Finance Glossary

 

Accelerator: An accelerator refers to programmes or special centres where FinTech startups are offered a workspace, mentorship, educational components, and
sometimes finance to help launch or grow their business.

Acquisition Financing: Acquisition financing refers to capital that is typically borrowed by one business for the purposes of buying assets or stocks in another business.

Aggregators: Aggregators can be most easily thought of as consumer comparison sites specifically in fine alternative finance space. They do not offer finance
themselves, but rather information about the various options there are for borrowers and investors. The goal If the aggregator, ultimately, is to simplify the choices
resented to the business or individual.

Alternative Finance (AltFi): Alternative "ante, sometimes contracted to AltFi, is a rather broad term that takes in the collective total of the finance industry that operates outside of the traditional finance sector (i.e. the banks and capital markets). Alternative finance providers usually run online platforms which offer businesses and consumers an alternative option to access finance, and an alternative avenue for investors to locate opportunities.

Amortising Loan: An amortising loan is a type of loan that is subject to an amortisation schedule. That is to say that the loan is paid down, usually through equal payments, over the life of the loan. Angel Investor: Angel investors are considered to fall under the ‘alternative finance’ umbrella. They are individuals who provide equity investment to start-ups and SMEs. Angels offer experience and advice in addition funds in order to help a company achieve success.

Asset: An asset refers to any resource that an individual or business owns that holds economic value. Companies buy assets with the expectation that they will
provide future benefit and/or increase the value of the firm, and are reported on a company's balance sheet. Asset Based Lending (ABL): ABL describes the
practice of lending against the strength of the borrower’s assets — usually property and stock.

Bond: A bond is a debt investment, where by an investor loans money to a business or other entity, which borrows the funds for a fixed period of time at a fixed or variable rate of interest.

Bootstrapping: The process of starting up a business with no external investment. Broker: An individual who buys and sells assets on behalf of another.

Burn Rate: The speed at which a borrower is spending cash.

Caps and Collars: These are terms used to describe the agreed range of an interest rate. A cap is the upper limit, a collar is the lower limit. (i.e. maximum and
minimum rates that will apply respectively).

Capex: An abbreviation for ‘capital expenditure’, and sometimes ‘capital expense’. Capex refers to money that is invested in assets, such as equipment,  buildings or a new business. There are in fact two kinds of capex: that which is invested to maintain existing operation levels, and that which is invested in something new for the purposes of future growth.

Cash Flow: The money that is transferred in and out of a business over time,

Challenger Bank: A challenger bank is any new bank that has been granted a barking licence since 2010. They are called ‘challengers’, as they are typically set up to challenge for business with the traditional high-street banks (i.e. the Big Four). They are the latest innovators in the banking space, and make extensive use of technology to give their customers the benefits that traditional banks can't offer.

Convertible Loan: A convertible loan is a type of business loan that can be converted at any point into equity (i.e. stock or shares) in the borrowing company
under pre-agreed terms.

Coupon: A coupon is the annual interest rate payable on a loan.

Crowdfunding: Crowdfunding is one of the most popular forms of alternative finance. Crowdfunding platforms use the power ofthe internet to raise small
amounts of funds from large amounts of people. Entrepreneurs pitch their business ideas to the crowd, the members of which then have the option to give a
small portion of the total money the borrower needs to reach his/her target.

Debenture : A debenture is a type of medium-long term debt instrument that companies use to borrow money at a fixed rate of interest. Debentures are not
secured by collateral or physical assets, but rather by the creditworthiness of the issuer.

Deck: A deck is the term used to describe a brief presentation of a business plan when pitching for investment, new business, or to demonstrate a business
plan to existing or potential partners.

Debt Finance: Debt finance is the process of raising money by selling bills, bonds or notes to investors. ln other words, borrowing money that will be paid back later with interest.

Debt Securities: Debt securities are debts that are issued that may subsequently be traded. These securities may be sold at the holder's discretion to someone else, who will then gain the right to receive interest and the principal from the issuer.

Default: Default is failure to meet the legal obligations for a loan.

Drawdown: The peak-to-trough decline during the period of an investment, usually expressed as a percentage. In debt finance, the term drawdown is used to denote the time when funds are made available to a borrower. which can either be all at once or as a series of separate drawdowns.

