Accounts Payable Accounts Receivable Amortization Annual Interest Rate Annual Percentage Rate Attorney Fees Bridge Financing

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1 Accounts Payable Accounts payable are business debts that must be paid off within a relatively short period of time, as opposed to long term debt such as mortgage loans and equipment loans. Accounts payable are short term or current liabilities (debts) as opposed to mortgage loans and equipment loans that are reported on the balance sheet as long term liabilities. Accounts Receivable Money owed by customers for goods or services that have been delivered or used, but not yet paid for. On a company's balance sheet, accounts receivables are recorded as current assets. Amortization The amount of principal reduction (repayment) on a loan or debt. Amortization payments are generally regular payments (usually monthly), made to reduce the debt along with the interest payments over the term of the loan. The term Amortization is used in connection with the periodic expensing of the cost or value of an intangible asset such as patents, trademarks or copyrights (similar to depreciation of a tangible assets well as prepaid expenses, such as subscription revenue whereby the amount prepaid is periodically included in income over the life of the subscription or prepaid expense. Annual Interest Rate Annual Interest Rate is sometimes described as the stated or simple interest rate on a loan, as opposed to the Annual Percentage Rate or APR. It may not reflect the true cost of the loan - See APR. Annual Percentage Rate The Annual Percentage Rate or APR is often referred to as the effective rate of interest since it will include the effects of the compounding of interest (see Compound Interest) and may include the cost of upfront fees. The APR generally reflects the true cost of the loan over its full term. Attorney Fees When used in connection with business loans these are the fees generally paid by the borrower to legal counsel representing the borrowing entity and the lender for legal documentation and preparation for the closing of a loan. Bridge Financing A Bridge Loan is generally a short term loan that is used by business borrowers until a longer term loan can be arranged or a scheduled event occurs which provides the funds to repay the loan. Bridge loans may be used to, among other things, acquire real estate, make improvements, put tenants in place, etc. Bridge Loans may also be referred to as Interim Loans and generally carry higher interest rates and fees than Conventional Loans or Permanent Loans (Permanent Mortgage Loan).

2 Business Credit Report A business credit report is a profile of your business that contains critical information such as payment history that lenders examine when evaluating a business loan application. Dun & Bradstreet (D&B) is a well known for issuing business reports. Business Line of Credit A commercial loan that generally provides for working capital needs of a business. A working capital line (loan) is generally revolving, which means that the business can draw down on the line up to the authorized amount, repay any amount borrowed and re-draw funds as needed during the time that the "Line" is in place. It may be secured by collateral or unsecured. Business Valuation The process of determining the economic value of a business or of a medical, dental, legal or similar practice. Business valuation can be used to determine the fair value of a business for a variety of reasons, including sale value, financing, establishing partner ownership and divorce proceedings. Often times, owners will turn to professional business valuation companies for an objective estimate of the business value. Capitalization Rate or "Cap Rate" The Cap Rate is utilized in commercial real estate financing and sales transactions. It is the percentage derived by dividing the income generated from the use of the property by the value of the property. It is used to determine debt service coverage for a loan or potential return on investment. It also used for appraisal of properties whereby appraisers will use an assumed "Cap Rate" (according to market conditions) to determine the value of the property when using the "income approach" to valuation. See Commercial Real Estate Appraisal below. Cash For Financial Reporting Purposes This generally refers to cash on hand and the value of assets that can be converted into cash immediately such as bank accounts. Certificate of Good Standing Certificate issued by the designated authority in a State (generally the Secretary of State) to verify that a corporation or other business entity actually exists, has paid all its statutory fees, has met all filing requirements and, therefore, is authorized to transact business in that State. A Good Standing Certificate is generally required for any type of closing to take place, whether acquisition or financing.

