Glossary of Business Terms for Canadian Small Business Owners

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ACH (Automated Clearing House)

ACH is an electronic network used to transfer funds directly between bank accounts in the United States. It's the most common method used to process business payments, payroll, and financing repayments fast, paperless, and secure. When you work with Magenta, repayments are processed via ACH, making the process straightforward with no manual steps required on your end.

Accounts Payable (AP)

Accounts payable refers to the money a business owes to its suppliers, vendors, or service providers for goods and services already received but not yet paid for. It appears as a liability on the balance sheet. Managing accounts payable effectively is key to maintaining healthy cash flow and when gaps arise, many business owners turn to alternative financing options like Magenta's revenue-based financing to keep operations running smoothly.

Accounts Receivable (AR)

Accounts receivable is the money owed to your business by customers for products or services already delivered but not yet paid for. It's recorded as an asset on your balance sheet. When receivables are slow to come in, businesses often experience cash flow shortfalls, one of the most common reasons SME owners explore working capital solutions like revenue-based financing through Magenta.

Alternative Business Funding

Alternative business funding refers to any form of financing that exists outside of traditional bank loans and credit products. This includes revenue-based financing, merchant cash advances, invoice factoring, and lines of credit offered by non-bank providers. Magenta is an alternative business funder offering established SMEs fast access to capital based on revenue performance, not credit history or collateral. Explore the industries we serve to see if your business qualifies.

Alternative Funder

An alternative funder is a company that provides capital to businesses through non-traditional financing structures, outside the conventional banking system. Alternative funders typically offer faster approvals, more flexible eligibility criteria, and less paperwork than banks. Magenta is an alternative funder not a lender providing revenue-based financing of up to $250,000 to qualifying U.S.-based small and mid-sized businesses. Learn more about Magenta.

Assets

Assets are everything a business owns that has economic value — including cash, inventory, equipment, property, and accounts receivable. Assets are listed on the balance sheet and used to assess a business's overall financial health. Unlike many traditional financing options, Magenta does not require you to pledge business assets as collateral to qualify for revenue-based financing.

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Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a business's financial position at a specific point in time. It summarizes assets, liabilities, and equity showing what the business owns, what it owes, and what's left over for the owner. Funders often review balance sheets as part of the evaluation process, though Magenta places greater emphasis on revenue performance and business history. See what Magenta looks for when you apply.

Business Credit Score

A business credit score is a numerical rating that reflects how reliably a business manages its financial obligations. It is calculated based on factors such as payment history, outstanding debt, and time in business. Many traditional financing providers use business credit scores as a primary qualification factor. Magenta does not require a minimum business credit score; your revenue history and business performance matter more. Learn why Magenta looks beyond credit scores.

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Cash Flow

Cash flow is the movement of money into and out of a business over a given period. Positive cash flow means more money is coming in than going out, a sign of a financially healthy business. Cash flow gaps are one of the most common challenges facing small business owners, and one of the primary reasons businesses turn to Magenta for revenue-based financing to cover payroll, inventory, and operating expenses. If you need funds quickly, explore Magenta's emergency funding solutions.

Collateral

Collateral is an asset such as property, equipment, or inventory pledged by a business to secure financing. If the business fails to repay, the funder can seize the collateral to recover their funds. Many traditional financing options require collateral, which can put business assets at risk. Magenta's revenue-based financing requires no collateral eligibility based on business revenue and performance, not what you own. Learn more about how Magenta evaluates your business.

Cost of Goods Sold (COGS)

Cost of goods sold refers to the direct costs involved in producing the products or delivering the services a business sells including materials, labor, and manufacturing expenses. COGS is subtracted from revenue to calculate gross profit. Understanding COGS is especially important for businesses in retail, restaurants, and pharmacy core industries Magenta serves as it directly impacts margins and cash flow planning.

Credit Score

A credit score is a numerical representation of an individual's or business's creditworthiness, based on their history of managing debt and financial obligations. Traditional banks rely heavily on credit scores when approving financing applications. Magenta takes a different approach; there is no minimum credit score required to qualify for revenue-based financing. What matters most is your business's revenue and operational history. Explore funding options for bad credit.

