Article provided by Discovery
Running a retail business comes with constant learning curves whether you’re starting out as an entrepreneur with huge potential or a seasoned pro looking to expand. As a business owner, you should always be learning because regardless of your career stage or economic climate, there is always a new tool to master or problem to solve.
Being financially savvy is core to the health of your business so with this in mind, Merchant Capital and Discovery have created a handy glossary of financial terms to make sure that jargon doesn’t get in the way of opportunity:
Some small business loan providers require something of value that is owned by either the business or its owner. This can be used as security for certain types of secured lending products.
2. Cash Advance
A lending product that has a fixed cost to access the funds but also comes with very flexible repayment terms and simpler qualification criteria.
3. Cash flow
This refers to the funds that go in and out of a business to keep it running. Positive cash flow means the business has cash on hand to cover ongoing expenses. This requires a delicate balance to manage and is often an entrepreneur’s lifeline to fund growth and to respond to ever-changing factors.
4. Credit score
In unsecured cash advances and loans, funding providers often run a credit check on the business owners responsible for paying back the amount given. There is a positive correlation between your credit score and the terms you get on the facility you qualify for. Remember that you don’t need a perfect credit score to qualify for a merchant cash advance.
This is an asset that you use to qualify for a secured loan. In the case of a borrower defaulting on the agreement in a secured loan scenario, you (as the lender) can take possession of these assets. Because a cash advance is an unsecured product, it does not require collateral. This is a win for new businesses that don’t yet have many assets.
This refers to failing to keep up with the agreed terms of a cash advance or loan.
7. Gross profit
Often represented as a percentage (%), this is the total profit from selling your products after taking the cost incurred selling the product into account.
8. Fixed cost
This is an expense that never changes. When applying for a cash advance, this refers to the cost of the funding.
9. Interest rate
Also expressed as a percentage (%), this is the rate that is owed on an amount lent over a fixed term. This is a key element that differentiates a loan from a cash advance because with a cash advance there is no interest. There is a fixed cost to access funds, which never changes regardless of the term. Conversely, with a loan, there is an interest rate, which fluctuates in response to external factors.
A lending product that has a set interest rate and term in which it has to be repaid.
11. Secured loan
A financial product that requires the borrower to put up assets as security to prevent the business from skipping repayments.
12. Split processing
This is a unique technology‑based repayment system that splits point of sale or card payments between two parties. This enables you as the borrower to repay an advance (directly to the lender) as a percentage of each card swipe. This is an alternative to a traditional debit order repayment and a key feature of a cash advance.
When a single lender takes a second (or even third) cash advance or similar funding type over and above an existing cash advance. This is considered an irresponsible lending practice and is therefore not allowed by SASFA and its members.
This refers to the amount of time it takes to pay back the total amount borrowed from a funding provider. This term may be set and known as a fixed‑term loan. Alternatively, it may be flexible like a merchant cash advance that allows funds to be paid back in line with the business’ turnover and therefore uses an estimated repayment period.
15. Unsecured loan
This is a lending option where you as the borrower do not have to put up any collateral as security. However, often you might have to sign personal surety for the amount taken. It also attracts a higher interest rate than a secured option.
The bottom line
Merchant Capital and Discovery would like to offer our knowledge so that you can advance your own. As difficult as things have been for business owners, there are still a lot of ways to run a healthy business, beginning with understanding your commercial environment. So, keep this financial glossary close to hand.
Keeping your business afloat during COVID‑19
COVID‑19 has changed the world of business in a large way, with many small businesses unable to remain in business due to lack of income. Discovery Business Insurance is aware of this unprecedented time and this is why we have partnered with Merchant Capital: to bring you a solution to cash flow constraints that you might be experiencing.
As a Discovery Business Insurance client with a retail business, you have the option of applying for a cash advance with Merchant Capital. As described above, a cash advance is a lending product with a fixed cost to access the funds. It is, however, very flexible with repayment terms and qualifying for a cash advance is simpler.
If you qualify for the Merchant Capital cash advance with Discovery Business Insurance, you can get funding of up to 80% of your monthly turnover generated from debit or credit card sales. You can also get up to 50% of your business insurance premiums back if you are in good standing with your cash advance repayments, as determined by Merchant Capital. The cash back is available on a single loan facility for cash advances taken out between 1 July and 31 December 2020.
We are here to help keep your business going even during COVID‑19.
To find out more about Business Insurance from Discovery or to get a quote, speak to your broker or click here.