Due Diligence (DD): DD is the practice of conducting a thorough and meticulous investigation of an investment opportunity before any money changes hands. It involves, amongst many things, confirming the identity ofthe borrower, assessing the credibility of the project, the exit, the security of the loan, and the legal
structure of the agreement should it go ahead.

EBIT: Earnings before interest and taxes. EBIT refers to a company's profit after all expenses except those from interest and income tax. EBITDA: Earnings before interest, taxes, depreciation and amortisation.

EBlTDA is used as an indicator of a company's financial performarne and earning potential.

Enterprise Investment Scheme (EIS): A tax scheme in the UK whereby private investors who invest in eligible businesses are offered capital gains tax
and income tax relief.

Equity: A stock or other security that represents an ownership interest. 

Equity Finance: Equity financing is the process of raising working capital by the selling of stock to investors, who in return receive ownership interests in
the company.

Equity Kicker: An equity kicker forms part of a loan agreement, whereby the lender agrees to charge lower rates of interest in return for a share of ownership
in the business or property for which the loan is provided.


Exit Strategy: The means by which the directors of a business intend to reach an exit and deliver a return to investors or repay a loan.

Factoring: Factoring describes the process where by a business sells its accounts receivable to a third party at a discounted rate in order to raise immediate funds. Typically, the factor will pay 70% to 80% of the invoiced amount immediately, forwarding the remainder (minus the discount) when the client pays.

Financial Conduct Authority (FCA): The Financial Conduct Authority (FCA) is the UK's financial regulatory body that operates independently from government. Members of the financial services industry fund the FCA via membership fees, and in turn the FCA regulates these firms to protect their integrity and consumer integrity in the UK financial market.

FinTech (Financial Technology): Fintech is the term used to describe whole swathes of new financial services that use the latest technology to facilitate things like money transfers, loans and mobile payments. Rather than just being a branch of traditional institutions, FinTech forms its very own sector in the
financial industry.

Going-concern Assumption: A going-concern assumption refers to a business that will continue to function without intent or need to liquidate for the  foreseeable future — i.e. at least the next l2 months. The assumption means that it is assumed that the business will be able to carry out its commitments
and objectives during this period.

Gross: The total amount before deductions - i.e. a gross sum of money/income/profit beiore deductions are taken for costs, taxes, etc.

Hedge Fund: A hedge fund is an alternative investment fund that pools together capital from a number of private sophisticated and/or institutional investors, which is often then used to invest in a wide range of securities in both domestic and foreign markets. Typically, hedge funds will require a large initial minimum investment, and will only be open to a limited number of accredited investors.

Hedging: Hedging is an investing strategy whereby an investor makes one investment to limit the risk of another. the two of which are negatively correlated. It is
a technique that is used to reduce the risk oi uncertainty about unknown future price movements in financial security, commodity and foreign exchange investments. It doesn't allow for increased profits, but prevents significant losses. Like taking out an insurance policy, hedging comes at a cost, and this cost may never pay-out.

High Net Worth Individual (HNWI): A HNW is a categorisation used to indicate that an individual or family has a high net worth in liquid financial assets, usually amounting to more than £1 million. When the individual has assets worth over £5 million, they are described as ”very HNWI”. With more than £30 million in wealth, the term “ultra HNW\/I" is used.

Illiquid assets: Assets that are deemed difficult to sell. Real estate, antiques, and private company interests are all examples of such assets.

Liquidity/Illiquidity Premium: illiquid assets normally demand a premium as compensation for taking on the additional risk and effort should the asset need to be sold. The terms liquidity and illiquidity premium are generally interchangeable, chosen depending on where the premium lies. The liquidity premium will usually be presented as a reduced price for the illiquid asset and a higher price for a liquid asset. In contrast, the llliquidity premium is attributed to the asset's interest. in general, the premium refers to the overall difference in price of the asset due to its liquidity.

Income: income refers to all monies an individual or business receives in exchange for providing goods and services, or through the investment of capital. income is subject to taxation.