Creditworthiness

Creditworthiness is an assessment of how likely a business or individual is to repay their financial obligations on time. Traditional lenders evaluate creditworthiness primarily through credit scores, financial statements, and collateral. Alternative funders like Magenta evaluate creditworthiness differently focusing on consistent monthly revenue, time in business, and overall business performance rather than credit history alone.

Current Assets

Current assets are short-term assets that a business expects to convert into cash within one year including cash on hand, accounts receivable, and inventory. They are listed on the balance sheet and used to assess short-term financial health and liquidity. A strong current assets position often indicates a business is well-placed to manage its day-to-day operating needs.

Current Liabilities

Current liabilities are short-term financial obligations a business must settle within one year such as accounts payable, short-term debt, and accrued expenses. They are listed on the balance sheet alongside current assets. When current liabilities outpace current assets, businesses may experience cash flow strain, a situation where working capital solutions like Magenta's revenue-based financing can provide relief.

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Depreciation

Depreciation is the gradual reduction in the value of a business asset over time due to use, wear, or obsolescence. It is recorded as an expense on the income statement and helps businesses account for the long-term cost of equipment, vehicles, and other fixed assets. Depreciation is particularly relevant for asset-heavy industries Magenta serves, such as automotive repair, specialty contractors, and healthcare providers.

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Early Payoff

Early payoff refers to repaying the full financed amount before the estimated term length is complete. Some financing agreements charge penalties or fees for paying off early. With Magenta, early payoff is always an option businesses can pay off their revenue-based financing at any time with no penalties and no additional fees. Visit our FAQ for more details.

Eligibility

Eligibility refers to the minimum criteria a business must meet to qualify for financing. Magenta's eligibility requirements are straightforward: $360,000 or more in annual revenue (or $15,000+ per month), at least one year in business, and a U.S.-based operation. There is no minimum credit score requirement, and no collateral is needed to apply. Review the full requirements.

Equity

Equity represents the ownership value remaining in a business after all liabilities are subtracted from total assets. In a financing context, equity financing involves selling a share of business ownership to raise capital. Magenta's revenue-based financing is non-dilutive, meaning business owners receive the capital they need without giving up any equity or control of their company.

Estimated Term Length

Estimated term length is the projected timeframe for completing repayments under a revenue-based financing agreement, based on the business's revenue at the time of approval. Because repayments are tied to actual revenue performance, the timeline can vary which is why it is an estimate, not a fixed commitment. Use the Magenta Calculator to estimate your repayment timeline.

Expenses

Expenses are the costs a business incurs in the course of running its operations including rent, utilities, payroll, inventory, and marketing. Managing expenses alongside revenue is central to maintaining profitability. When unexpected expenses arise or revenue slows, revenue-based financing through Magenta can provide the working capital needed to keep the business moving forward.

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Factor Rate

A factor rate is a multiplier used to calculate the total repayment amount in a revenue-based financing or merchant cash advance agreement. Unlike an interest rate which accrues over time a factor rate is applied once at the outset of the agreement. For example, a $100,000 advance with a factor rate of 1.3 means a total repayment of $130,000, regardless of how long repayment takes.

Financial Statements

Financial statements are formal records that summarize a business's financial activity and position. The three core statements are the income statement, balance sheet, and cash flow statement. Funders typically review financial statements as part of the evaluation process. Magenta's streamlined application focuses on revenue performance, making the process faster and less document-heavy than traditional financing.

Financing

Financing is the process of obtaining capital to fund business operations, growth, purchases, or other needs. Financing can come in many forms including traditional bank loans, lines of credit, and alternative options like revenue-based financing. Explore the 5 most common types of small business financing to understand which option may be right for your business.

Fixed Assets

Fixed assets are long-term physical resources a business uses to generate revenue such as equipment, machinery, vehicles, and property. They are recorded on the balance sheet and depreciated over time. Many traditional financing options require fixed assets as collateral. With Magenta, you don't need to pledge fixed assets to access revenue-based financing; your revenue is what qualifies you.

