Question 1

Term

PIK

Answer

“Payment in Kind”, related to the concept of paying interest on debt with additional debt. PIK loans may have a portion or all of the interest rate converted into additional debt vs paying cash interest during the term.

Question 2

Term

Interest Rate

Answer

The amount charged on top of the principal (amount loaned) by a lender to a borrower

Question 3

Term

Warrants

Answer

A warrant gives the holder the right, but not the obligation, to buy common shares of stock directly from the company at a fixed price for a pre-defined time period.

Question 4

Term

Commitment Fee

Answer

Common in credit transactions, factored into the overall cost of capital. These fees are charged by the lender and can range from 0.5% to 4% of the total loan or total funded amount. Depending on the lender and the deal. Funds here are typically taken out of the total funded proceeds at closing.

Question 5

Term

Interest-Only Period (IO)

Answer

The period of time during the total term of the facility in which the borrower makes payments equal only to the amount of interest, not paying down any of the principal amount borrowed. This can aid in cashflow to the borrower due to lower cash payments for a time though can lead to an overall larger cost of capital due to lack of principal paid down.

Question 6

Term

Term Loan

Answer

A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms.

Question 7

Term

Delay Draw Term Loan

Answer

A loan that comes in multiple tranches or funding schedules. This can be due to milestones required by the company to draw additional funds or optionality by the company to draw additional funds when needed as to manage their overall cost of capital.

Question 8

Term

Line of Credit

Answer

When exact costs are difficult to calculate, a line of credit can be used with funds up to a certain limit. The available credit does not replenish after you make payments, like revolving credit does.

Question 9

Term

Revolver

Answer

When a revolving credit line is carries a balance from month to month, the revolver refers to the borrower. Also known as a revolver loan or revolving debt.

Question 10

Term

Lease Line of Credit

Answer

A lease line of credit allows you to complete multiple leases (ex: equipment) within a fixed period of time, up to your credit limit.

Question 11

Term

Revenue-based Financing

Answer

Financing that is repaid typically by the borrower paying a percentage of their monthly revenue until the agreed amount is repaid

Question 12

Term

BDC

Answer

“Business Development Company.” - Companies that invest in firms to help them grow in the initial stages of development.

Question 13

Term

Credit Fund

Answer

Through a private credit fund, investors combine or pool their capital and enable the manager of the fund to make investments in loans to various private companies.

Question 14

Term

SaaS

Answer

“Software as a Service” - a software licensing model that allows access to software via the Internet rather than having to install the software on the user’s computer.

Question 15

Term

Managed Service

Answer

Managed service providers maintain the IT operations (software, SaaS subscriptions, hardware, security, etc.) of their clients.

Question 16

Term

Tech-enabled Service

Answer

Tech-enabled services are a combination of human expertise and technology. They provide the the "high touch" elements of customer service, employing technology to streamline operations

Question 17

Term

Pre-Payment Fees

Answer

Also known as a prepayment penalty or early payoff fee, is a fee that some lenders charge when a borrower pays off a loan before the maturity date.

Question 18

Term

Covenant

Answer

A legally binding agreement between the borrower and lender that certain activities will or will not be carried out (ex: maintaining a maximum debt-to-asset ratio or maintaining working capital).

Question 19

Term

Subordination

Answer

A subordination agreement prioritizes debts, ranking one behind another for purposes of collecting repayment from a debtor in the event of foreclosure or bankruptcy.

Question 20

Term

Asset-based Financing (ABL)

Answer

A loan or line of credit secured by collateral (ex: inventory, accounts receivable, equipment, property, etc.)

Question 21

Term

Growth Capital

Answer

Capital used to support the growth of a business (ex: product development, market development, acquisition, etc.).

Question 22

Term

Working Capital

Answer

Capital used to finance the company’s everyday operations (ex: payroll, rent, debt payments, etc.)

Question 23

Term

CAPEX Financing

Answer

Capital used for physical assets (ex: property, equipment, etc.)

Question 24

Term

Revenue Retention

Answer

Typically measured on an annual basis, it’s the calculation of how much customer revenue has stayed with you over the past 12 months, between upgrades, downgrades and churned customers. This typically is not intended to include revenue from new customers gained over that same period of time.

Question 25

Term

Cap Table

Answer

Capitalization Table - The spreadsheet that breaks down the company’s shareholders’ equity including, common equity shares, preferred equity shares, warrants, and convertible equity. This information allows for companies to calculate their market value.

Question 26

Term

Preference

Answer

In short, who gets paid when in the event of a company sale, preferred shareholders get paid off before common shareholders. Investors typically take preferred shares in companies, coming with certain provisions that have multiples on capital invested before the common shares are paid out. This means that those shares theoretically could clear much more than their ownership percentage in the event of a sale, before the common shareholders start profiting from the sale of the business.

Question 27

Term

Waterfall

Answer

Waterfall is the illustration of how the funds flow in the event of a company sale. This takes into account all aspects of the ownership structure between preferred shareholders with their liquidation preferences, common shareholders, options and warrant holders.

Question 28

Term

Liquidity Event

Answer

Commonly related to terminology around warrants and options converting when it comes to debt transactions. A Liquidity event is most commonly understood as a “change of control” transaction, i.e. someone comes in and acquires the majority if your company (or all of it), or you exit via an IPO.