3 Collateral Collateral is the property pledged to a lender or other party to secure repayment of a loan or performance of some required task. Commercial Real Estate Appraisal An estimate of the "market" value of Commercial Real Estate prepared by a licensed appraiser. Appraisers may be licensed by the State and may also be designated as an MAI appraiser (usually required by banks). When making business loans collateralized by real estate lenders will generally require the appraisal to conform to the Uniform Standards of Professional Appraisal Practice (USPAP), which sets forth guidelines for valuing property. Generally, appraisers use three methods for determining values: the "cost approach," which refers to the value of the land and the cost to construct the building and improvements, the "sales comparison approach," which analyzes the sales of similar properties in the area, and the "income approach," which analyzes the income generated or projected to be generated by the use of the property and applying a capitalization rate to that number. Appraisers will often use and reconcile all 3 approaches to arrive at a value. Compound Interest Interest is compounded when the interest due on a business loan for a given period is added to the principal amount of the loan and that amount then also accrues interest. Construction Loan Fees and Points A fee charged by the lender for the construction component of a loan. The fee is typically calculated as a percentage of the total construction costs. Points can also be charged by lenders on Permanent Loans as well as by mortgage brokers and loan brokers for services rendered in connection with obtaining a loan. Conventional Loan Mixed Use-Commercial A loan, secured by a mortgage, for an investment property that may be a combination of retail, office and/or residential space. Conventional Loan Mixed Use-Industrial A loan, secured by a mortgage, for an investment property that is leased to tenants in the manufacturing and trade industries and is industrial in nature. Conventional Loan - Multi-Family A commercial loan, secured by a mortgage, for a residential investment property that has two or more residential tenants.

4 Conventional Loan - Owner User A business loan, secured by a mortgage, to a borrower that uses all or substantially all of the property securing the loan for the operation of its business. Loan purposes may include the purchase or refinance of a commercial business property (owner-user), construction and improvements. Conventional Loan - Single-Tenant A commercial real estate loan for an investment property that is fully leased to a single tenant. Credit Reports A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower's permission, to determine his or her creditworthiness. Credit Score Often referred to as the FICO score is a numerical rating determined by an analysis of your Credit Reports. The FICO scores range between 300 and 850, with the lower number allegedly representing a greater credit risk. Current Assets Cash Accounts receivable, marketable securities, inventory and other assets of a business that can be converted into cash within a year. Current Liabilities Current or Short Term Debt Liabilities or debts of a business that mature or become due within one year. Current Ratio A liquidity ratio that measures the ability of a business to pay short-term obligations. It is often used by banks when evaluating business loan requests. Formula: Current Ratio = Current Assets Current Liabilities. Debt Service The amount of the required periodic payments of principal and interest on a loan or other obligation. Debt Service Coverage Ratio (DSCR or DSC) The amount of cash flow available to meet annual principal and interest payments on business loans and investment real estate loans. Formula: Debt Service Coverage Ratio = Net Operating Income Debt Service

5 Default Interest and Late Charges Default Interest is a higher rate of interest that is charged to a business borrower while their loan is in default (the default rate of interest will be set forth in the loan documents). Late charges are amounts that will be charged if a borrower is late in a payment that is due even though the loan is not in default. Depreciation In accounting, an expense recorded to deduct a business s tangible asset's cost over its useful life. Because depreciation is a non-cash expense, it does not impact cash flow but it does decrease reported earnings. EBITDA EBITDA is one of the measures that lenders use to evaluate a business's creditworthiness and its ability to repay a loan. It is calculated by taking the net earnings of the company (revenues minus expenses) and then adding back interest costs, taxes, depreciation and amortization. Effective Gross Income (EGI) EGI is used to analyze investment properties. It is determined by taking Gross Income less vacancy and credit losses, plus miscellaneous income. Environmental Indemnity An agreement by a business borrower or a guarantor to protect or reimburse another party (usually a lender) from any loss incurred as a result of an environmental problem. Environmental Site Assessment or Phase I Site Assessment A study of real estate to determine any unique environmental attributes, encompassing everything from endangered species to existing or potential hazardous waste to historical significance. Generally it involves visual inspection, interviews, and checking local records. Equity, Net Equity or Net Worth Equity Net Equity or Net Worth basically refers to the assets of the business minus its liabilities. Filing & Recording Fees Charges associated with documents that are filed and become public record in connection with a sale (transfer tax, documentary or deed stamps), formation of a company, filing of a mortgage or lien on property. Fixed Assets or Tangible Property Physical Physical assets that a business owns. Buildings, real estate, machinery and equipment, computers and furniture are examples of fixed or tangible assets.