Fixed Costs

Fixed costs are business expenses that remain constant regardless of how much a business produces or sells such as rent, insurance, and salaried payroll. Unlike variable costs, fixed costs don't change with revenue fluctuations. Understanding your fixed costs helps determine how much working capital your business needs, which is a key factor when considering a revenue-based financing agreement with Magenta.

Funding

Funding refers to the capital provided to a business to support its operations, growth, or specific financial needs. Funding can come from a wide range of sources: banks, investors, government programs, or alternative finance providers. Magenta provides revenue-based funding of up to $250,000 to qualifying SMEs, with offers delivered in approximately one hour and same-day access to capital.

Funding Amount

The funding amount is the upfront capital a business receives at the start of a financing agreement. It is agreed upon during the approval process based on the business's revenue and financial profile. At Magenta, businesses can access revenue-based financing of up to $250,000 with the funding amount tailored to what the business qualifies for based on its revenue history. Use the Business Funding Calculator to get an estimate.

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Gross Income

Gross income is the total revenue a business earns before any expenses or deductions are applied. It is the starting point for calculating profitability and is a key indicator of business performance. Magenta uses gross income and monthly revenue as primary factors when evaluating a business for revenue-based financing requiring a minimum of $360,000 in annual gross revenue to qualify.

Gross Margin

Gross margin is the percentage of revenue remaining after subtracting the cost of goods sold. It reflects how efficiently a business produces or delivers its products and services. A healthy gross margin gives businesses more flexibility to manage operating costs and repay financing. For industries Magenta commonly serves such as retail, restaurants, and pharmacy monitoring gross margin is essential to sustainable growth.

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Holdback Percentage

The holdback percentage is the portion of a business's revenue remitted to the funder as part of each repayment cycle under a revenue-based financing or merchant cash advance agreement. It is set at the time of approval and applied consistently throughout the repayment period. The holdback percentage is designed to align with the business's revenue capacity, ensuring repayments remain manageable relative to what the business is actually earning.

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Income Statement

An income statement also called a profit and loss statement is a financial report that summarizes a business's revenues, expenses, and net profit or loss over a specific period. It is one of the three core financial statements and is commonly used by funders to assess business performance. Magenta reviews revenue performance as a central part of its evaluation process, making the income statement a useful document to have prepared when applying.

Interest Rate

An interest rate is the annual cost of borrowing money, expressed as a percentage of the principal amount. It is the standard pricing mechanism for traditional loans and lines of credit. Revenue-based financing works differently; instead of an interest rate, Magenta uses a factor rate applied once at approval, meaning the total repayment amount is fixed and transparent from the start.

Inventory

Inventory refers to the goods a business holds for the purpose of resale or use in production. Managing inventory levels is critical for businesses in retail, restaurant, pharmacy, and convenience storekey sectors Magenta serves. When inventory needs to be replenished quickly or in larger quantities, revenue-based financing from Magenta can provide the working capital to act fast without disrupting cash flow.

Invoice

An invoice is a document issued by a business to a customer detailing the products or services provided, the amount owed, and the payment terms. Invoices form the basis of accounts receivable and are a key part of tracking business revenue. Timely invoicing is essential for maintaining healthy cash flow especially for businesses managing longer payment cycles.

Invoice Factoring

Invoice factoring is a financing method in which a business sells its outstanding invoices to a third-party company at a discount in exchange for immediate cash. Rather than waiting for customers to pay, the business receives a portion of the invoice value upfront. While invoice factoring can improve cash flow, it involves giving up a percentage of receivables. Magenta's revenue-based financing offers an alternative that doesn't require selling invoices or tying funding to individual customer payments.

Invoice Financing

Invoice financing allows a business to borrow against the value of its outstanding invoices without selling them outright. The invoices serve as collateral, and the business repays the advance once customers settle their accounts. Like invoice factoring, it is commonly used to bridge cash flow gaps. Magenta's revenue-based financing provides a simpler alternative — no invoices required, no collateral, and funding based on overall business revenue.

