Glossary

Affordable Housing: Housing for low to moderate-income people.

Amortization: The process of fully paying off debt by installments of principal and earned interest over a set period of time.

Appraisal: An official estimate, usually performed by a qualified third party, of the value of property offered to secure financing.

Automated Clearinghouse (ACH): An electronic system for making recurring payments such as loan payments to banks and other financial institutions.

Balance Sheet: One of the four basic financial statements of a business, it is the summary of what a business owns and owes at a given date. Balance sheets have three sections: Assets (what you own); Liabilities (what you owe); and Equity (the difference of the two).

Bridge Loan: A short-term loan (usually up to one year) that is used to cover costs or provide cash flow until permanent financing is available. These loans commonly have a relatively high interest rate and are secured by some sort of collateral.

Business Technical Assistance (TA): Assistance to emerging and existing business owners with business management advice such as: applying for loans, marketing, developing record keeping systems, applying for licenses or permits, accessing government and corporate procurement processes, and other services.

Cash Flow Projection: A forecast of cash funds a business anticipates receiving and paying out throughout the course of a given span of time, and the anticipated cash position at specific times during the period being projected.

Cash Flow Statement: An analysis of the current operating, investing and financing activities of a business. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.

C Corporation (C Corp): A legal structure under which businesses can choose to organize themselves in order to limit their owners’ legal and financial liabilities. C Corps are legally considered separate entities from their owners. In a C Corp, income is taxed at the corporate level and is taxed again when it is distributed to owners.

CDFI Intermediary: An entity that consolidates capital from a variety of public and private sources to relend it to projects in the community.

CEI Investment Notes: A CEI financial product sold to accredited investors who want “triple bottom line” returns, i.e., financial, social, and environmental returns.

Collateral: Asset(s) pledged to a lender until a loan is repaid. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.

Commitment Letter: A lender’s written agreement to provide a loan or equity investment to a borrower in a legally binding letter outlining the intent and conditions of the loan or investment.

Common Stock: Ownership in a corporation whereby the common stockholders are on the bottom of the priority ladder for ownership structure. Common stock generally has a dividend that must be paid out of net profits after paying debt obligations.

Community Development Corporation (CDC): A geographically-based not-for-profit organization that promotes and supports community development in underserved communities through a variety of activities including economic development, education, community organizing real estate development and the development of affordable housing.

Community Development Financial Institution (CDFI): A financial institution that provides credit and financial and business development services to underserved markets and populations.

Community Facilities: A facility in which health care, child care, educational, cultural and/or social services are provided.

Convertible Debt: Any type of debt financing where there is the option of converting the outstanding balance due to some other form of security or asset.

Creditor: One to whom money is owed.

Current Assets: A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.

Current Liabilities: A company’s debts or obligations that are due within one year. Current liabilities appear on the company’s balance sheet and include short-term debt, accounts payable, accrued liabilities and other debts.

Debt: A liability or obligation in the form of bonds, loan notes, or mortgages, owed to another person or persons and required to be paid by a specified date (maturity).

Debt Service Coverage (DSC): The amount, usually expressed as a ratio, of cash flow available to meet annual interest and principal payments on debt.

Debt with Equity Features: Includes convertible debt, as well as debt with warrants, participation agreements, royalties, or any other feature that links the investment’s rate of return to the performance of the company that received the investment.

Equipment/Gear: Equipment used to manufacture a product, provide a service, or use to sell, store and deliver merchandise; could be machinery, software, furniture, etc. This equipment/gear has an extended life so that it is properly regarded as a fixed asset.

Construction Loan: A short-term loan (usually three years or less) used to cover the cost of land development and/or building construction. This loan is secured by a mortgage on the property being developed or built, and the funds are drawn either as needed, as each stage is completed, according to a prearranged schedule, or when some other defined condition is met. Once development or construction is completed, this loan is paid off by permanent financing that has been arranged prior to the approval of the construction loan.

Equity Financing: The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation. Equity financing is used to finance high-risk, high-return businesses.

Equity: Ownership interest in a corporation in the form of common or preferred stock. Near-Equity: Debt investments that involve some form of current or future ownership-like return in addition to an interest rate on debt to help ensure repayment and /or to provide the opportunity to obtain an income premium for taking more risk than feasible with a conventional loan.

