Financial Glossary

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FINANCE GLOSSARY OF TERMS

We have provided below the definitions of the terms used in the finance industry, use the search facility to find the relevant term and it's explanation.
Guarantor:

A third party who promises to provide payment on a bond, loan, or other liability in the event of default. While many guarantees apply to debt instruments, they may also be used for day-to-day expenses. For example, a parent may be a guarantor for an adult child and promise to pay rent to a rental agency if the adult child does not do it. Banks often serve as guarantors on behalf of certain clients, but, just as often, private parties serve as guarantors and promise payment on private loans. Guarantors reduce the risk to loans and liabilities, and usually improve the credit agency ratings of bonds.

Deed of Postponement

A deed of postponement is a legal document which temporarily removes legal charges from your property. For example, when you remortgage with a new mortgage lender (the ‘first charge’), a Deed of Postponement will lift charges from your deeds so that the new charging arrangements can be made.

DS1

A DS1 is a legal form which is used to remove ‘charges’ from the deeds of your home. Your equity loan will be secured as a ‘charge’ on your home, if you pay off your equity loan, a DS1 form is used to remove this charge.

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 the alternative finance space. They do not offer finance themselves, but rather information about the various options there are for borrowers and investors.

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

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.