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 Definitions.  

The best way to know what you are dealing with is to understand the terminology used, so we’ve
created a list of general definitions covering the types of financing available and related verbiage. The
more you know, the better choices you can make when it comes to funding your company.

 


Accounts Receivable Financing:
Short-term financing for working capital purposes. Account receivables serve as collateral and loans are made on a percentage of eligible receivables pledged.

Angel Investment:

Money provided to early stage business. This is almost always done in the form of equity. An angel investor is a wealthy individual or group of wealthy individuals who invest their own money in a business. Angels will typically either focus on a geographic area or a particular industry and in some cases, they will only invest in a specific industry in a geographic area close to home.

Acquisition Loan:
A loan to assist with the purchase or acquisition of another company.

 

Advance Rate:
The percentage of the face amount of an income stream or account receivable that a funding source will advance to a client.

Amortization:
The gradual repayment of a debt in installments of principal and interest for a defined period of time.
 

Asset Based:
A business loan where the borrower promises collateral and assets to secure financing.
Funds are typically used for business related expenses. All asset-based loans are secured.
 

Chattel mortgage:
A mortgage on personal/movable property used to secure financing.

 

Collateral:
Something of value which is offered as security to secure financing and guarantee repayment.

 

Debt instrument:
​A tool an entity can utilize to raise capital. It is a documented, binding obligation that provides funds to an entity in return for a promise from the entity to repay a lender or investor in accordance with terms of a contract.


Equipment Loans:
Loans used to purchase business-related equipment, like servers, towers, fleet vehicles, and more
 
Factoring:
The sales of a company's accounts receivable to a third party, typically aat a small discount, to improve cash flow for a company.

Hypothecation:
Borrowing funds from a lender, investing those funds in a debt instrument, and giving the lender a security interest in the debt instrument as the collateral for the loan.
 
Inventory Loans:
Inventory financing is a loan secured by a companies purchased inventory.  In many cases a loan can be made in concert with the acquisition of the inventory.
 
Line of Credit:

A line of credit is a preset amount of money a company can borrow. A bank typically uses the companies previous income statements to determine the maximum draw amount.  You can draw from the line of credit when you need it, up to the maximum amount.

Purchase Order Loans:
Purchase order, or, “PO financing” is an arrangement where a third party agrees to give a supplier enough money to fund a customer's purchase order.

 

Venture Capital:
Money used for investment in enterprises that involve high risk, but offer the possibility of large profits.