Financial Statement: A written report which describes the financial health of a company. This includes an income statement and a balance sheet, and often also includes a cash flow statement. Financial statements are usually compiled on a quarterly and annual basis.

Fixed Asset: A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be consumed or converted into cash any sooner than at least one year’s time. Buildings, real estate, equipment and furniture are good examples of fixed assets.

Fixed Rate: An interest rate that does not change during the entire term of the loan.

Food Hub: Food hubs can take many forms. The USDA’s working definition of a food hub is: a centrally located facility with a business management structure facilitating the aggregation, storage, processing, distribution, and/or marketing of locally/regionally produced food products.

Food System: A food system includes all processes and infrastructure involved in feeding a population: growing, harvesting, processing, packaging, transporting, marketing, consumption, and disposal of food and food-related items.

Gap Financing: Gap financing fills the gap between the total financing need of a business or project and what loans and/or equity funds are available to the business.

Green Lending: Financing for companies that produce goods and services that are friendly to the environment or that have a smaller environmental impact or footprint. Examples include financing for renewable energy companies, purchasers of renewable energy generation, organic farmers, and makers of products that contain few or no synthetic chemicals and developers of clean technology.

Gross Income: Sales less cost of goods sold (COGS).

Guarantee: An agreement to personally compensate the holder of a loan all or a portion of the principal balance, in the case of default by the borrower. A guarantee may be provided by an individual, corporation, or third party (such as US Small Business Administration or bank letter of credit).

Guarantor: A person or entity that agrees to be responsible for another’s debt under a contract, if the other fails to pay.

Healthy Food Retail Outlets: Commercial sellers of healthy foods including, but not limited to, a grocery store, mobile food retailer, farmers markets, cooperatives, corner store, bodega or a store that sells other food and non-food items along with a full range of healthy foods.

ETAG (Employment Training Agreement): An agreement between CEI-financed businesses and CEI that targets a percentage of newly-created jobs for low-income individuals.

Healthy Foods: Whole foods such as fruits, vegetables, whole grains, fat free or low-fat dairy, and lean meats that are perishable (fresh, refrigerated, or frozen) or canned, as well as nutrient-dense foods and beverages encouraged by the 2010 Dietary Guidelines for Americans. (http://www.cnpp.usda.gov/dietaryguidelines.htm).

Housing Counseling: The range of services and education CEI provides to facilitate the purchase of a home, prevent a foreclosure and/or navigate the maze of funding sources.

Housing Technical Assistance: Assistance offered by experienced staff to a borrower in developing a commercial housing property. This may include:

  • Help in determining the feasibility of the project, such as cash flow projections and identifying financing sources, etc.;
  • Site reviews, such as environmental assessments, surveys, and project location evaluations; and
  • Construction management, such as ensuring construction standards, code compliance and understanding restrictions.

Income Statement: A financial statement that measures a company’s financial performance over a specific accounting period. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities. It also shows the net profit or loss incurred over a specific accounting period, typically a fiscal quarter or year.

Individual Development Account (IDA): A matched savings account specifically designed to help income-qualifying households save money to purchase a home, seek post secondary education, capitalize small businesses or purchase a vehicle.

Industry Clusters: Geographic concentrations of interconnected companies, specialized suppliers, service providers, and associated institutions in a particular field that are present in a region.

Interest Rate: The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets. Interest rates are typically noted on an annual basis, known as the annual percentage rate (APR). Below market interest rates: interest rates that are lower than prevailing market rates. The actual interest rate depends on factors such as cost of credit, the borrower’s creditworthiness, the loan amount and the term of the loan.

Inventory: The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business’ assets that are ready or will be ready for sale.

Lien: The legal claim of one person or entity upon the property of another person or entity to get paid back for a debt. For example: When a bank loans money to a small business owner to purchase a delivery vehicle, and the vehicle being purchased is used as collateral for the loan, the bank has a lien against the vehicle.

Lien Position: When more than one debtor has secured the debt with the same lien, each of those debtors holds a position (first, second, etc.) identifying their order of priority for the payment in the case of default.

Liabilities: An individual’s or company’s legal debts or obligations currently owed to another party.

