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Glossary of Useful Terms

Acceleration
Repayment of obligation that is sooner than originally contracted for.
Accrued Interest
Interest that is earned by the lender and payable by the borrower. Each day interest is calculated on the unpaid principal balance and becomes “accrued interest.”
Amortization
The gradual repayment of a debt by periodic (usually monthly) installments of principal and interest.
Annual Percentage Rate (APR)
The total cost of borrowing money expressed as an annual rate.
Assets
The transfer of the note to another eligible lender. The borrower’s responsibility and obligations do not change.
Assignment
Any real or personal property that has value that can be assigned to pay debt.
Bad Debt
A debt that is not collectible and is therefore worthless to the creditor.
Balance Sheet
Financial statement presenting measures of the assets, liabilities and owner's equity or net worth of business firm or nonprofit organization as of a specific moment in time.
Bridge Loan
Short-term loan to provide temporary financing until more permanent financing is available.
Business Plan
A document that describes an organization's current status and plans for several years into the future. It generally projects future opportunities for the organization and maps the financial, operations, marketing and organizational strategies that will enable the organization to achieve its goals.
Capital
Broadly, all the money and other property of a corporation or other enterprise used in transacting its business.
Capitalization
The addition of unpaid accrued interest applied to the principal balance of a loan which increases the total debt outstanding.
Capital Markets
Those financial markets, including institutions and individuals, that exchange securities, especially long-term debt instruments.
Cash Flow Financing
Short-term loan providing additional cash to cover cash shortfalls in anticipation of revenue, such as the payment(s) of receivables.
Collateral
Assets pledged to secure the repayment of a loan.
Consolidation
Combining two or more educational loans into a new loan with a new payment schedule and interest rate.
Covenant
An agreement or promise to do or not to do a particular thing; to enter into a formal agreement; a promise incidental to a deed or contract. The following are functional objectives guiding most covenants: full disclosure of information, preservation of net worth, maintenance of asset quality, maintenance of adequate cash flow, control of growth, control of management, assurance of legal existence and concept of going concern, provision for lender profit or program goals.
Cumulative debt limit
The maximum principal borrowing amount of all outstanding student loan debt allowed by lenders.
Current Asset
Assets that will normally be turned into cash within a year.
Current Liability
Liability that will normally be repaid within a year.
Current Ratio
Current assets divided by current liabilities -- a measure of liquidity. Generally, the higher the ratio, the greater the "cushion" between current obligations and a firm's ability to meet them.
Daily Interest Credit
The method of calculating the rebate of precomputed interest. If prepayment is made, the interest charge (finance charge) will be reduced to the amount earned to the day of prepayment, also known as “actuarial method.”
Debt
An amount owed for funds borrowed. The debt may be owed to an organization's own reserves, individuals, banks, or other institutions. Generally, the debt is secured by a note, bond, mortgage, or another instrument that states repayment and interest provisions. The note, in turn, may be secured by a lien against the property or other assets.
Debt Service
Amount of payment due regularly to meet a debt agreement; usually a monthly, quarterly or annual obligation.
Debt Service Reserve
Term used to refer to cash reserves set aside by a borrower, either by internal policy or lender covenant, to repay debt in the event that cash generated by operations is insufficient.
Default
The failure to repay a loan in accordance with the terms of the promissory note. Default occurs after 180 days of non-payment on an account.
Deferment Period
Under certain conditions, once the repayment period has begun, principal payments (and interest payments under some loan programs) are postponed during specified periods. The borrower must provide documentation to establish eligibility for a deferment when the deferment begins.
Delinquent
The borrower has failed to make an installment payment when due, or to meet other terms of the promissory note.
Demand Note
A promissory note that is payable (due in full) whenever the holder demands payment.
Disbursement
A transaction that occurs when a lender releases loan funds.
Due Diligence
Refers to the task of carefully confirming all critical assumptions and facts presented by a borrower. This includes verifying sources of income, accuracy of financial statements, value of assets that will serve as collateral, the tax status of the borrower and any other material facts presented by the borrower.
Endowment of Trust
A fund that contains assets whose use is restricted only to the income earned by these assets.
Equity
The value of property in an organization greater than total debt held on it. Equity investments typically take the form of an owner's share in the business, and often, a share in the return, or profits. Equity investments carry greater risk than debt, but the potential for greater return should balance the risk.
Equity Participation
An ownership position in an organization or venture taken through an investment. Returns on the investment are dependent on the profitability of the organization or venture.
FDSLP
Federal Direct Student Loan Program.
Financial Need
The difference between the student’s educational costs and the Assessed Family Resources.
FFELP
Federal Family Education Loan Programs, formerly known as the GSL — Guaranteed Student Loan Programs.
Forbearance
Permitting the temporary cessation of payments or accepting smaller payments than were previously scheduled. Forbearance is granted at the discretion of the lender except that it is mandatory for a lender to grant forbearance on Stafford and SLS loans to a physician still in residency.
Fund Balance
Net worth in a nonprofit organization; total assets minus total liabilities.
General Recourse
Rights to demand payment from the general assets of the debtor, without seniority in access to any specific assets.
Grace Period
A period before the borrower enters a repayment period.
Guaranteed Loan
A pledge to cover the payment of debt or to perform some obligation if the person liable fails to perform. When a third party guarantees a loan, it promises to pay in the event of a default by the borrower.
Guarantor
A state agency or private, nonprofit institution or organization which administers a student loan insurance program. The institution or organization guarantees repayment of student loans to private lenders in the event a borrower dies, becomes permanently and totally disabled, has a loan discharged in bankruptcy, or defaults.
Holder (Lender or Payee)
A bank, a credit union, etc.
Holder in Due Course (Bearer in Due Course)
A person or entity other than the original holder who holds a legally effective promissory note and has the right to collect from the borrower.
