Expanding the Financial ToolboxExpanding the Financial ToolboxGlossary of relevant financial terms

This document provides definitions, in alphabetical order, of the technical financial terms you will find in MMM’s literature on expanding the financial toolbox

Barter

: The exchange of products and/or services without the use of money. Also calledexchange.

Bond

: Bonds are financial instruments issued for a period of more than one year with thepurpose of raising capital. Generally, a bond is a promise to repay the sum invested along with interest (coupons) on a specified date (maturity). Some bonds do not pay interest, butall bonds require repayment of the sum invested. However, the investor does not gain any kind of ownership rights in the organisation, unlike in the case of equities or shares.

Business angel:

A term used for an individual or group of people who offer financialinvestment and business knowledge to assist development and growth. Considered as ahigh-risk form of investment, it has been used to support commercial musicals and theatreproductions in the West End.

Capital

: The money, property, and other valuables that represent the wealth of anindividual, business or organisation.

Community Interest Company (CIC)

: A CIC is a legal form of company designed toencourage the development of social enterprises. CICs can be established for any lawfulpurpose as long as their activities benefit the community. They can pay dividends toinvestors, but these dividends are capped. The assets of CICs are “locked”. This means thatthe proceeds from the sale of assets can’t be distributed among shareholders but must be

Expanding the Financial Toolbox

used for the purposes for which they were accumulated.

Contract income

: Income generated by contract work, often providing goods or servicesto the public or private sectors.

Endowment

: A gift of money or income-producing property to an organisation for aspecific purpose. Generally, the endowed asset is kept intact and only the income generated by it is consumed.

Equity

: Ownership interest in a company in the form of shares. Each share is a proportion,usually a small one, of the whole company: shareholders own the company.

Loan

: An arrangement in which a lender gives money or property to a borrower and the borrower agrees to return the property or repay the money, usually with interest, at somefuture point in time.

Patient capital:

Funds invested for medium or long term, generally for 5 to 10 years.

Quasi-Equity:

A category of debt that has some traits of equity (shares). The investor takesa financial stake in a venture: for example, in return for providing the capital for thedevelopment of a new piece of software, the he or she receives a percentage commission oneach sale. Investor return is linked to the financial success of the venture. Mezzanine debtand subordinated debt are two kinds of quasi-equity.

Repayment holidays

: The lender allows borrower to take a break from repayments. A repayment holiday is often taken at the beginning of a loan, although many lenders offer theoption to take a holiday at other points during the loan term.

Reserves

: Funds set aside or saved for the future, not used to cover operating costs.

Social bank:

A social bank, also known as an ethical, alternative, civic, or sustainable