Healthy Food Financing Initiative (HFFI): HFFI is a programmatic initiative built around a flexible capital fund to expand retail sales of healthy food through business development and finance in underserved areas in Maine and New England.

Limited Liability Company (LLC): A legal structure of a business that limits liability to its owners; an LLC blends qualities of a partnership and a corporation.

Line of Credit (LOC): An arrangement between a lender and a customer that establishes a maximum loan balance that the financial institution will permit the borrower to draw down.

Loan Servicing: The administration of a loan from the time the proceeds are dispersed until the loan is paid off. This includes sending monthly statements and collecting monthly payments, maintaining records of payments and balances, collecting and paying taxes and insurance , and following up on delinquencies.

Long-Term Debt: Loans and financial obligations lasting over one year. Long-term debt for a company would include any financing or leasing obligations that are to come due in a greater than 12-month period. Such obligations would include company bond issues or long-term leases that have been capitalized on a firm’s balance sheet.

Low Income (CDFI definition): For a CDFI Program, an annual income, adjusted for family size, of not more than: 80 percent of the area median family income in metropolitan areas; and the greater of: (i) 80 percent of the area median family income; or (ii) 80 percent of the statewide non-metropolitan area median family income in non-metropolitan areas.

Low Income Targeted Population (LITP): For the CDFI Program, Target Market that is made up of individuals who are low income and who reside within the U.S. Low Income Targeted Population End Users: Low-income and very low-income persons that benefit from a loan/investment made to another borrower. For example, residents of housing in which the CDFI made a construction or rehabilitation loan.

Market Value: The highest estimated price that a buyer would pay and a seller would accept for an item in an open and competitive market.

Maturity Date: The termination or due date on which an installment loan must be paid in full. Microenterprise: A small business with five or fewer employees.

Microenterprise Financing: Financing to for-profit and nonprofit businesses with five or fewer employees (including proprietor) and with a maximum loan/investment of $25,000.

Mixed Use Real Estate: Combining commercial and residential development; zoned for commercial and residential use.

Natural Resources: Resources occurring in nature that can be used to create wealth. Examples include forests, water, and land.

Net Income: Sales less expenses.

Net Investment Income: Income received from investment assets (before taxes) such as bonds, stocks, mutual funds, loans and other investments (less related expenses).

New Markets Tax Credit: A federal income tax credit of up to 39% over 7 years for qualifying investments in targeted low-income areas.

Nonprofit: Business entity that is granted tax-exempt status by the Internal Revenue Service. Many nonprofit organizations are also called 501(c)(3) organizations after the applicable section of the tax code.

Non-traditional Entrepreneur: An individual that has not usually been thought of as a business owner, e.g., a woman, refugee, minority, or a person with limited English.

Operating Agreement: An agreement among Limited Liability Company (LLC) members governing the LLC’s business, and members’ financial and managerial rights and duties.

Owner Contribution: A business owner’s contribution of assets into a business to get it going. This may include contribution of cash and other assets, like a computer, some equipment, or a vehicle that will be owned by the business.

Owner Cash Contribution: Owner’s contribution of cash into a business to get it going. Participation Loans: Loans made by multiple lenders to a single borrower whereby all lenders share the risks.

Partnership: The relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

Personal Financial Statement: A document or spreadsheet outlining an individual’s financial position at a given point in time. A personal financial statement will typically include general information about the individual, such as name and address, along with a breakdown of their total assets and liabilities. Assets would include any account balances in checking or savings accounts, retirement account balances, trading accounts and real estate. Liabilities would cover items such as credit card balances, loans and mortgages.

Personal Guarantee: An agreement that makes one liable for one’s own or a third party’s debts or obligations. A lender can lay claim to the guarantor’s assets in the event of a borrower’s default.

Predevelopment Loan: Loans used to finance early stage project costs, such as architectural and engineering work or traffic and feasibility studies, which are necessary to advance a project to the construction stage.

Preferred Stock: Ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out of profits before dividends to common stockholders.

Principal: The actual amount of money borrowed, exclusive of interest and/or finance charges.

Profit and Loss Statements (P&L): A financial statement that summarizes the revenues, costs and expenses incurred during a specific period of time – usually a fiscal quarter or year. These records provide information that shows the ability of a company to generate profit by increasing revenue and reducing costs. The P&L statement is also known as a “statement of profit and loss”, an “income statement” or an “income and expense statement”.