Insolvency
The inability to make payments.
Installment Note (Renewal Note)
A new note written to satisfy the terms of a previously signed demand note. The installment note specifies a repayment schedule.
Interim Financing
Short-term loan to provide temporary financing until more permanent financing is available.
Intermediaries
Non- or for-profit institutions that have specialized lending capacities. They obtain capital in the form of equity and low interest loans from a variety of sources, including foundations and other funders, to form a "lending pool." They then serve as "wholesalers" who process large numbers of small loans or investments. This "economy of scale" often allows intermediaries to be more efficient than a foundation or funder could be if it considered each investment individually. Also, intermediaries often develop expertise in a particular field or region that foundations or funders cannot afford to develop. In the context of this study, non-financial intermediaries include community foundations and financial intermediaries include credit unions, venture capital and loan funds, banks, etc.
Leverage
Using long-term debt to secure funds for an organization. In the social investment world, often refers to financial participation by other private, public or individual sources.
Liabilities, Total Liabilities
Total value of financial claims on a firm's assets. Equals total assets minus net worth.
Limited Liability
Limitation of shareholders' losses to the amount invested.
Limited Recourse
Rights only to specifically stipulated assets to satisfy an unpaid debt.
Line of Credit
Agreement by a bank that a company may borrow at any time up to an established limit.
Linked Deposit
A deposit in an account with a financial institution to induce that institution's support for one or more projects. By accruing no interest or low interest on its deposit, a foundation essentially subsidizes the interest rate of the project borrowers.
Loan Agreement
A written contract between a lender and a borrower that sets out the rights and obligations of each party regarding a specified loan.
Loss Reserves
That portion of a fund's earnings or permanent capital designated by the board of directors as a reserve against possible loan losses and, as such, unavailable for lending purposes. Generally accepted accounting principles governing for-profit and regulated financial institutions require that loan loss expense be deducted as an annual expense on an accrual basis and that the loan loss reserve be shown as a contra asset reducing loan assets. To date, no accounting convention has been established to govern loan loss reserve accounting for unregulated nonprofit institutions. The technical treatment is to establish the reserve through periodic charges against earnings, and actual losses, when and if incurred, and are charged against the reserve. For balance sheet purposes a loan loss reserve (should) be shown as a deduction from the loan portfolio to suggest that its true economic value should be reduced by the estimated loss exposure.
Maker
The borrower.
Market Rate
The rate of interest a company must pay to borrow funds currently. Program-related investments generally are offered at below market rates or at no interest rate.
Negative Covenants
Statements of actions or events of the borrower must prevent from occurring or existing, for example, additional borrowing without the lender's consent.
Net working capital
Current assets minus current liabilities.
Net worth (Fund Balance in nonprofit, orgs)
Total assets minus total liabilities. Aggregate net value of the organization.
Opportunity Cost
The potential benefit that is foregone from not following the best (financially optimal) alternative course of action.
Portfolio
A combination of assets held for its investment benefits, including financial and non-financial returns. The asset mix is usually varied in kind and size to maintain an acceptable level of risk and return.
Principal
In commercial law, the principal is the amount that is received, in the case of a loan, or the amount from which flows the interest.
Promissory Note
The legal and binding contract signed between the lender and the borrower which states that the borrower will repay the loan as agreed upon in the terms of the contract.
Receivables
Accounts receivable; an amount that is owed the business, usually by one of its customers as a result of the ordinary extension of credit.
Recourse
Refers to the right, in an agreement, to demand payment from the person who is taking on an obligation. A full recourse loan refers to the right of the lender to take any assets of the borrower if repayment is not made. A limited recourse loan only allows the lender to take assets named in the loan agreement. A non-recourse loan limits the lender's rights to the particular asset being financed -- an approach that is common in home mortgages and other real estate loans.
Restructure
A revision of a financial agreement that alters the conditions or covenants of the original agreement. For example, parties may agree to restructure a loan agreement, easing the payment schedule, when a borrower is delinquent or otherwise faces default on a loan.
Rollover
Prior to or at the time of the maturity of an investment or loan, the interested parties agree to continue to carry over the investment or loan for another, successive period of time.
Security
A pledge made to secure the performance of a contract or the fulfillment of an obligation. Examples of securities include real estate, equipment stocks or a co-signer. Mortgages are a form of security with strong legal standing because they are publicly registered following a formal legal procedure. A mortgage gives the lender holding a mortgage security the right to reclaim the asset being financed if repayment is not made.
Term
Refers to the maturity or length of time until final repayment on a loan, bond, sale or other contractual obligation.
User
A non- or for-profit entity that receives a program-related investment directly from a funder for use in its programs or ventures.
Warranties
Statement attesting that certain statements are true. For instance, the borrower may warrant that it is a corporation, that it is entering into the agreement legally and that financial statements supplied to the bank are true.
Working Capital
Technically, means current assets and current liabilities. The term is commonly used a synonymous with net working capital. The term often also is used to refer to all short-term funding needs for operations (excluding debt service and fixed assets). A company's investment in current assets that are used to maintain normal business operations. Net working capital, which is the excess of current assets over current liabilities is also interchangeable with working capital. Both reflect the resources in circulation to meet operating needs and obligations as they come due.
Write Off
When an investment, such as a loan, becomes seriously delinquent or in default and is determined to be uncollectible, the lender may choose to charge the outstanding investment amount as an expense or a loss.

Sources

  • A Glossary of Terms. (n.d.) Retrieved February 1, 2018, from https://www.gdrc.org/icm/loan-glossary.html
  • Harvard Law School. (n.d.). Glossary of Loan Terminology. Retrieved March 14, 2018, from http://hls.harvard.edu/dept/sfs/glossary-of-loan-terms/