Indenture: An indenture is the legally binding contract, agreement or other document between two or more parties, within which all purchase and/or debt obligations between the parties are covered. For example, indentures are the legal contracts behind bonds.

Inflation: inflation describes the rate at which the general level of prices for goods and services in an economy rise over time. Consequently, as inflation occurs, the value of money falls.

Insolvency: insolvency describes the situation whereby a business reaches a state when it cannot raise enough cash to meet its obligations, like paying off debts to lenders.

Intangible Assets: intangible assets are those that are not physical in nature, though nonetheless have a long-term value to the owner. Examples include reputation, brand recognition, intellectual property, client lists, and business methodologies.

Institutional Investor: institutional investor are large organisations with considerable cash reserves to be invested, Examples include banks, insurance companies, finance companies, pension funds, and hedge funds.

Interest (on Loans): interest is the amount paid by a borrower to a lender in return for use of money. it is usually represented as a percentage.

Invoice Factoring/Discounting: A term used to describe the situation whereby an invoice is sold to a third party (i.e. a ”factor”) for a discount. The factor pays a percentage of the money owed on the invoice upfront, with the difference (minus the discount) paid upon collection of the full payment from the initial invoice.

ISA: lSA stands for individual savings account. which is a scheme that allows individuals to hold cash, unit trusts and shares free from taxation. The innovative finance ISA or IFISA was introduced in 2016. This allows people to lend their lSA allowance through P2P platforms, again with tax free returns. This helps to stimulate the economy by providing more loan opportunities for businesses to use and grow,

Joint Venture: A joint venture refers to an arrangement made by two or more businesses, where resources are pooled together to drive a new project or activity. All parties involved share ownership and responsibility for risks and returns of the specific activity. A joint venture will form a completely separate entity from the involved parties other business interests.

Key Performance Indicators (KPIs): KPIs are the metrics that businesses use to gauge success or progress in relation to specific goals over time in financial terms, KPIs are the metrics that most commonly concern profit margins and revenue, such as net and gross profits.

Lagging Economic Indicators: Indicators are financial market and economic indicators which only begin to come to light after a change in the overall economic cycle. In other words, the effect of an economic event or change lags significantly behind its cause.

Leading Economic Indicators: .Leading economic indicators are economic factors that change before the larger economy begins to follow a pattern or trend. They are signals- though not always accurate ones - that are used to gain some foresight into the economy's future direction.

Leverage: Leverage refers to an investment strategy where a party borrows money to magnify its gains. Just as a lever allows you to lift something much heavier than you would be capable of lifting alone, borrowing money can allow you to purchase things and gain access to opportunities to which you otherwise would not be privy. You input a small amount, and get a much larger return than would otherwise be possible.

Liabilities: Liabilities are the existing financial obligations that a party has to lenders and suppliers. Liabilities include loans, accrued expenses, deferred revenues and accounts payable.

Liquid Assets: Liquid assets are a company's assets that can be easily and quickly converted into cash with little or zero loss in value.

Liquidation: Liquidation occurs when a company becomes insolvent, meaning that its operations come to an end and that its free assets are sold for cash which will be used to pay off creditors.

Limited Company: A limited company describes an organisation that is its own entity, meaning that it is responsible in its own right for all activities and
finances. Any profit generated by a limited company is owned by the company. After corporation tax is paid, the company can then divide the remaining profits amongst shareholders. A limited company’s shareholders are not personally liable for the firm's debts, which means they have limited liability and only ever stand to lose as much as they each have invested should the company become insolvent.

Listed Company: A listed company is a firm whose shares are quoted (i.e. listed) for public trading on a stock exchange.

Loan Covenants: Loan covenants are the conditions set out in an indenture that confirm certain activities swill not be carried out. Typically, these will limit a borrower's freedom to take on additional debt during the loan term, make certain purchases, and increase salaries or pay bonuses. Covenants are put in place by
lenders to minimize the risk of borrowers defaulting on loans.

Loan to Value (LTV): The LTV ratio is the ratio between the value of the asset and the loan you require to cornplete the purchase. Typically, the higher the LTV
the more it will cost a borrower to borrow (i.e. through higher interest rates).

