Glossary of Business Financial Terms

If you’re thinking of starting a business, congrats! You’re about to embark on a wonderful adventure where the sky is the limit. While we don’t want to burst your enthusiasm at this early stage, financing is something you’ll likely have to consider before long. Familiarizing yourself with this strange new world will make all the difference to your business success.

As you navigate this process, you’ll be confronted with a whole new lexicon of financial terms you’ll be expected to understand. We get it, this process can seem daunting. That’s why we’ve created this glossary of popular financial terms, explained in a simple to understand and approachable manner.

Don’t forget to check out our guide to business financing with helpful tips and advice from our Business Plan Advisors and entrepreneurs that have been through the process.

Glossary of Common Financial Terms

Accounts Payable

Accounts Payable is the money a company owes to a supplier (or vendor) for goods and services that have been provided, and for which the supplier has submitted an invoice.

Accounts Receivable

Accounts Receivable refers to the funds that customers owe to your business for products or services that have been invoiced for. They are considered a current asset because they usually convert into money within one year.

Angel Investor

An Angel Investor is an individual that invests their own money into a company (usually a start-up) in exchange for ownership equity (a piece of the business).

Amortization Period

An Amortization Period is the length of time it takes a company to pay off a loan. Terms usually last over months or years.

Annual Percentage Rate

The Annual Percentage Rate (APR) of a loan is the cost you pay each year to borrow money, including fees, expressed as a percentage. It allows you to calculate the cost of borrowing over the length of a loan.


A loan applicant is an individual requesting a loan for their business. Sometimes, a financial institution will require a co-applicant to sponsor the application. This individual participates in the loan underwriting an approval process with the applicant.


A loan appraisal is a process of assessing the credit worthiness of a loan applicant before the loan is approved. Areas like income sources, age, experience, number of dependents, repayment capacity and other outstanding debt are usually assessed.

Articles of Incorporation

Articles of Incorporation are legal documents submitted to the Provincial, Territorial or Federal governments in Canada which are necessary to establish your business as a legal entity. Articles of Incorporation generally include the purpose of the corporation, the type and number of shares, and the process of electing a board of directors.


An asset is anything owned or controlled by a business that has current or future economic value. Examples include machinery, property, vehicles, patents and investments.

Balance Sheet

A balance sheet summarizes a company’s assets, liabilities and shareholder’s equity at a specific point in time. It helps to keep the owner and other stakeholders informed of the business’ financial position.


Bankruptcy is a legal process businesses can enter into that allows them to eliminate debt, sell off assets, and ensure creditors (individuals owed money by the business) are given a fair share of what they are owed. A company can decide to file for bankruptcy when it cannot pay its bills.


Bootstrapping is the process of starting a business with only personal savings, including borrowed or invested funds from family or friends. It also includes income from initial sales. Bootstrapping is seen as a common sense and simple approach to the business startup phase that promotes slow and organic growth.

Break-Even Analysis

A Break-Even Analysis is a formula used to weigh the cost of starting a new business against the unit sell price to figure out the point at which you will break even. It informs entrepreneurs of the direction their business is heading and can provide insight on how to reduce the break-even point and even increase profit.

Cash Flow Test

A Cash Flow Test assesses the ability of a company to pay its debts (or sell assets fast enough to pay those debts) as they become due and payable.


Collateral is an asset, such as a car or home, that a borrower uses to qualify for a business loan. Offering collateral makes a lender more comfortable as it protects their financial stake should the borrower fail to repay the loan in full.

Competitor Analysis

A competitor analysis, also referred to as a competitive analysis, is the process of identifying competitors in your industry and researching their different marketing strategies. You can use this information as a point of comparison to identify your company’s strengths and weaknesses relative to each competitor.

Current Assets

A current asset is a business asset that can be used to fund day-to-day business operations and pay for ongoing business expenses. Current assets typically include cash, accounts receivable, stock inventory and other liquid assets.

Current Liabilities

Current Liabilities include all of a company’s short-term financial obligations that are due within one year, or within the business’ normal operating cycle. Examples include accounts payable, payroll, payroll taxes, income taxes, rental fees and other short-term debts.

