loan limits the lender's rights to the particular asset being financed -- an approach that is common in home mortgages and other real estate loans.

Recoverable Grants
Finances provided by a philanthropist to satisfy a role similar to equity. For example a recoverable grant may include an agreement to treat the investment as a grant if the enterprise is not successful, but to repay the investor if the enterprise meets with success.

A modification of a financial accord that alters the conditions of the original agreement. An example is when, parties agree to reorganize a loan agreement, changing the payment schedule, when a borrower is delinquent or otherwise faces default on a loan.

Roll Over
A loan in which the borrower has the option to carry over the investment or loan up maturation.

An oath made to protect the implementation of a contract or the fulfillment of an obligation.

Senior Debt
Takes priority over junior debt and must be repaid before subordinated debt collects payment

Subordinated Debt (Junior Debt)
Junior debt is debt that is unsecured and which has a lower priority than that of another debt claim on the same asset or property.

A term is the complete length of time it takes to repay a loan, bond, sale or other contractual responsibility.

A unit that receives funding from an investor for use in their programs or ventures; they can be non-profit or for-profit.

A warranty is a testament that verifies that other statements told by the borrower are true. If the borrower warrants that it is a corporation, they are entering a legal agreement that whatever financial statements supplied to the bank are factual.

Working Capital
Current assets minus current liabilities.

Write off
When investments or loans become seriously delinquent and cannot be collected, the lender can make the choice to charge the loan in default as an expense or a loss.

Adjustable Rate Mortgage gives the option to make low payments for the first few years of the loan after which the rates and hence payments can be raised to any high level depending upon the index associated with your mortgage.

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