Glossary

504 Loan Program: The SBA 504 loan is designed to assist entrepreneurs obtain long-term financing for capital assets like the purchase of real estate and expensive equipment. Recognizing that business owners sometimes have more difficulty getting traditional business financing but need funds to grow, the SBA 504 loan provides financing for entrepreneurs to make an investment in their own facilities, continue to expand and create new jobs.

Affiliates: Business concerns, organizations, or individuals that control each other or that are controlled by a third party. Control may include shared management or ownership; common use of facilities, equipment and employees; or family interest.

Amortization: A payment plan that enables the borrower to reduce his debt gradually through monthly payments of principal.

Balance Sheet: A balance sheet provides detailed information about a company’s assets, liabilities and owner’s equity.

Business Plan: Document that outlines a firm's financial and operational goals (projections), benchmarks and specific actions to reach the goals.

Cash Flow Statements: Financial statements that report a company’s inflows and outflows of cash.

CDC/504 Loan Program: This program provides long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization. It is designed for businesses requiring “brick and mortar” financing, and is delivered by CDCs (Certified Development Companies) — corporations set up to contribute to the economic development of their communities.

Debt to Equity Ratio: Financial indicator expressed as debt divided by total equity.

Debenture: Debt instrument used by the SBA to fund the 504 portion of the borrowing.

Eligible Assets: for debt refinance are commercial building or property; refinancing another property owned by the same business as part of an expansion. The debt being refinanced does not need to be for assets at the same location or for the same type of property as the project being financed as long as the operation at the other location has the same NAICS code as the operation at the Project location.

Guarantor: Party that signs an agreement and promises to fulfill the obligation of the loan if the maker of the loans does not.

Income Statements: An income statement is a financial report that shows how much revenue a company earned and expenses it incurred over a specific time period (usually for a year or some portion of a year).

Injection: The owner or firm's resources, most often cash or land equity, used for investment in the acquisition of an asset.

Interest Rate (SBA 504): also know as a debenture rate is fixed at closing at a rate close to Treasury securities of like term.

Interest Rate (Bank): Banks may charge a fixed or floating market rate for their conventional portion of the loan along with points and fees.

Liquidity: A measure of how fast a firm can convert its assets to cash. Total liquidity would be cash and assets that are easily converted to cash less liabilities that are due in the short term.

Loan-to-Value Ratio (LTV): The relationship between the amount of the mortgage loan and the value of the real property expressed as a percentage. For example, a LTV of 90% means that your loan is 90% of the property’s value.

Small Business Administration (SBA): Government agency that helps maintains liquidity in the business finance market.