6 Flood Certification Identification of whether or not a property that is being acquired by loan applicants or used as collateral for a loan is located on government-designated flood plains. GAAP Generally Accepted Accounting Principles The accounting rules for financial presentation of a business's income, expenses, assets and liabilities. The standards are set by the Financial Accounting Standards Board (FASB) a non-profit organization. The rules are modified from time to time. Good Will Good Will is an Intangible Asset on a business's balance sheet, generally arising from the difference between the purchase price paid for the business minus the net value of its assets (assets minus liabilities). Gross Profit Gross Profit is calculated by taking the revenue generated by the business and deducting the cost of acquiring and/or producing the goods sold or providing the service performed. It generally does not include costs attributable to indirect labor, taxes, rent, utilities and interest. Gross Profit Margin Ratio This is calculated by dividing the Gross Profit by the revenues. It provides some guidance as to whether the pricing for the products or services are adequate or too low and whether the costs associated are adequate or too high. The margin should be large enough to cover operating and other expenses and provide a reserve for growth. Gross Revenue Gross Revenue is the income generated by a business or property before deducting expenses. Guarantee or Guaranty Generally the obligation of one party to pay or assume the obligation of another if the other does not pay. A guarantee may be an Unlimited Guarantee or it may be a Limited Guarantee. A Limited Guarantee may provide that the person guaranteeing (Guarantor) is only responsible for certain obligations or amounts. Hard Money Loan Loan typically issued by a non-bank lender based on the quick-sale of a piece of commercial real estate, an opportunistic opportunity to acquire property at a bargain price and possibly a distressed financial situation that may not qualify for traditional conventional financing. Hard money loans generally are short term "Bridge Loans" and carry high rates of interest and points.

7 Insurance A contract (policy) in which an individual or business receives financial protection or reimbursement against losses from an insurance company. Intangible Assets Intangible Assets are business assets (other than cash or cash equivalents) that have value and generally are not physical assets. Examples of intangible assets are trade secrets, patents, trademarks, and copyrights. Good Will is also an intangible asset. Interest Expense The interest on existing business debt that is paid to banks and creditors. Inventory The raw materials, work-in-process goods and completely finished goods that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess because the turnover of inventory represents one of the primary sources of revenue generation and earnings. Lien, Mechanics Lien, Judgment Lien and Tax Lien A lien is a Security Interest in property to secure repayment of an obligation. A Mortgage is a lien on real estate to secure repayment of the mortgage loan. A Tax Lien is a lien on real estate to secure payment of real estate taxes, a Mechanic's Lien is a lien on real estate to secure payment for work done on real estate, and a judgment lien is a lien to secure payment of a judgment. A lien on personal property such as machinery and equipment or accounts receivable is generally perfected by filling of a UCC financing statement and execution of a security agreement. Loan Packaging Fee Any fee charged to the borrower for packaging or assembling of their business loan application and supporting documentation. Loan to Value (LTV) Loan to Value is an important ratio for lenders. It is the amount of the loan divided by the value of the collateral taken as security for the loan (if there is a lien that will have a priority interest in that collateral, then the amount of that lien is deducted from the value of the collateral when determining the LTV.) Machinery & Equipment Loan A business loan that is generally secured by the machinery and equipment of the borrower. These loans are used for the purchase or refinance of machinery and equipment for a business.

