BCI Lending Glossary

Cash Flow
The difference between incoming cash to your business & outgoing cash required to meet operating costs & expenses for a particular period (month or year). Cash flow may be impacted by: 1) seasonal sales/revenue patterns; 2) time required to convert inventory into saleable product; or 3) trade payment terms offered to customers (accounts receivable) and received from suppliers (accounts payable). During start up (generally, first year of operations), a business may need external debt financing to bolster cash flow while revenues build. Such a deficit cash flow situation, referred to by lenders as a need for “permanent working capital,” may also occur in an existing business in a period of rapid sales growth or expansion into new product lines or new geographical markets (see definition of Working Capital).

Cash Surrender Value of Life Insurance
The investment value which builds up in a whole life or universal life insurance policy through payment of policy premiums, coupled with dividends earned on investment of those premiums. Cash value represents the amount that you could borrow against the policy or that you would receive by cashing in the policy. Term insurance policies do not build cash value. In completing a personal financial statement, show only the cash value, not the policy face value, as an asset.

Closely Held Company
A closely held company is one in which you hold ownership either individually or with a limited number of other persons. Such companies are almost never listed on public stock exchanges. The most basic form of closely held company is a sole proprietorship, which operates under your personal Federal tax identification number (i.e., your social security number), rather than a separate Federal tax id. number. Other legal entities, such as Limited Liability Companies or Parternships most likely also qualify as a closely held company because of the limited number of owners/shareholders.

Commitment Letter
Upon final approval of your business loan, BCI Lending will issue a Commitment Letter. This letter expressly states that the loan has been approved, and it provides terms and conditions of the commitment being made by BCI Lending. This will be the last step in the approval process prior to loan closing, and the letter will provide complete details of your loan, such as loan amount, repayment terms, interest rate and fees, collateral, guarantees and contingencies to be met prior to closing. (View a sample Commitment Letter.)

Fully Amortizing
Your BCI business loan can be repaid in scheduled (usually monthly) payments of principal and interest over the full term of the loan, without early payout provisions, such as so called “balloon payments,” or rate call provisions often imposed by commercial banks (refer to Helpful Articles).

Market Value
The market value of real estate or other assets which you own. True market value can only be determined through a professional appraisal; however, in applying for a loan, give your best estimate of value based on current market conditions or a recent tax assessment.

Net Worth
Also called capital or equity of the business. It represents a combination of funds invested by the owners plus total earnings retained by the business since its inception, including current year to date earnings. In preparing a balance sheet on the business, net worth would be the mathematical difference between total assets & total liabilities. The debt/worth ratio shows the relationship between capital contributed by creditors (suppliers, lenders, etc.) and that contributed by the owners. The higher this ratio, the greater the risk being assumed by the creditors. A lower ratio generally indicates greater long-term financial safety for the firm and enhanced flexibility for your business to be able to obtain loans in the future.

Personal Financial Statement
A schedule detailing your personal assets (what you own) and liabilities (what you owe), along with your personal income and other outside, or contingent, obligations for which you could be held responsible. A personal financial statement form can be found on this website for your convenience. BCI needs a current signed and dated personal financial statement for all owners of 20% or more of a business enterprise for which we are being asked to make a loan.

SBA 7(a) Guaranteed Loan
A loan to a qualifying business enterprise by a lender such as BCI, backed by a Federal guarantee issued by the US Small Business Administration (SBA). Because of the government guarantee, your business can obtain true long term financing, which can be vital to bolstering cash flow, especially during its early years.

SBA Preferred Lender
As a Preferred SBA Lender, BCI handles your business loan request as though we are an extension of the SBA. With authority to obligate the SBA for its guarantee of your loan, BCI can handle your request much faster and thereby expedite loan closing and disbursal of loan funds to your business.

Sources & Uses Statement
Schedule showing complete breakdown of funds required for your business project (uses). Uses may include: funds for acquisition of assets (real estate, equipment, or inventory), funds to cover operating costs & expenses (working capital), or funds to cover costs/fees associated with obtaining outside financing for the project. The same schedule should also contain a corresponding breakdown of where funds to finance the project will be derived (sources)—cash or other assets being contributed by owners (equity capital), outside investment capital/loans from others (e.g., relatives, passive investors, silent partners, state/municipal loans/grants), and debt to BCI, banks, or others. In a business acquisition, potential funds sources can also include financing from the seller(s) of the business.

USDA Business & Industry Guaranteed Loan
A loan made to a qualifying business enterprise by a lender such as BCI and backed by a Federal guarantee issued by the US Department of Agriculture (USDA). Because of the government guarantee, your business can obtain true long term financing, which can be vital to bolstering cash flow, especially during its early years.

Working Capital
In the normal course of business, working capital refers to cash, customer accounts receivable & inventory (both of which will turn into cash) to enable the business to meet current debt obligations (i.e., bills payable for product purchases, normal operating overhead expenses, loan payments, payroll & benefits expense, etc.). Temporary working capital needs, due to the timing of receivable collections vs. normal cash needs to make inventory purchases and pay normal bills, can be met with a line of credit. However, during an extended sales growth or expansion of your business, permanent working capital needs may arise, which will usually be best addressed with long term financing.

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