S Corporation (S Corp): One of several types of corporate legal structures for a business. An S Corporation has limitations for number of shareholders, types of stock and taxation, among other restrictions.

Prepayment Penalty: A prepayment penalty is a provision of the contract with the lender that states that in the event you pay off the loan entirely prior to maturity, you will pay a penalty. Penalties are usually expressed as a percent of the outstanding balance at time of prepayment, or a specified number of months of interest.

Social Impact: The effect of an activity, action, project, program or policy on the environmental and social fabric of the community and well-being of the individuals and families.

Sole Proprietorship: An unincorporated business owned by a single person who is responsible for its liabilities and entitled to its profits. The sole proprietorship is not a legal entity.

Subordinated Loan: Loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as a “junior security” or “subordinated debt.”

Subsidiary/Affiliate: A subsidiary is a company whose parent is a majority shareholder. “Affiliate” or “associate” describe a company whose parent only possesses a minority stake in the ownership of the company

Sustainable Business Practices: Business sustainability is often defined as managing the triple bottom line – a process by which companies manage their financial, social and environmental risks, obligations and opportunities.

Sustainable Community Economic Development: Integration of social, economic and environmental objectives into community economic development.

Term Loan: Generally a loan that is repaid in regular payments over a fixed period of time.

3E Investing: Triple bottom line investing, i.e., investing to achieve positive economic, equitable (social), and environmental outcomes.

Value/Supply Chain: The value chain consists of all of the businesses that connect raw product to final markets. It includes all of the steps along that path as value is added through aggregating, processing, packaging, or any other activity necessary to prepare the product for final sale to a consumer. Sometimes the value chain is very short; other times it is quite extended.

Venture Capital: Equity invested in companies who have a high potential for growth. Since venture capital is considered equity and not debt, venture capitalists own part of the company and may participate in the company decisions.

Venture Capital Fund: An organization, such as CEI Ventures, Inc., that predominantly invests funds in businesses, typically in the form of either equity investments or subordinated debt with equity features such as a revenue participation or warrants, and generally seeks to participate in the upside returns of such businesses, via such equity investments or equity features in an effort to at least partially offset the risk of investments.

Warrants: An equity-like feature. A certificate, usually issued along with a bond or preferred stock, entitling the holder to buy a specific amount of securities at a specific price, usually above the current market price at the time of issuance, for an extended period, anywhere from a few years to forever.

Workforce Intermediary: Workforce intermediaries serve both businesses and job seekers by helping them identify, navigate and access public and private sector programs, services and funding sources. Intermediaries generally provide leadership and guidance to partnering organizations and convene key community

Workforce Development: An economic development and human resource strategy that focuses on training/educating people to enhance a region’s economic stability and prosperity or remain competitive in the global marketplace. It includes a wide range of activities, policies and programs to create, sustain and retain a viable workforce that can support current and future business industries.

Workforce Intermediary: Workforce intermediaries serve both businesses and job seekers by helping them identify, navigate and access public and private sector programs, services and funding sources. Intermediaries generally provide leadership and guidance to partnering organizations and convene key community stakeholders, including businesses, educational institutions, and other service providers to advance workforce goals and objectives.

Working Capital: The capital available for day-to-day operations of a business, calculated as the current assets minus the current liabilities.

Working Waterfront: State, municipal or privately owned property abutting water that provides access for people and businesses engaged in water-dependent commercial activities such as commercial fishing, fish wholesale and retail operations, marinas, boat building and repair, tour boat operations, boat rentals, docks, wharves.

Other CDFI Terms

Jobs Created: The change in the number of jobs at a microenterprise or business financed between two fiscal years (i.e., the net job change). When calculating the number of jobs at the microenterprise or business, only permanent full-time equivalent jobs are counted.

Jobs Maintained: The total number of employees at microenterprise or business financed at the time a given loan or investment closed.

Jobs Assisted: Jobs created + jobs maintained.

Housing Units Created: Includes new construction or units projected to be constructed or complete rehabilitation of existing housing units that were previously unoccupied.

Housing Units Renovated or Preserved: “Renovated” includes units that have been renovated or are projected to be renovated. “Preserved” includes market-to-market and similarly preserved units.

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