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CANCELED LOAN
The annulment or recission of an approved loan prior to disbursement.
CAPITAL
Assets less liabilities, representing the ownership interest in a business; a stock of accumulated goods, especially at a specified time and in contrast to income received during a specified time period; accumulated goods devoted to the production of goods; accumulated possessions calculated to bring income.
CAPITAL ASSET
An asset that is purchased for long-term use such as machinery and equipment.
CAPITAL EXPENDITURES
Business spending on additional equipment.
CAPITAL LEASE
A lease that should be treated essentially as a loan, for accounting purposes. The four criteria are:
• title passes automatically by the end of the lease term
• lease contains a bargain purchase option (i.e., less than the fair market value)
• lease term is greater than 75% of estimated economic life of the equipment
• present value of lease payments is greater than 90% of the equipment's fair market value
A capital lease is treated by the lessee as both the borrowing of funds and the acquisition of an asset to be depreciated; thus the lease is recorded on the lessee's balance sheet as an asset and corresponding liability (lease payable). Periodic lessee expenses consist of interest on the debt and depreciation of the asset.
CAPITALIZED PROPERTY
Personal property of the business which has an average dollar value of $300.00 or more and a life expectancy of one year or more. Capitalized property shall be depreciated annually over the expected useful life to the business.
CASH BASIS ACCOUNTING
The simplest form of accounting in which income is considered earned when received and expenses are not taken into account until paid.
CASH DISCOUNT
An incentive offered by the seller to encourage the buyer to pay within a stipulated time. For example, if the terms are 2/10/N 30, the buyer may deduct 2 percent from the amount of the invoice (if paid within 10 days) otherwise, the full amount is due in 30 days.
CASH FLOW
An accounting presentation showing how much of the cash generated by the business remains after both expenses (including interest) and principal repayment on financing are paid. A projected cash flow statement indicates whether the business will have cash to pay its expenses, loans, and make a profit. Cash flows can be calculated for any given period of time, normally on a monthly basis.
CAVEAT EMPTOR
"Let the buyer beware."
CERTIFIED LENDERS
Banks that participate in the SBA's guaranteed loan program.
CHARGE-OFF
An accounting transaction removing an uncollectible balance from the active receivable accounts.
CHARGED OFF LOAN
An uncollectible loan for which the principal and accrued interest were removed from the receivable accounts.
CLOSING
Actions and procedures required to effect the documentation and disbursement of loan funds after the application has been approved, and the execution of all required documentation and its filing and recordation where required.
COLLATERAL
An asset that can be sold for cash and which has been pledged to a creditor to secure a future obligation. (For example, if you finance a car it is the collateral for the loan.)
COLLATERAL DOCUMENT
A legal document covering the item(s) pledged as collateral on a loan, i.e., note, mortgages, assignment, etc.
COMPARABLE SALE
A business that is similar to the subject business and which has sold. The selection of comparable sales is one of the single most important determining factors in establishing an accurate range of value. Characteristics which make a comparable sale more relevant for purposes of valuation include: similar business model, similar size, similar margins, recent sale date, similar location, an arms length relationship between buyer and seller, etc. It is the valuator's responsibility to adequately research the market to determine which comparable sales best represent the value characteristics of the subject business.
COMPOUND INTEREST
Interest earned on previously accumulated interest plus the original principal. Most spreadsheets can calculate this easily for you but for the curious, the formula is C = P(1 + r/n)n, where C=compound amount, P=original principal, r=annual interest rate, n=total number of periods over which interest is compounded.
COMPROMISE
The settlement of a claim resulting from a defaulted loan for less than the full amount due. Compromise settlement is a procedure available for use only in instances where the creditor cannot collect the full amount due within a reasonable time, by enforced collection proceedings or where the cost of such proceedings would not justify such effort.
CONFIDENTIAL
Private information not intended to become public. Unauthorized disclosure of confidential information is often financially damaging to a business. Even the fact that a business may be available for sale or merger can be extremely damaging. Confidentiality is often unknowingly violated when a prospective buyer seeks opinions or assistance understanding trade, financial or technical issues. Do not consult anyone other than those parties specifically involved in the proposed transaction itself. Do not speak to shareholders, employees, independent contractors, customers, vendors, neighbors, landlords, competitors or friends without written permission from the Seller.
CONTINGENCY
A condition that must be met in order for a contract to be legally binding.
CONTINGENT LIABILITY
A potential obligation that may be incurred dependent upon the occurrence of a future event. Two examples are: (1) the liability of an endorser or guarantor of a note if the primary borrower fails to pay as agreed and (2) the liability that would be incurred if a pending lawsuit is resolved in the other party's favor.
CONTRACT
An agreement between two (or more) parties in which each promises to perform in some way. Contracts can be complex and should be reviewed by an attorney. A contract may not be binding if not correctly drafted and executed.
CORPORATION
An artificial entity granted a state charter legally recognizing it as having its own rights, privileges, and liabilities distinct from those of its shareholders. The process of incorporating should be completed with the state's secretary of state or state corporate counsel and usually involves the services of an attorney.
COSTS
Money obligated for goods and services received during a given period of time, regardless of when ordered or whether paid for.
CREDIT, THE 5 C'S OF
The five key elements a borrower should have to obtain credit: character (integrity), capacity (sufficient cash flow to service the obligation), capital (net worth), collateral (assets to secure the debt), and conditions (of the borrower and the overall economy.)
CREDIT RATING
A grade assigned to a business concern to denote the net worth and credit standing to which the concern is entitled in the opinion of the rating agency as a result of its investigation.
CREDIT REPORT
A listing of an individual or company's history of repaying past loans and other liabilities.
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