Loan Note: A loan note is a contract for a loan issued by the lender that specifies the details for repayment and the interest payable. Loan notes contain
all of the terms of the loan, and are considered as a legally binding agreement.

Macroeconomic Factor: Events or situations that affect the broader economy on a regional or national level with the impact felt across a large population. Macroeconomic factors include things like inflation, unemployment and savings and are monitored closely by governments and businesses.

Management Fee: The fee an investment manager or company takes for the management of an investment fund. Management fees are intended to
compensate money managers for their expertise and time selecting stocks and other assets for an investment funds portfolio, and subsequently managing it in
accordance with the fund's investment objective.

Mandate: The allocation of funds to an investment manager, who is given authority to handle them for a specific purpose, or in a particular style. The written authorisation given by an individual, group, or corporate body (known as the mandator) to another party (known as the mandatary), to pursue a certain
course of action. A formal appointment given to advise on or arrange the financing for a particular protect.

Margin Trading: Method of buying shares whereby part of the sum needed to do so is borrowed from the broker actually executing the share purchase transaction. Securities or cash resident in the investor’s account (the margin) usually form collateral for the loan.

Maturity date: The date on which the term of a financial instrument ends and all outstanding principal and interest payments are due to be repaid to the
investor. The maturity date is also the date on which interest payments stop.

Mezzanine Debt: Mezzanine debt is the so called middle layer of capital which sits between secured senior debt and equity. It's not usually secured by assets,
and is lent out on the basis that a company must be able to repay the debt from its free cash flow. Less expensive than equity but more costly than senior debt, it's Ideal for letting emerging businesses make up the difference between what they could get from a conventional bank loan, and the total value of a project or acquisition.

Net assets: The total value of a company's assets minus the total of its liabilities. This value is the same as a company's net worth.

Net Present Value (NPV): The difference between an investment and that investment's predicted future cash flow over a period of time. The catch is that the values of the investment and its potential cash flows are analysed according to what each is worth in the present. Future money is considered less valuable
than money you have in your hand now. This is because present money can be used to make mrore money through potential earnings, inflation, or interest (to name a few).

Open Market Value (OMV): The best possible price for an interest in an asset on its date of valuation, controlled by the laws of supply and demand rather than cartels or government policies.

Peer-to-peer (P2P) Business Lending: Peer-to-peer or P2P - lending cuts out the middleman when it comes to borrowing money. It allows individuals to borrow money from lenders directly (and vice versa) without having to use a bank or other financial institution. Some well-established P2P lending platforrns have even developed a supply of funds to compensate lenders should the borrower default.

Personal Guarantee: A bond by which an individual agrees to take personal responsibility for the financial burden owed by a borrower or debtor in the event that they fail to meet their repayment terms with the lender. A limited business prevents business owners from being personally liable for debts; the personal guarantee legally extends liability to the owner or another person, and provides extra security to the lender. Owners of small businesses that have little or no credit history are typically required to personally guarantee the settlement of accounts on any business credit cards or loans they apply for — and their only out clause from footing the bill for personally guaranteed business debts may be to file for personal bankruptcy.

Principal: The amount borrowed or the amount still owed on loan, separate from the interest.

Private Debt: The debt burden of private entities, such as individuals or private businesses in the form of personal loans, mortgages, credit card bills, business
loans, corporate bonds, etc.

Professional Indemnity Insurance (Pll): Also known as professional liability insurance (PLI or errors & omissions (E&O) in the United States. professional indemnity insurance protects professional individuals and companies that provide advice, consultancy, or services against claims of negligence or breach of duty/contract by any act, error, or omission.

Profit and Loss Statement (P&L): Also known as an "income statement”, “statement of financial results", “statement of profit and toss”, or "income
expense statement”, a profit and loss statement is a financial statement that reports a company's revenues, costs and expenses incurred over a period of time -
normally a fiscal quarter or year. The P&L is used to determine the net income of a business during that time.

Provision Funds: Funds a company sets aside as assets to pay for anticipated future losses, ln the Alternative Finance sector, money in a provision fund
is used to cover investor losses when a loan goes into default.

