15 Financial Terms Every Entrepreneur Needs to Know

Running a retail business comes with constant learning curves, whether you’re a rookie entrepreneur just starting out or a seasoned pro looking to expand. As a business owner, continuous learning is essential, especially when it comes to mastering financial terminology. Here’s a handy glossary of financial terms to ensure that jargon doesn’t hinder your opportunities:

1. Asset:
   Some small business loan providers require something of value owned by either the business or its owner as security for certain types of secured lending products.
2. Cash Advance:
   A lending product with a fixed cost to access funds, offering flexible repayment terms and simpler qualification criteria.
3. Cash Flow:
   The funds that move in and out of a business to keep it running. Positive cash flow means the business has cash on hand to cover ongoing expenses, which is essential for funding growth and responding to changes.
4. Credit Score:
   In unsecured cash advances and loans, funding providers often conduct a credit check on the business owners responsible for repayment. A higher credit score typically results in better terms on the funding facility, although a perfect score isn’t required for a merchant cash advance.
5. Collateral:
   An asset used by an applicant to qualify for a secured loan. If the borrower defaults, the lender can take possession of these assets. Cash advances are unsecured products and do not require collateral, benefiting new businesses without many assets.
6. Default:
   The failure to keep up with the agreed terms of a cash advance or loan.
7. Gross Profit:
   The total profit from selling products after deducting the costs incurred in selling them, often expressed as a percentage.
8. Fixed Cost:
   An expense that remains constant, such as the cost of funding when applying for a cash advance.
9. Interest Rate:
   Expressed as a percentage, this is the rate owed on borrowed money over a fixed term. This distinguishes loans from cash advances, as cash advances do not have an interest rate but rather a fixed cost to access funds.
10. Loan:
    A lending product with a set interest rate and a specific term for repayment.
11. Secured Loan:
    A financial product that requires the borrower to use assets as security to ensure repayments are made.
12. Split Processing:
    A technology-based repayment system that splits point-of-sale/card payments between two parties, allowing borrowers to repay an advance as a percentage of each card swipe, instead of a traditional debit order.
13. Stacking:
    When a single lender takes multiple cash advances or similar funding types on top of an existing cash advance. This practice is considered irresponsible and is prohibited by SASFA and its members.
14. Term:
    The amount of time allocated to repay the total amount borrowed from a funding provider. This may be set as a fixed term loan or flexible, as seen in merchant cash advances, which allow repayments to align with business turnover.

Unsecured Loan:
A lending option that doesn’t require collateral, although the borrower often signs personal surety for the amount borrowed. This option typically comes with a higher interest rate than secured loans.