Important Business Loan Terminology and Definitions



You may apply for a business loan in your startup company or established small to mid-sized business. Business owners need loans for many reasons. This includes business renovations, payroll, new products, and more. 


Applying to business loans means lots of new terminologies. Know at least the basics when you apply for a loan to show professionalism and understanding.



business loan

Are you getting ready to apply for a business loan? You need to know these loan terminologies and definitions.



ACH Payments (Automatic Clearing House): This electronic bank-to-bank payment occurs when a 3rd-party vendor has access to your bank account to withdraw fees with your approval. It is most commonly used when employers deposit payroll into employee’s bank accounts.


Amortization: This is the process of gradually writing off the initial cost of a loan within the statement period.


Annual Percentage Rate (APR): This calculation results in how much credit costs. It considers the timing and amount of capital received, fees paid, and periodic payments made.


Assets: An asset is anything owned by yourself or your company that has value. These are collateral in business loans. 


Balloon Payment: A balloon payment is the unpaid amount of a loan due at the end of a loan term.


Bridge Loan: This short-term loan typically covers expenses until more permanent financing is available. Bridge loans have high-interest rates. 


Cash Flow: A business’s cash flow statement shows the total amount of money, both physical or virtual, transferred in and out of the business. It is a combination of information from the profit & loss statement and balance sheet. 


Debt-to-Income Ratio: To calculate the debt-to-income ratios, divide all monthly debt payments by gross monthly income. This shows lenders your ability to make monthly loan payments.


Gross Profit: Also known as gross income, this amount equals the cost of goods sold minus total revenue. 


Interest: This payment differs in amounts each month, but is paid regularly by the borrower to the loaner. Interest payments may be higher at the beginning of the loan, but then lower as time goes on.


Liabilities: These are debts and financial obligations that your business handles. 


Line of Credit: Use this fixed amount of capital any time until the term ends. After it is paid off, you may continue to borrow the fixed amount.


Net Income: A business’s net income equals total earnings minus the cost of goods, taxes, and interest.


Origination Fee: This fee comes from a lender for managing your loan.


Principal: The principal is the total amount of money borrowed. This does not include interest payments and fees.


Promissory Note: A promissory note is a document the borrower signs to agree that they will repay all borrowed money by a specific date. 


Repayment Period: This is the time given for the borrower to make all payments due on a loan. 


Secured Loan: A secured loan requires collateral from the borrower in the event they default on the loan.


Unsecured Loan: An unsecured loan does not need collateral from the borrower in the event they default on the loan.


Questions about business loan terminology and definitions? Call PL Consulting & Bookkeeping Plus at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.



Can I Use My Personal Bank Account for Business Transactions?


When many small business owners or gig workers start out, they find it easier to use their personal bank account for business transactions. Although it may be easy at first, it causes problems for you in the long run. Create a separate business account as soon as your business gets off of the ground. 


 Personal Bank Account


Mixing business and personal finance make it difficult to keep an accurate track of business expenses. Get a separate credit card for your business to further separate finances and build your business credit. 


Continue reading for more information on personal bank accounts vs. business bank accounts.


Expenses, Deductions, and Cash Flow


Keep all your business expense records in one place. This helps analyze your business’s progression. It also allows you to see what expenses you can deduct from your taxes that year. 


Easily conduct a cash flow statement to see where each of your transactions is going. By separating your accounts, you can compare cash from operating activities to your business’s net income to determine the quality of earnings. Use your statement to show investors the cash flow coming in and going out. This shows them your overall performance.


Bookkeeping Software


We advise you to digitize your bookkeeping rather than holding onto all your paper receipts. Use bookkeeping software like Quickbooks. Connect your business account to the software to keep track of your business transactions. If you mix your business and personal transactions, your record-keeping will confuse you and get off-balance.


Small Business Bank Account


Choose which bank account is best for you. Some business checking accounts are free. Other accounts need minimum balances and/or other requirements to waive the monthly fees. Business accounts offer you the protection that personal accounts do not offer. Customers and clients find it more professional to do business with someone that has an established account over a personal one. 


In the event of an emergency, most banks will loan your business money when you have an account with them. Responsibly using a credit card helps your business establish a positive credit history, even though you may already have one personally. 


Hire a Professional from PL Consulting


Hire a professional accountant and bookkeeper to help you maintain your business’s finances. Though this will be a financial investment, it will save you money and help smoothly manage your business. 


Our professionals at PL Consulting and Bookkeeping Plus will assist you in finding the best bookkeeping software to connect your business bank account to. 


We are your go-to resource for bookkeeping and accounting services. Our team serves the Baltimore, Maryland area and beyond. We customize our services to each client. Your ideas are unique to your business, and we understand that. We help you maintain good records and financial statements.


Questions about keeping track of business transactions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.