8 Management Fee The cost of professional property management. The fee is typically set at a fixed percentage of total rental income generated by the property managed. Market Value or Fair Market Value Fair Market Value can be defined as the estimated price for property that a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller. Net Cash Flow Net Cash Flow is the amount (positive or negative) of the changes in a company's cash balance over a given period of time (usually measured monthly, quarterly and annually). It can consist of cash generated from operations, investments and financings minus expenses. Net Income Net Income is a company's Gross Revenues minus its expenses including cost of goods sold, taxes, interest, depreciation, rent, overhead etc. Net Income is the business's profit. Net Lease A lease which requires the Tenant to pay some or all of the costs associated with the leased premises. A Triple Net Lease (NNN) requires the tenant to pay its share of the real estate taxes, insurance and maintenance with respect to its space. A Double Net Lease (NN) requires the tenant to pay for its share of taxes and insurance and a Single Net Lease requires the tenant to pay its share of the real estate taxes. Net Operating Income Income from property or a business after operating expenses have been deducted, but before deducting income taxes and financing expenses. Operating Income is earnings before interest and taxes (EBIT). Non-Recourse Guarantee Generally used in connection with real estate loans whereby the borrower is guaranteeing repayment only to the extent of the value of the real estate or other collateral pledged as security for the loan. In other words the lender's sole recourse in the event of a default is to liquidate the collateral. An Unlimited Guarantee or Recourse Guarantee permits the lender to seek repayment from the guarantors either before or after the collateral is liquidated, (depending upon the terms of the guarantee and the laws of the applicable jurisdiction).

9 Operation and Maintenance Plan (O & M Plan) An O & M Plan is generally put into place by businesses with existing or potential environmental concerns such as asbestos, lead contamination, etc. It sets forth the guidelines for identifying, monitoring and dealing with existing or potential environmental problems as well as complying with governmental regulations. Origination Fee or Points An up-front fee charged by a lender for processing and committing to make a loan. Origination fees are quoted as a percentage of the total loan (ex. 1% of $200,000 = $2,000). Percentage Rent The term generally applies to commercial retail leases. In addition to, or sometimes in lieu of, the fixed rent payment, the tenant pays a percentage of its sales in excess of a pre-established base. Permanent Mortgage Loan A Loan secured by a mortgage on real estate generally with a term of at least 5 years or more. A permanent loan can be self-amortizing which means that the loan will be fully repaid by the required debt service payments during the term of the loan or it could be a balloon loan where there is a balance due at the end of the term of the loan. Personal Property Personal Property is generally defined as any assets other than real estate. Prepayment Penalty These are provisions generally found in commercial mortgage loans which provide extra protection against loss of expected income to the lender if a loan is paid off before its maturity date. A prepayment penalty generally takes the form of a fee or points, measured as a percentage of the remaining loan balance at the time of prepayment, to be paid to the lender (e.g. 1%). Real Estate (RE) Taxes or Real Property Taxes A government levy based on the assessed value of real estate. Real Property or Real Estate Generally defined to mean land, together with the buildings and improvements permanently constructed on or affixed to the land. Repair & Maintenance Reserve or Repair and Maintenance Escrow An amount set aside or escrowed with a lender to cover the anticipated costs of repairs and maintenance of the property owned by the business borrower and pledged as collateral for the loan.

10 Repairs & Maintenance Generally this is the work necessary to return or maintain an asset in good operating condition. Replacement Reserve or Replacement Reserve Escrow An amount set aside or escrowed with a lender to cover the anticipated costs of replacing obsolete or damaged business property. Rollover Reserve or Tenant Rollover Reserve An amount set aside from Net Operating Income to pay for anticipated costs of replacing commercial tenants such as brokerage commissions and tenant improvements. SBA 504 Loan Combination 1st lien Bank or non-bank loan and subordinated debenture provided by a Certified Development Company (CDC) which is 100% guaranteed by the Small Business Administration (SBA). Provided to start-up and existing small businesses for major fixed assets acquisitions, expansion or modernization. SBA 7(a) Loan Bank or non-bank loan provided for start-up and existing small businesses for a variety of loan uses including real estate, machinery and equipment and working capital. The federal government through the SBA guarantees repayment of a portion of the loan to the lender although the borrower remains fully liable for the whole loan (to the lender and/or the SBA for their respective portions). SBA Guarantee Fee To offset the costs of its loan programs, SBA charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees is based on the guaranteed portion of the loans. The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to SBA and has made the first disbursement of the loan. The lender's annual service fee to SBA cannot be charged to the borrower. For more on how to calculate the SBA guarantee fee please visit the BoeFly Intelligence Center. Second Mortgage or Subordinate Loan A second mortgage is a mortgage on property that is subordinate to the first mortgage. The holder of the prior mortgage (First Mortgage) has priority over the second mortgage lender with respect to proceeds from liquidation of the collateral property pledged for repayment of the loan. Secured Loan A loan secured by collateral, whereas an Unsecured Loan has no collateral pledged as security for repayment.