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Lease

A lease is a legal agreement that allows a business to use an asset such as equipment, a vehicle, or commercial space in exchange for regular payments over a set period. Leases are a common way for SMEs to access the tools and premises they need without a large upfront purchase. When lease obligations create short-term cash flow pressure, short-term funding solutions from Magenta can help bridge the gap.

Liabilities

Liabilities are the financial obligations a business owes to others including accounts payable, outstanding financing agreements, and accrued expenses. They are listed on the balance sheet and subtracted from assets to determine equity. Understanding your liabilities is an important part of evaluating whether additional financing is the right step for your business at a given time.

Line of Credit

A line of credit is a flexible financing arrangement that allows a business to draw funds up to a set limit, repay them, and borrow again as needed. It is well suited for managing short-term or recurring cash flow needs. While lines of credit are widely used, they typically require strong credit history and collateral to qualify. Magenta offers an alternative through revenue-based financing: a single upfront capital advance with repayments tied to your revenue, and no minimum credit score required.

Liquidity

Liquidity refers to how quickly and easily a business can convert its assets into cash to meet short-term obligations. A business with strong liquidity can cover its expenses without disruption, even when revenue fluctuates. Revenue-based financing from Magenta is one of the fastest ways for established SMEs to improve liquidity with offers delivered in approximately one hour and same-day funding available upon approval.

Loan

A loan is a financial arrangement in which a lender provides a set amount of money to a borrower, who agrees to repay it over time with interest. Traditional business loans typically come with fixed monthly payments, strict credit score requirements, collateral obligations, and lengthy approval processes. For many established small businesses, these barriers make traditional loans difficult to access. Magenta is a loan alternative providing revenue-based financing with no minimum credit score, no collateral, and same-day funding, so business owners can access capital without the constraints of conventional lending. Learn how hard it can be to get a business loan.

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Maximum Payment Amount

The maximum payment amount is the total sum a business agrees to repay under a revenue-based financing agreement. It is set at the time of approval and represents the ceiling of what will ever be owed. With Magenta, the maximum payment amount never increases even if the business's revenue grows significantly during the repayment period. This gives business owners complete clarity on their total financial commitment from day one. Visit our FAQ for more details.

Merchant Cash Advance (MCA)

A merchant cash advance is a type of alternative financing in which a business receives an upfront lump sum of capital in exchange for a percentage of its future revenue. Legally, an MCA is structured as a purchase agreement not a loan meaning the funder purchases a defined portion of the business's future receivables. MCAs are widely used by businesses in retail, restaurants, and other industries with consistent daily sales. Magenta's revenue-based financing shares the same purchase agreement structure, offering businesses a transparent and flexible path to working capital. Learn how it works.

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Net Income

Net income is the profit remaining after all expenses, taxes, and costs have been subtracted from total revenue. Also referred to as the "bottom line," net income is a key indicator of a business's overall financial health and profitability. It is one of the metrics funders review when evaluating a business's capacity to take on and repay financing.

Net Profit Margin

Net profit margin is the percentage of revenue that remains as profit after all expenses are deducted. It is calculated by dividing net income by total revenue and expressed as a percentage. A healthy net profit margin signals that a business is generating sustainable returns an important factor when evaluating whether revenue-based financing is a good fit for your current business stage.

Non-Dilutive Financing

Non-dilutive financing is any form of capital that does not require a business owner to give up equity or ownership in their company. Unlike venture capital or angel investment, non-dilutive financing allows owners to retain full control. Magenta's revenue-based financing is non-dilutive; you receive the working capital you need without selling shares or bringing in outside investors. Explore the benefits of revenue-based financing.

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Operating Expenses

Operating expenses are the day-to-day costs required to run a business including rent, utilities, payroll, marketing, and supplies. These expenses must be covered regardless of revenue fluctuations and are a primary driver of working capital needs. When operating expenses outpace incoming revenue, revenue-based financing from Magenta can provide the short-term capital injection needed to keep the business stable.