Refinance: When an individual or business revises the schedule for repaying a loan, typically by taking out a new loan to pay off an existing one. Essentially, the old loan is paid off with a new loan that offers different terms, often from a different lender. Refinancing often occurs to extend the maturity date or to improve certain aspects of the loan from the borrower's perspective, such as lower interest rate.

Return on Investment (ROI): The gain or loss generated on an investment relative to the original cost of the investment. The ROI is usually expressed as a
percentage.

Right of First Refusal (RFR): A right of first refusal (ROFR or RFR) is a contractually guaranteed right which gives an individual or organisation the exclusive
option to enter into a business transaction with another entity (typically the holder of a business asset, or an intellectual property owner), before that option may be offered to any third party. If the holder of the first refusal rights passes up on the offer, it may then be thrown open to the wider market.

Ring-fenced: Assets are said to be ring-fenced when they are separated and distinct from other assets in a company. This deliberate distinction between
particular parts of a company’s assets may be helpful when complying with government regulation, dealing with company taxes, or differentially protecting assets
from specific sources.

Security: Security generally refers to collateral on a loan, which a lender can use to minimize risk when investing. Collateral can be in the form of property or any other asset over which a borrower has possession. If a borrower fails to repay a loan, the lender can seize the asset to compensate for any lost principal and/or interest. Such loans, termed "secured loans,” are considered less risky than "unsecured loans," as the latter offers less assurance that investor money will be returned one way or another. A security can also refer to a financial asset or financial instrument that can be traded. they can include debt securities such as banknotes, bonds and debentures. or equity securities such as common stocks. One of the main ways for publicly traded companies to source revenue for
new operations is to sell securities to investors.

Self-invested Personal Pension (SIPP): A SlPP is a kind of DIY pension, similar to a personal pension, with the key difference being that savers have more flexibility and control over where their money is invested. Unlike traditional personal pensions, where investment choices are typically limited and run by the pension company’s own fund managers, SlPPs enable investors to choose from a wider pool of investment opportunities, the breadth of which is determined by the SIPP provider,

Small and medium-sized Enterprise (SME): SMEs are businesses with fewer than 250 employees and a turnover of less than £50 million. there
are three main types of SMEs: micro-businesses (0-9 employees), small businesses (l0-49 employees), and medium-sized businesses (50-249 employees), In 20l6, SMEs made up 99% of businesses in the UK.

Special Purpose Vehicle (SPV): A (SPV) is a legal entity that is created solely for a particular financial transaction or to fulfil specific objectives. Forming a SPV is a common approach when a company is seeking financing because it separates the assets, liabilities, and legals of the relevant portion of that company, working to simplify the specifics of any deal. It allows a company to get financing for a particular purpose without increasing the debt burden of the firm as a whole.

Subordination: Subordination refers to the designation of one loan as lower priority than another loan with respect to the earnings or assets of a company. Subordination agreements are often drawn up to specify the order in which debts are to be repaid, effectively making some claims in a contract senior to others. In the event that repayment becomes an issue — such as bankruptcy - the subordinate loans would take a backseat to the original loan, and indeed may not be
paid at all.

Syndication: Syndication is a lending process that brings together a group of lenders who each cover different portions of a single loan. It is particularly useful
where the amount being borrowed is either too large or represents too much of a risk for a single lender. Generally, syndicated loans are structured, arranged,
administered, and managed by a financial institution, known as the “lead arranger” or “syndicate agent”.

Valuation: A valuation is an assessment of the present value of an asset. valuations have numerous applications within the financial sector such as determining the value of collateral for a loan, as well as investment analysis, capital budgeting and financial reporting.

Venture Debt: Also known as venture lending or venture leasing, this is a debt financing mechanism for venture-backed companies to borrow money for working capital or capital costs such as the purchasing of equipment. It is particularly useful for start-up companies that are lacking in positive cash flow or significant assets that can act as security on a loan. The lenders tend to be alternative investors or specialised banks.

Wealth Management: Wealth manager describes a professional service for individuals that combines accounting and tax services. investment advice. estate planning, retirement planning and other financial services for a set fee.

Working Capital: The money available to a company for day-to - day trading and operations, calculated as current assets minus current liabilities. Working capital is a common measure of a company's efficiency, liquidity and overall health.