Glossary

Accounts Receivable

Money owed to a business by customers for goods or services provided on credit.

Amortization

The gradual repayment of debt over time through scheduled payments of principal and interest.

Annual Percentage Rate (APR)

The stated annual borrowing rate before compounding effects are considered.

Anti-Money Laundering (AML)

Laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income.

Appraisal

An assessment of a property’s market value completed by a qualified appraiser.

AI-Assisted Underwriting

The use of artificial intelligence to support lending analysis and risk assessment.

Auto Loan Fraud

Fraud involving false information or stolen identities used to obtain vehicle financing.

Bankruptcy

A legal insolvency process intended to assist individuals who are unable to repay their debts.

Bankruptcy and Insolvency Act (BIA)

Canadian federal legislation governing bankruptcy and insolvency proceedings.

Borrower

An individual or business that receives funds and agrees to repay debt according to lending terms.

Builder Mortgage

A mortgage designed to finance the construction of a new home or property.

Buy Now Pay Later (BNPL)

A financing arrangement that allows consumers to divide purchases into installment payments over time.

Capacity

A borrower’s financial ability to repay debt obligations.

Capital

A borrower’s overall financial strength, including assets and net worth.

Cash Flow

The movement of money into and out of a business.

Character

A borrower’s overall stability, reliability, and willingness to repay debt obligations.

Closed Mortgage

A mortgage with repayment restrictions and potential prepayment penalties.

Collateral

Assets pledged to help secure a lending arrangement and reduce lending risk.

Commercial Credit

Financing provided to businesses for operational, growth, or investment purposes.

Commercial Mortgage

A loan secured by commercial real estate property.

Consumer Credit

Borrowing used by individuals for personal, family, or household purposes.

Consumer Proposal

A formal debt settlement arrangement administered by a Licensed Insolvency Trustee where creditors agree to accept partial repayment.

Conventional Mortgage

A mortgage where the borrower provides a down payment of at least 20% of the property value.

Corporation

A separate legal entity that can own assets, borrow money, and enter contracts independently of its owners.

Credit

A borrower’s history of managing and repaying debt obligations.

Credit Application

A formal request for credit that authorizes the lender to begin the investigation process.

Credit Bureau Report

A report containing information related to a consumer’s borrowing and repayment history.

Credit Counselling

Financial education and debt management support provided to individuals experiencing financial difficulties.

Credit Investigation

The process lenders use to assess a client’s creditworthiness and repayment ability.

Credit Limit

The maximum amount a borrower is approved to access.

Credit Policy

A set of guidelines outlining how a business grants, manages, and collects trade credit.

Credit Risk

The possibility that a borrower may fail to repay debt as agreed.

Credit Score

A numerical representation of a borrower’s credit risk.

Crowdfunding

Raising money through small contributions from a large number of individuals, usually through online platforms.

Current Ratio

A liquidity ratio comparing current assets to current liabilities.

Customer Concentration Risk

Risk arising when a significant portion of sales depends on one or a small number of customers.

Debt Consolidation

Combining multiple debts into one loan or repayment arrangement to simplify payments or reduce interest costs.

Debt Servicing

The process of assessing a borrower’s ability to manage required debt payments.

Debt-to-Equity Ratio

A solvency ratio comparing total liabilities to owner equity.

Default

Failure to meet the repayment obligations outlined in a lending agreement.

Demand Loan

A loan that the lender may require to be repaid at any time.

Digital Lending

Online lending services that use technology and automated systems to process borrowing applications.

Document Authentication

The process of verifying that documents are legitimate and have not been altered or falsified.

Due Diligence

The careful review, investigation, and verification of information used to support lending decisions.

Effective Annual Rate (EAR)

The true annual borrowing cost after compounding is considered.

Electronic Identity Verification

Digital systems used to confirm a client’s identity electronically.

Ethical Decision-Making

The process of making professional decisions based on integrity, fairness, honesty, and responsible conduct.

Exempt Assets

Assets protected from seizure during bankruptcy proceedings under provincial legislation.

Financial Distress

A situation where an individual experiences difficulty managing financial obligations or debt repayments.

Financial Literacy

The ability to understand and manage personal financial matters effectively.

Financial Recovery

The process of rebuilding financial stability following financial distress or insolvency.

FINTRAC

The Financial Transactions and Reports Analysis Centre of Canada, responsible for monitoring and helping prevent money laundering and terrorist financing.

Fintech

Financial technology companies that provide digital financial products and services.

Fixed Interest Rate

An interest rate that remains unchanged for a specified period of time.

Fixed-Rate Mortgage

A mortgage with an interest rate that remains unchanged during the mortgage term.

Fraud

Intentional deception used to obtain financial gain or other benefits unlawfully.

Fraud Prevention

Procedures and controls designed to identify, reduce, and prevent fraudulent activity.

Grace Period

A period during which interest is not charged if the balance is paid in full.

Gross Debt Service Ratio (GDS)

The percentage of gross income required to cover housing-related expenses.

Gross Monthly Income

Total income before deductions expressed on a monthly basis.

Gross-Up Calculation

An adjustment used by some lenders to reflect the tax advantages of certain income sources.

High-Ratio Mortgage

A mortgage where the down payment is less than 20% of the property value and mortgage insurance is typically required.

Home Equity

The difference between a property’s market value and the outstanding mortgage balance.

Home Equity Line of Credit (HELOC)

A revolving credit product secured by residential real estate.

Identity Theft

The unauthorized use of another person’s personal information for fraudulent purposes.

Income Verification

The process of confirming a client’s income using acceptable supporting documentation.

Insolvency

A financial situation where an individual cannot meet debt obligations as they become due.