Overhead

Overhead refers to the ongoing fixed and indirect costs of running a business that are not directly tied to producing goods or services such as rent, insurance, administrative salaries, and utilities. Managing overhead efficiently is critical to maintaining profitability, especially for SMEs operating in competitive industries like retail, restaurants, and healthcare all sectors Magenta regularly serves.

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Partnership

A partnership is a business structure in which two or more individuals share ownership, responsibilities, and profits. Partnerships can take various forms: general partnerships, limited partnerships, or limited liability partnerships each with different implications for liability and taxation. Understanding your business structure is relevant when applying for financing, as it can affect documentation requirements and personal guarantee considerations.

Payment Adjustment

A payment adjustment is a modification to the regular repayment amount under a revenue-based financing agreement, available when a business experiences a significant decline in revenue. With Magenta, a payment adjustment is not automatic; the business owner contacts Magenta directly to request a downward adjustment. When approved, the adjustment is made with no penalties and no additional fees, giving businesses flexibility during slower periods. Visit our FAQ to learn more.

Payroll

Payroll refers to the total compensation a business pays to its employees, including wages, salaries, and associated taxes. Meeting payroll obligations on time is one of the most critical responsibilities for any business owner. Cash flow gaps that put payroll at risk are one of the most common reasons established businesses turn to Magenta for fast access to working capital through revenue-based financing.

Personal Guarantee

A personal guarantee is a commitment made by a business owner to be personally responsible for repaying a financing obligation if the business is unable to do so. It is a common requirement in many alternative financing agreements and means the owner's personal assets could be at risk in the event of default. Requirements vary by funder and financing structure business owners should review guarantee terms carefully before signing any agreement.

Profit and Loss Statement

A profit and loss statement (P&L) — also known as an income statement — is a financial report that summarizes a business's revenues, costs, and expenses over a specific period, resulting in a net profit or net loss figure. It is one of the most important documents for understanding business performance and is commonly reviewed during the financing application process.

Purchase Agreement

A purchase agreement is the legal structure underlying revenue-based financing and merchant cash advances. In a purchase agreement, the funder purchases a defined portion of the business's future revenue — rather than issuing a traditional loan. This distinction is legally and structurally significant: there is no fixed interest rate, no debt instrument, and repayments are tied to actual revenue performance. Magenta's revenue-based financing is structured as a purchase agreement, not a loan.

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Revenue

Revenue is the total income a business generates from its normal business operations including sales of products or services before any expenses are deducted. It is the foundation of a business's financial health and the primary metric Magenta uses to evaluate eligibility for revenue-based financing. Magenta requires a minimum of $15,000 in monthly revenue ($360,000+ annually) to qualify.

Revenue-Based Financing (RBF)

Revenue-based financing is a type of alternative financing in which a business receives an upfront capital advance in exchange for a percentage of its future revenue, up to a set maximum payment amount. RBF is structured as a purchase agreement not a loan meaning there is no fixed interest rate, no collateral required, and no minimum credit score threshold. Repayments are tied to revenue performance, and business owners can contact Magenta to request a payment adjustment if revenue declines. Early payoff is permitted at any time with no penalties. Magenta provides revenue-based financing of up to $250,000 to U.S.-based SMEs generating $360,000 or more in annual revenue, with offers in approximately one hour and same-day funding upon approval. Learn how revenue-based financing works.

Revenue Share

Revenue share is the percentage of a business's periodic revenue that goes toward repaying a revenue-based financing agreement. It is agreed upon at approval and applied consistently throughout the repayment period. The revenue share structure ensures that repayments remain proportional to what the business is actually earning making it a more flexible arrangement than fixed monthly payments.

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Same-Day Funding

Same-day funding means that once a financing application is approved, the business receives its capital within the same business day with no waiting period. This is one of Magenta's key differentiators. For small business owners who need to move quickly — whether to restock inventory, cover payroll, or seize a time-sensitive opportunity, same-day funding makes a meaningful difference. Apply for revenue-based financingtoday.