11 Security Interest A pledge of property to secure performance of a loan or other obligation. A mortgage or lien is a security interest. Soft Costs or Soft Project Costs The term is generally used in connection with construction projects to differentiate between the "hard" construction costs such as materials and labor associated with the physical construction from the other costs such as financing, legal, architectural, engineering, etc. Standby Loan or Standby Debt This can refer to either a commitment by a lender to make a loan if certain circumstances occur or borrowed subordinated financing which by its terms requires no payment on the loan while the primary loan is in place. Survey The process by which a parcel of land is measured and its area ascertained. The plan typically shows measurements, boundaries, area, contours and easements. Tax and Insurance Escrow Often a lender will require a borrower to put in escrow (generally on a monthly basis) an amount calculated to pay for the real estate taxes and insurance premiums, when due, with respect to the real estate collateral pledged to secure its loan. Tax Monitoring Fees A closing cost used to ensure that borrowers pay their property taxes. A tax service fee is typically paid by the business borrower at the time the mortgage is made (the Closing), and it is standard practice for the lender to then pass this sum on to a tax service agency. The role of a tax service agency is to look for delinquent property taxes and alert the lender to prevent tax liens from existing against the borrower's property. Since tax liens have priority over lender liens, banks want to ensure that they, not the taxing municipality, become the owner of these properties in the event of default. Tenant Improvements (TI) Tenant Improvements are alterations or changes made to a property to meet the needs or requirements of a tenant. Term Lenders' loan terms may vary by loan uses, however as a guide the following terms may apply: Working Capital - 5 to 10 years / Machinery and Equipment - 7 to 15 years / Real Estate - 5 to 30 years.

12 Title Insurance Insurance policy that protects the owner and mortgage holder with respect to real estate from loss sustained by defects in the title, often including problems with the Survey. UCC Filing Uniform Commercial Code Code of laws governing various commercial transactions that was designed to bring uniformity in these areas to the laws of the various states. To properly file a lien and take a security interest in personal property owned by the borrower, a lender must file the UCC financing statement with the appropriate governmental authority. USDA Loan or B & I Loan United States Department of Agriculture loan programs are offered to improve, develop or finance businesses and industry and improve the economic and environmental climate in rural communities. There are several programs that provide partial loan guarantees to lenders. Vacancy Allowance and Credit Loss Vacancy Allowance Vacancy Allowance is an amount generally deducted when calculating Net Operating Income to account for actual or estimated vacancy in an investment property. Credit Loss Allowance is an amount generally deducted when calculating Net Operating Income to account for actual or estimated losses due to non-payment of rents or other accounts receivable. Working Capital Working Capital is calculated by subtracting a company's short term or current liabilities from its current assets. It is a measure of whether the company can meet its.obligations as they fall due Yield Maintenance Penalty Another form of Prepayment Penalty on commercial mortgage loans. Yield Maintenance provisions require the borrower prepaying a loan to also pay an amount that would give the lender the same return on the loan as if it were held to maturity. Essentially, the lender will be paid the difference, if any, between the interest rate on the loan and the current market rates the lender would receive if it loaned the money at the time of prepayment. If rates are higher when the loan is prepaid there may be little or no prepayment penalty, conversely the lower the rates at the time of prepayment, the greater the penalty.

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