Debt Consolidation

Debt consolidation allows businesses to combine several loans or liabilities into one by taking out a new loan to pay off outstanding debts. This will usually result in a lower interest rate for the borrower.

Debt Service Coverage Ratio

The Debt Service Coverage Ratio measures a company’s available cash flow against their current debt obligations. It’s a measure of a company’s ability to repay loans, take on new financing and make dividend payments.


Depreciation represents the estimated reduction in the value of a fixed business asset within a fiscal year. It allows companies to deduct the cost of a business asset over a long period of time, rather than the year it was purchased.

Equity Financing

Equity Financing is the process of selling shares of a company to investors in order to raise capital.

Fixed Asset

A fixed asset is a long-term tangible asset a business owns and uses to produce income that isn’t expected to be sold within the fiscal year. Fixed assets include items like property, computer equipment, furniture, machinery and vehicles.

Fixed Interest Rate

A fixed interest rate is an unchanging rate of interest charged on a liability such a loan or mortgage. The rate might be fixed for the entire term of the loan, or for just part of the term.


A guarantor is a person who guarantees (agrees to be responsible for) repayment of a loan if the borrower breaks the agreement to repay the money.

Gross Profit

A company’s gross profit is the total sales of the company minus the total cost associated with making and selling the goods.

Income Statement

An income statement is an important financial document that shows a company’s revenue, expenses and profitability over a set period of time. It’s sometimes also referred to as a profit-and-loss (P&L) statement.


A liability in business relates to the legal debts a company owes to outside creditors. It encompasses debts owed presently and in the future.

Limited Partnership

A limited partnership is one of the three ways of organizing a business in Canada. The other two are sole proprietorship and incorporation. In a limited partnership, one partner usually takes on more of the risk and contributions, while also receiving a bigger share of the earnings. The other ‘limited’ partners contribute capital but can’t be involved in the company’s management.

Line of Credit

A line of credit is a prearranged, flexible loan from a financial institution that a borrower can tap into at any time until the limit is reached.

Loan-to-Value Ratio

A loan-to-value ratio determines the maximum amount of a secured loan based on the market value of the asset pledged by the borrower as collateral.

Micro Loan

Micro Loans are small loans for businesses. The available amount for this type of loan usually maxes out at $50,000. These small loans usually have short repayment terms.

Net Income

Net Income is a company’s profits after all of their expenses have been deducted from their revenue.

Operating Lease

An operating lease is a contract that permits a business to use an asset for a set time period without conveying ownership of that asset.

Opportunity Cost

When a business is faced with different choices on how to proceed, it must assess the costs of each option to make a strategic choice. Opportunity cost is the value of what you don’t pick when choosing between two (or more) options.


Overhead costs refer to expenses associated with running a business that aren’t linked to creating a product or service. Typical overhead costs include accounting fees, taxes, utilities, rent, repairs and travel expenses.

Profit and Loss Statement

A profit and loss statement summarizes the revenues, costs and expenses incurred during a specific period of time.


Principal on a loan is the money borrowed that was originally agreed to pay back. It doesn’t include interest or any other costs incurred in receiving the loan.

Qualitative Analysis

A qualitative analysis is a way for business to measure their overall value based on non-quantifiable metrics like management expertise, industry cycles, labour relations and more.

Quantitative Analysis

A quantitative analysis allows businesses to use financial information and statistics to determine future financial outlook.

Secured Loan

A secured loan is a loan where the lender has a legal claim against a borrower’s assets. It allows borrowers to access larger amounts of capital, often at lower interest rates than an unsecured loan.

Sole Proprietor

A sole proprietor is an unincorporated business that is owned by one individual. It is the simplest kind of business structure in Canada, with one individual responsible for all liabilities, while receiving all the profits.

Unsecured Loan

A loan that doesn’t involve collateral and is given based on the character of the borrower.

Variable Interest Rate

A variable interest rate is a rate on a loan that fluctuates over time based on an underlying benchmark interest rate set by Canada’s central bank.

Working Capital

Working capital is the amount of cash and other assets a business has at hand after all current liabilities have been met.

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