Expanding the Financial Toolbox

Expanding the Financial Toolbox Glossary 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 called exchange. Bond: Bonds are financial instruments issued for a period of more than one year with the purpose 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, but all 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 financial investment and business knowledge to assist development and growth. Considered as a high-risk form of investment, it has been used to support commercial musicals and theatre productions in the West End. Capital: The money, property, and other valuables that represent the wealth of an individual, business or organisation. Community Interest Company (CIC): A CIC is a legal form of company designed to encourage the development of social enterprises. CICs can be established for any lawful purpose as long as their activities benefit the community. They can pay dividends to investors, but these dividends are capped. The assets of CICs are “locked”. This means that the 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 services to the public or private sectors. Endowment: A gift of money or income-producing property to an organisation for a specific 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 some future 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 takes a financial stake in a venture: for example, in return for providing the capital for the development of a new piece of software, the he or she receives a percentage commission on each sale. Investor return is linked to the financial success of the venture. Mezzanine debt and 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 the option 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 2

Expanding the Financial Toolbox
bank, is a bank concerned with the social and environmental impacts of its investments and loans. The term is often used for financial institutions that lend money to the third sector. Specialist finance provider: In this context, an individual or organisation that specializes in providing capital to third sector organisations. Specialist finance providers may offer loans; underwriting and other flexible finance solutions as well as grants. Underwriting: A special loan arrangement where the lender commits to providing finance for a particular project if other sources fail. Unsecured loans: A loan that is not backed by collateral (buildings, tangible assets). Also called signature loan. Venture philanthropy: funders using this approach seek to develop the capacity of a relatively small number of charities and other voluntary organisations. They provide core funding and intensive support with management development. Generally, venture philanthropists take a collaborative approach to business planning and objective setting before the initial investment is made.

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