It’s no secret that in the financial services industry there’s a wealth of terminology and acronyms – oh, the acronyms! Speaking at a human level is much more our style. We don’t assume everyone has the same level of knowledge and we use plain language with our clients whenever possible.
At the same time, this veritable bowl of alphabet soup isn’t going anywhere. We’re here to be a partner in your financial literacy and so we’ve started this reference page to help business owners decode some common “bank speak”.
Business banking glossary
Agent: Someone who’s been legally empowered to act on behalf of another person or an entity.
Alternative mortgage: A residential mortgage loan that’s different from standard mortgage practices. CWB Optimum offers alternative mortgage options.
AML: Anti-money laundering. These are the laws, regulations, and procedures aimed at uncovering money laundering efforts.
ALM: Asset/Liability Management. This refers to how a business manages the use of assets and cash flows to reduce their risk of loss from not paying a liability on time.
APR: Annual Percentage Rate. This percentage represents the actual yearly cost of funds over the term of a loan, or the income earned on an investment.
BCP: Business Continuity Plan. This is a company’s plan for how it will prevent and recover from potential threats to its operations.
CRM: The Bank’s Credit Risk Management Department. This department is the key decision maker on files.
Debt to equity or debt to tangible net worth: The client’s overall debt / what they owe divided by retained earnings, share capital, and any loans that have been postponed to the bank.
DDA: Demand Deposit Account. This is a bank account that you can withdraw deposited funds from at any time without advance notice.
DSC: Debt Service Coverage ratio. This measures the cash flow a company has available to pay current debt obligations.
DTI: Debt-to-Income ratio. This is the percentage of your gross monthly income that goes towards your monthly debt payments. Lenders use it to determine your borrowing risk.
EFT / CAFT: Electronic Funds Transfer / Customer Automated Funds Transfer: The movement of funds into and out of other bank accounts. For example, payroll deposits coming in – or rent payments going out.
EBITDA: Earnings before interest, taxes, depreciation and amortization.
Facility: A facility (or credit facility) is a type of loan that allows the business to take out money over an extended period of time rather than reapplying for a loan each time it needs money.
HELOC: Home Equity Line of Credit. This line of credit uses your home’s equity as collateral. At CWB, our HELOC product is called Homeworks®.
KYC: Know Your Client. In the investment and financial services industry this refers to standards for verifying a client’s identity and knowing their risk and financial profiles. You may hear this term when your financial services partner requests your personal or financial information.
Liquidity ratio or current ratio: Current assets / current liabilities. This indicates the client’s ability to repay short term (less than a year) obligations.
Loan Monitoring: The department that oversees the analysis and set up of the monthly margin package for a client’s lines of credit.
LOC: Line of Credit. Allows a borrower to take money out anytime as needed until a pre-set borrowing limit is reached. If it’s an open line of credit, funds can be borrowed again as the money is repaid.
LOI: Letter of Intent. Commonly used in major business transactions, this document declares the preliminary commitment of one party to do business with another and outlines the chief terms of a prospective deal.
LTV: Loan-to-Value. This is an assessment of lending risk that financial institutions and other lenders do before approving a mortgage. Loan assessments with high LTV ratios are typically considered higher-risk loans.
Postponement of creditor’s claims: A document that when signed places shareholder loans behind the repayment of bank debt. This allows the bank to treat these loans as “equity” in ratio and covenant calculations.
Prime rate: This is the variable reference rate of interest per year that commercial banks charge their most credit-worthy business customers. It’s based on the overnight rate set by the Bank of Canada.
RDC: Remote Deposit Capture. This technology lets banks accept cheques for deposit using electronic images (e.g. taking a photo of a cheque with your phone or using a cheque scanning machine).
SME: Small and mid-size enterprises (SMEs). These are businesses that maintain revenues, assets or a number of employees below a certain threshold. CWB is proud to be a specialized bank for Canadian business owners in this space.
Term sheet: A document outlining the terms and conditions of a potential deal that has yet to move through the official approval process.
Thanks for reading. What else should we add to the list?