Installment Loan

A loan repaid through scheduled payments over a fixed period of time.

Interest

The cost paid by a borrower for the use of borrowed money.

Internal Banking Fraud

Fraud committed by employees or individuals with internal system access within a financial institution.

Inventory Turnover

A measure of how efficiently inventory is sold and replaced.

Islamic Finance

A financial system based on Islamic principles that prohibit interest and emphasize shared risk and ethical investment practices.

Know Your Client (KYC)

The process used to verify a client’s identity and understand the client relationship before providing financial services.

Know Your Transaction (KYT)

The process of reviewing financial transactions to identify suspicious or unusual activity.

Lender

An individual or institution that provides financing to borrowers.

Lending

The process of providing funds to a borrower with the expectation of repayment under agreed-upon terms.

Licensed Insolvency Trustee (LIT)

A federally regulated professional authorized to administer bankruptcies and insolvency proceedings in Canada.

Liquidity

The ability to convert assets into cash quickly without significantly affecting value.

Loan-to-Value Ratio (LTV)

The percentage of a property’s value financed through borrowing.

Microfinance

Small loans and financial services provided to individuals or groups with limited access to traditional banking.

Mortgage

A loan secured by real property where the property acts as collateral for the lender.

Mortgage Default Insurance

Insurance that protects the lender if the borrower defaults on a high-ratio mortgage.

Mortgage Fraud

Fraud involving false, misleading, or altered information during the mortgage application or underwriting process.

Mortgage Stress Test

A qualification method used to determine whether borrowers can afford mortgage payments at higher interest rates.

Net Worth

The difference between total assets and total liabilities.

Non-Dischargeable Debt

Debt that generally remains payable after bankruptcy proceedings are completed.

Non-Exempt Assets

Assets that may be surrendered or sold during bankruptcy proceedings to repay creditors.

Notice of Assessment (NOA)

A document issued by the Canada Revenue Agency summarizing a taxpayer’s assessed income information.

Open Banking

A system allowing secure sharing of financial information electronically with client consent.

Open Banking Verification

Technology allowing secure verification of financial information directly from financial institutions with client consent.

Open Mortgage

A mortgage that allows repayment without prepayment penalties.

Orderly Payment of Debts (OPD)

A structured debt repayment program available in certain provinces where debts are repaid in full over time at reduced interest rates.

Overdraft Protection (ODP)

A banking feature that allows transactions to proceed when account balances are insufficient.

Partnership

A business structure where two or more individuals share ownership, profits, losses, and management responsibilities.

Peer-to-Peer (P2P) Lending

Borrowing and lending conducted directly between individuals through online platforms.

Personal Guarantee

A legal agreement where an individual accepts personal responsibility for repayment if the business defaults.

PPSA

The Personal Property Security Act governing many secured lending arrangements involving personal property.

Principal

The original amount borrowed.

Professional Judgment

The application of lender experience, analysis, ethics, and critical thinking in lending decisions.

Professional Skepticism

A questioning mindset used to critically assess information and identify potential concerns or inconsistencies.

Progress Draw Mortgage

A construction mortgage where funds are advanced in stages as construction progresses.

Real Estate Lending

Lending activities involving residential or commercial property used as security for financing.

Refinancing

Replacing an existing mortgage with new mortgage terms before the renewal date.

Relationship Banking

A long-term business approach focused on ongoing client relationships and financial support.

Repayment Capacity

A borrower’s ability to manage and repay debt obligations.

Responsible Lending

Lending practices that support sustainable borrowing decisions and appropriate risk management.

Regulatory Compliance

Following laws, regulations, policies, and industry standards applicable to financial services.

Reverse Mortgage

A mortgage product that allows eligible older homeowners to access home equity without regular mortgage payments.

Revolving Credit

Credit that allows borrowers to repeatedly access funds up to an approved limit.

ROSCA

A rotating savings and credit association where members contribute to a shared pool and take turns receiving funds.

Salary Letter

A document used to verify employment status, income, and employment details.

Secured Line of Credit (SLOC)

A line of credit backed by collateral.

Security

A lender’s legal claim against pledged collateral.

Sole Proprietorship

A business structure owned and operated by one individual who is personally responsible for business debts.

Solvency

The long-term financial stability of a business and its ability to meet debt obligations.

Stay of Proceedings

Legal protection that temporarily prevents most creditors from continuing collection activity after bankruptcy is filed.

Straw Buyer

An individual who applies for financing or purchases property on behalf of another person to conceal the true borrower or circumvent lending rules.

Surplus Income

Income earned above government-established thresholds during bankruptcy that may require additional payments to creditors.

Synthetic Identity Fraud

Fraud involving the creation of a false identity using a combination of real and fabricated information.

Time Value of Money (TVOM)

The concept that money available today is worth more than the same amount in the future.

Total Debt Service Ratio (TDS)

The percentage of gross income required to cover all recurring debt obligations.

Trade Credit

A business-to-business financing arrangement where goods or services are provided with payment due at a later date.

Trade Reference

Information obtained from suppliers regarding a customer’s repayment history and credit behaviour.

Transaction Monitoring

The ongoing review of financial activity to identify suspicious behaviour or fraud risks.

Underwriting

The process lenders use to evaluate borrowing applications and lending risk.

Unsecured Line of Credit (ULOC)

A line of credit approved without pledged collateral.

Variable Income

Income that fluctuates, such as overtime, commission, or self-employed earnings.

Variable Interest Rate

An interest rate that fluctuates based on changes in a benchmark or prime lending rate.

Variable-Rate Mortgage

A mortgage with an interest rate that fluctuates based on changes to the lender’s prime rate.

Working Capital

Funds used to support a business’s short-term operational needs and daily expenses.