A non-banking financial institution, often using technology for speed and simplicity, that connects borrowers with lenders.
Accrued Interest – Accrued Interest refers to interest earned but not yet paid. Accrued interest for fixed income investments is calculated from the date of issue or the last interest payment made. When a buyer purchases a bond, the buyer owes the seller the accrued interest in addition to the market price of the security purchased, not when it is sold or when a sell trade is in settlement.
Active Tranche –An active portfolio component inside of a Real Estate Management Investment Company that is currently paying principal payments to its owners.
Advance Formula –A payment made in advance of a larger line of credit. Typically, this acts as a sublimit draw based upon the maximum amount borrowed. Typically, an advance formula limits the amount that can be borrowed under a line of credit to either a lesser amount of a credit line or a percentage of receivables collateral.
Affirmative Covenant – This refers to a provision in the lender’s terms that requires a borrower to fulfill a future obligation. For example, a requirement for annual audited financial statements to a lender during the term of the loan is an example of a clause in an affirmative covenant.
Alternative Lending – a term used to describe the various loan options made available to business owners outside of traditional bank loans.
Break Even Occupancy – The minimum occupancy level required by a commercial real estate property that will generate enough income to make all required principal and interest payments.
Binder – A binder refers to a tentative agreement, secured by the payment of a deposit under which a buyer makes an offer to purchase real estate.
Blanket mortgage – The mortgage that is secured by all assets within a larger property such a co-op building, as opposed to the share loans on individual units within the property
Busted PAC (Planned Amortization Class) – A busted PAC refers to tranches in collateralized mortgage obligations for which the supplemental tranches has been completely retired by larger than expected prepayments. Since the supplemental tranche is no longer outstanding and therefore requires no prepayments, the maturity of these tranches may be shorter than usual.
Buy-Down mortgage – A temporary buy-down is a mortgage on which initial payments are made by any party to reduce a borrower’s monthly payments in the first few years of the loan. A permanent buy-down reduces the interest rate over the entire lifetime of the loan.
Call Risk – Call risk refers to the risk that a decrease in interest rates will create an economic incentive for the owner of a security with a call option to exercise that option. This accelerates prepayment of the underlying loans in the portfolio and thereby shortens the duration of the investment.
Capitalized Lease – Under GAAP (Generally Accepted Accounting Principles), this refers to the unpaid future lease payments due under the terms of the lease. These payments must be shown as a liability on the firm’s balance sheet. Generally, this requirement applies to most equipment and buildings leased by a business and used in the day to day operations of the business.
Cash Flow Recapture Clause – An agreement or indenture provision that requires a borrower to make additional payments (or increase payment amounts by a certain percentage of excess cash flow) in order to reduce the outstanding debt balance.
Clean Letter of Credit – A letter of credit that can be drawn upon with a simple written request. This is also known as a standby letter of credit. This type of letter of credit is often used to enhance credit quality and usually requires no additional paperwork or supporting documentation.
Collateralization – when a borrower pledges an asset to the lender in the event that the borrower defaults on the initial loan.
Constant Prepayment Rate (CPR) – This refers to the rate of historical or expected prepayment of principal on a loan. This amount is expressed as a rate of prepayment as a constantly proportional to the amount of the outstanding principal. The CPR reflects annualized and compounded prepayment amounts and as a result is generally more accurate.
Credit Score – based on a person’s credit history, a credit score is a number between 300-850 used by lenders to determine the likelihood that a person will repay his or her debt. The higher the number the better.
Daily ACH – an acronym for Automated Clearing House, it is a secure electronic funds transfer network that processes the credit and debit transactions of public and privates sectors.
Direct Lending – a term used to describe a loan made between a borrower and a lender with no third-party involvement, many times resulting in lower interest rates and fees. Direct lenders are not traditional banks, but instead are typically investment banks, brokers or private equity firms.
Equipment Financing – a small business equipment loan used to purchase business equipment using the purchased equipment as collateral to secure the loan.
FICO – an acronym for Fair Isaac Corporation, FICO is the largest and most well-known company that provides software for calculating a person’s credit score.
ISO – an acronym for Independent Sales Organization, ISO is an individual or organization that is not an Association member (ie. Not a Visa or Mastercard member bank), but still has a bank card relationship with an Association member bank. ISO’s provide payment-related services to members of an Association, either directly or indirectly, including customer service, sales, merchant solicitation and training activities.
Merchant Cash Advance – a quick, easy way to get your business a lump sum payment in exchange for a share of future sales. There’s no need for collateral, even if your business has bad credit.
Peer to Peer Lending – a term used to describe a loan agreement between a borrower and a lender without the use of an official financial institution, resulting in achieving higher interest rates for the lender and lower rates for the borrower than either would achieve through a third-party bank.
Unsecured Loan – a loan not protected by an asset or collateral, but extended based on the borrowers credit history and financial position.