Small Business Loan

A small business loan is a traditional financing product offered by banks, credit unions, or government-backed programs, in which a business borrows a set amount of money and repays it over time with interest. Small business loans typically require strong credit scores, collateral, detailed financial documentation, and can take weeks or months to process. For businesses that don't meet these requirements or can't afford the wait, Magenta offers a loan alternative — revenue-based financing with no minimum credit score, no collateral, and same-day funding. Explore business funding solutions for bad credit.

SME / SMB (Small and Mid-Sized Enterprise / Business)

An SME or SMB is a business that falls below certain thresholds in revenue, headcount, or scale as defined by industry or government standards. Small and mid-sized businesses form the backbone of the U.S. economy, operating across every major industry. Magenta specializes in providing revenue-based financing to established U.S.-based SMEs across retail, restaurants, healthcare, pharmacy, automotive, and specialty contracting. See all industries we serve.

Soft Credit Pull

A soft credit pull is a type of credit inquiry that allows a funder to review a business owner's credit profile without affecting their credit score. Unlike a hard credit pull, a soft inquiry leaves no mark on the credit report. Soft credit pulls are commonly used during pre-qualification stages so business owners can explore their financing options without any impact on their creditworthiness.

Sole Proprietorship

A sole proprietorship is the simplest business structure, in which a single individual owns and operates the business. There is no legal separation between the owner and the business meaning the owner is personally responsible for all debts and obligations. Sole proprietorships are common among independent contractors, tradespeople, and small retail operators many of whom are part of the SME audience Magenta serves.

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Term Loan

A term loan is a traditional business financing product in which a lender provides a lump sum of capital, repaid in fixed installments over a set period with interest. Term loans are widely used for major business investments but typically require strong credit, collateral, and a lengthy approval process. For established businesses that need faster, more flexible access to capital, Magenta's revenue-based financing offers an alternative without the rigid requirements of a traditional term loan. Compare common financing types.

Total Cost of Capital

Total cost of capital is a comprehensive measure of what financing actually costs a business combining all fees, the factor rate, and any other charges associated with the agreement. It gives a more accurate picture of financing costs than interest rates or factor rates alone. Understanding total cost of capital helps business owners make informed comparisons across different financing options before committing to an agreement. Use the Magenta Business Funding Calculator to estimate your total costs.

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UCC Lien (Uniform Commercial Code Lien)

A UCC lien is a public notice filed by a funder that establishes a legal interest in a business's assets as part of a financing agreement. UCC filings are a standard practice in alternative financing and do not prevent a business from continuing normal operations. They serve as a way for funders to protect their interest in the agreement and are commonly filed as part of revenue-based financing arrangements.

Underwriting

Underwriting is the process by which a funder evaluates a business's application and determines eligibility, risk, and the terms of a financing offer. Traditional underwriting can take weeks due to extensive documentation and review requirements. Magenta's underwriting process is designed to be fast and straightforward, qualifying businesses can receive a financing offer in approximately one hour. Have questions? Visit our FAQ.

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Variable Costs

Variable costs are business expenses that fluctuate in proportion to production or sales volume such as raw materials, packaging, shipping, and hourly labor. Unlike fixed costs, variable costs rise when business activity increases and fall when it slows. Understanding the relationship between variable costs and revenue is important when planning how much working capital your business needs and how a revenue-based financing agreement will fit into your cash flow.

Venture Capital

Venture capital is a form of equity financing in which investors provide capital to businesses typically high-growth startups in exchange for an ownership stake. While venture capital can provide significant funding, it comes with the cost of dilution: the original owner gives up a percentage of their company and often some degree of control. Magenta's revenue-based financing is a non-dilutive alternative business owners access the capital they need without giving up equity or bringing in outside investors.

W

Working Capital

Working capital is the short-term cash available to a business for covering day-to-day operating needs including payroll, inventory, rent, and other recurring expenses. It is calculated by subtracting current liabilities from current assets. Maintaining adequate working capital is essential for business stability and growth. Magenta's revenue-based financing is one of the fastest ways for established SMEs to access a working capital boost with same-day funding, no collateral, and no minimum credit score required. Estimate your working capital needs.

Magenta Glossary: Terms for Small Business Owners

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