Tax Tips: Home Office Deduction


Working from home? Your at-home office can save you money this tax season! Keep reading to see what qualifies–and what doesn’t–for home office deductions. Here’s a few tax tips. 


Are Tax Deductions Good?


Self-employed taxpayers, independent contractors, and those working in the gig economy can claim tax deductions. By writing off certain expenses, you may owe less in taxes. Your claimed expenses must be for business use. 


How to Keep Track of Tax Write-Offs 


First, know what qualifies for tax deductions. Each year, it is vital to keep track of all business transactions to claim them during tax time. 


It is easiest to keep an electronic folder with all receipts. A spreadsheet may also help you stay organized with spending amounts. Consider hiring a professional accountant to plan and evaluate your business transactions. This structure will minimize the legitimate amount of tax you pay.


To figure out your home office deduction, the IRS issued a simplified version. Check out the home office deduction calculation to add to your bookkeeping.


tax tips


Do Employees Qualify for Home Office Deduction?


Because of COVID-19, many employees switched to working from home. Some employers provided their employees with WFH equipment. Still, many employees had to buy new items for their home office themselves. They also had to make extra space in their home for work. 


Unfortunately, because of the Tax Cuts and Jobs Act, employees cannot use the home office deduction from 2018 through 2025. This includes employees who receive paychecks or W-2’s exclusively from an employer even if they are working from home. This deduction only includes self-employed taxpayers, independent contractors, and those working in the gig economy.


According to the IRS, 


“If you use part of your home exclusively and regularly for conducting business, you may be able to deduct expenses such as mortgage interest, insurance, utilities, repairs, and depreciation for that area. You need to figure out the percentage of your home devoted to your business activities, utilities, repairs, and depreciation.”


Do Home Office Deductions Trigger Audits?


It is not likely for the IRS to audit your home office. You should not have to worry if you work from home and use the space regularly and exclusively for business.


If you are still unsure, learn more about home office deductions from the IRS Business Use of Your Home guide. You may also contact PL Consulting, a team of professional accountants and bookkeepers. 


Outsource Your Tax Preparation to PL Consulting


PL Consulting is your go-to resource for tax preparation services. We serve the Baltimore, Maryland area and beyond. We are experienced in tax preparation, including filing individual, small business, partnership, and estate returns. We ensure you consider all your legal deductions to realize your full tax benefit. 


Our comprehensive interview techniques and computerized return preparation process assure that your return is complete, correct, and presented to you promptly.


Questions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professionals.



Financial Statement Basics For Small Business Owners


Every business owner needs to know the basics of financial statements. Know this information if you are completing them yourself or if you are outsourcing to a bookkeeper


Statements are difficult to analyze but are critical to the health of your business. Keep reading for the basics of what financial statements are and a breakdown of the main statements.


What are Financial Statements?

The purpose of financial statements is to understand how much money the business owes, how much is being made, and the difference between what is outgoing and incoming each month. 


Compile an annual report with information from financial statements. Explain the year’s business numbers with employees, regulators, shareholders, stakeholders, unions, and vendors. These reports help you meet and plan yearly goals


financial statements

What are the Four Basic Financial Statements?

There are four main statements that every business owner should know. This includes balance sheets, income statements, cash flow statements, and equity statements.


Balance Sheet

A balance sheet breaks down your assets, liabilities, and equity. It will show depreciation for specific items from the date the item is obtained to the present day. The basis of this statement is from the accounting equation: Shareholders’ Equity = Assets – Liabilities


Income Statement

You may also hear the term “profit-and-loss statement.” You need your sales revenue and a list of your expenses during a specific period to prepare an income statement. This statement shows your business expenses and any depreciation over the specific period.


Cash Flow Statement

The cash flow statement is for both physical and virtual money transferred in and out of your business. It is a combination of information from your income statement and balance sheet. Compare cash from operating activities to your business’s net income to determine the quality of your earnings.


Equity Statement

An equity statement is also referred to as a statement of owner’s equity. This statement reports the changes in company equity. Earned profits, dividends, an inflow of equity, withdrawal of equity, and net loss are shown on this statement. 


Financial Statement Tip

When investing or purchasing from a company, read their financial statement. While doing so, beware of false numbers! These companies can use specific numbers and omissions within their statements to make them appear more profitable than they are. While this is not the norm, it is important to note that it is a possibility. 


Outsource Your Financial Statements

An important part of owning a business is understanding financial statements. Make your life easier by outsourcing your financial statements. Hire a bookkeeper that you trust. 


PL Consulting is your go-to resource for bookkeeping and accounting services. We serve the Baltimore, Maryland area and beyond. Our bookkeeping and accounting services are customized to each client. Your ideas are unique to your business, and we understand that. We help you maintain good records and financial statements.


Questions? Call us at 410.764.3731 or contact us on our website to schedule an appointment with one of our professional bookkeepers.