Glossary of Financial Terms
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LEASEHOLD IMPROVEMENTS - Renovations to leased space to suit the renter's needs. These may be paid for either by the landlord or the tenant.
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LETTER OF CREDIT - An instrument or document issued by a bank guaranteeing the customer's payment up to a stated amount during a specified period, for which the customer is charged a fee. It substitutes the bank's credit for the buyer's and eliminates the seller's risk. It may be a commercial letter of credit, more often seen in international commerce, or a standby letter of credit.
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LETTER OF INTENT - A non-binding proposal from a lender indicating under what terms it would consider lending a certain sum of money to a specific borrower. See commitment.
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LIABILITY - Items owed by an organization or claims against its assets. Examples include: accounts payable, accrued salaries and benefits, accrued payroll taxes, deferred revenue, lines of credit, construction loans, current portion of long-term debt, short-term notes payable, and long-term debt.
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LIEN - A legal claim against an asset which is used to secure a loan and which must be paid when the asset is sold. Liens can be structured in different ways. In some cases, the creditor will have legal claim against an asset, but not actually hold it in possession, while in other cases the creditor will actually hold the asset until the debt is paid off.
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LINE OF CREDIT - A loan in which the lender allows advances up to a specific amount over a specific period of time until the maturity date. It is usually revolving, meaning amounts repaid can be re-borrowed up to the total committed amount and/or the limitations of a borrowing base.
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LIQUID NET ASSETS - The estimated amount of unrestricted net assets NOT invested in property & equipment (P&E) or board-designated reserves. Essentially this is the liquid amount of unrestricted net assets available to support operations. Also known as undesignated unrestricted net assets.
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LIQUIDITY - A measure of how much cash and “near cash” (assets readily convertible to cash such as marketable securities) an organization has available, usually measured as the amount of assets in cash or cash equivalents less current liabilities. Can also include the unused amount from lines of credit that are available to the borrower.
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LLC - Limited liability company, a business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability, and all profits and losses pass directly to the owners without taxation of the entity itself.
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LOAN CLOSING - Legal session where final loan documents are executed. The loan may or may not be funded at this time.
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LOAN DOCUMENTS - Documents containing the terms of the loan and outlining the rights and obligations of the borrower and the lender. May include the following: the loan agreement which details the terms of the loan including interest rate and repayment; the note or promissory note whereby the borrower promises to repay the obligation; any security agreements or mortgage, outlining the collateral securing the loan; the guarantee; and, subordination and/or inter-creditor agreements.
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LOAN TERM - The amount of time over which a borrower is expected to repay the loan. The loan term may not be the same as the amortization, which determines the periodic repayment amounts and whether there is a large or balloon principal balance due at maturity.
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LOAN-TO-VALUE RATIO - The ratio of the amount of money a lender is willing to lend divided by the appraised or other value of the property.
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LOC - See line of credit.
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LONG-TERM DEBT - Debt obligations due in longer than one year. It includes multi-year term loans, mortgage loans, and capitalized long-term leases.
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LONG-TERM GRANTS & PLEDGES RECEIVABLE - Money owed to an organization in more than a year for goods and services it has sold or that have been committed to the organization as a grant, donation or pledge. The organization will not get the money for more than a year.
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