Business Tip: Learn the financial lingo

Oct. 23, 2012 at 5:23 a.m.

By Brian Cunningham

Have you ever sat down and talked with someone who is a banker or has the background of a banker, such as a financial advisor?

Words like LTV, reverse mortgage and variable loan are flying out of their mouth and it may sound as if they are speaking a language not yet identified by the human race. If this sounds familiar to you, trust me, you are not alone.

There are usually two reasons why most people do not understand these types of terms.

First, they are likely more comfortable with a spouse or partner handling these situations. This is acceptable to a certain point but there may come a time where you are going to need to get involved, and having the knowledge beforehand would make things easier.

The second reason people are not familiar with banking lingo is simply because they never had a reason to be exposed to it.

Either way, it never hurts to learn something new and be proactive rather than reactive.

Some of the lingo you can expect to hear are words such as "financials." The term financials is a very broad term in the banking industry.

When you are asked for financials, this means the banker would like to see tax returns and your personal financial statement, which shows your net worth.

If you are a business, the banker is speaking of your business tax returns, profit and loss statements, income statements, and balance sheets.

Just to review the terms mentioned above, LTV means loan to value. The definition of LTV is the ratio of the fair market value of an asset to the value of the loan that will finance the purchase.

The definition of reverse mortgage is a financial document in which a residential mortgage is transferred to a bank, which then pays an annuity to the homeowner.

Finally, the definition of variable loan is a loan carrying an interest rate that fluctuates according to changes in an Index rate.

If you are thinking of starting a small business, the Small Business Development Center can help with this. We offer on-site training courses, most of which are free to the public.

Not located in Victoria? That's not a problem because we also offer free online training courses that you can complete in the comfort of your own home or office.

Starting Your Business, Foundations of Marketing, Managing Your Finances, and Government Contracting are a few examples of the courses provided.

In addition to the online courses and on-site training programs that we offer, we will also be speaking at the Texas Farm and Ranch Show from 7 to 9:30 a.m. on Wednesday and Thursday for those who are involved in farming and ranching. Our presentation will specifically cover banking lingo and understanding cash flow.

Brian Cunningham is a business advisor at the University of Houston-Victoria Small Business Development Corporation.



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