Glossary
Angel Investor
Angel investors are usually high-net-worth individuals who make direct equity investments in companies. (See Equity capital)
Business Plan
A document that spells out a company’s expected course of action for a specified period, usually including a detailed listing and analysis of risks and uncertainties. For the small business, it should examine the proposed products, the market, the industry, the management policies, the marketing policies, the production needs and the financial needs. Frequently, it is used as a prospectus for potential investors and lenders.
Cash Flow Positive
When a company’s revenues can cover its operating costs, it is considered cash flow positive.
Certified Development Company
A nonprofit organization certified by the SBA to provide financing through the SBA 504 Loan Program. CDCs work with banks and other lenders to ensure loan documentation complies with 504 Loan regulations.
Chattel
Movable property often accepted as loan collateral. Chattel includes autos, boats, jewelry and domestic animals. Chattel does not include immovable property such as real estate or intangibles such as securities.
Cloud Computing
A new generation of computing that utilizes distant servers for data storage and management, allowing the device to use smaller and more efficient chips that consume less energy than standard computers.
Collateral
An asset pledged as security to ensure payment or performance of an obligation. In bank lending, it is generally something of value owned by the borrower. If the borrower defaults, the asset pledged may be taken and sold by the lender to fulfill completion of the original loan contract.
Collateral Assistance Program
The Collateral Assistance Program, previously known as the Collateral Support Participation Program, allows the New Mexico Economic Development Department to pledge cash to cover a borrower’s collateral shortfall. The program enables small businesses that would qualify for a bank loan if not for the collateral shortfall, to become eligible for a loan. Business owners apply through an authorized bank, which initiates the Collateral Support Program.
Community Development Financial Institution (CDFI)
A lender with a mission to promote economic development by making financial resources affordable and accessible to neglected or underserved communities. Such resources may include consulting and technical assistance services that help entrepreneurs and small business owners plan for starting, growing, and maintaining their businesses. DreamSpring, Homewise, LiftFund, RCAC, The Loan Fund, and WESST are nonprofit CDFIs active in New Mexico. Clearinghouse CDFI, a for-profit entity, is also a CDFI.
Convertible Debt
A security which can be exchanged for a specified amount of another, related security, at the option of the issuer and/or the holder. In most cases, a convertible debt security is converted to equity or stock.
Critical Path
The critical path method is the result of a mathematical approach to decision-making in project management, but it can be used to set deadlines for any business endeavor that includes multiple interdependent tasks. The critical path lists every task on a project trajectory and defines which are mandatory and which are more flexible. Read more
Crowdfunding
When used in a business context, crowdfunding refers to the raising of capital by giving small equity positions in a business to many investors in exchange for cash. The JOBS Act (Jumpstart our Business Startups Act) amends US securities law to allow equity offerings to bypass SEC registration under certain circumstances. Once the rules governing the Act are implemented, the result is expected to be greater funding opportunities for small businesses.
Early-Stage Business
An early stage business is similar to a start-up. However, when the term “early-stage” is used, it typically means that the business is in its early operational stage, but has no or little revenue.
Entrepreneur
One who assumes the financial risk of the initiation, operation, and management of a given business or undertaking.
Equity Capital
Equity investment is the provision of capital to a firm in return for partial ownership of that firm. Investments are typically made by venture capital firms or angel investors. Equity investors are not looking for repayment in the way that a loan company expects. Instead, they are looking for an exit strategy whereby they can recoup their investment with a good profit. (See Exit strategy)
Established Business
An established business has measurable revenue history for at least two years.
Exit Strategy
The way an equity investor (See Angel Investor, Venture Capital) plans to cash-out of the company in which they invest so they can realize relatively short-term profits rather than waiting for the company to make substantial profits from sales revenue. An exit strategy could be: an IPO (Initial Public Offering) where a company goes public and shares now have value on the open market; or the sale of the company to a public or private entity.
Expansion
Refers to growth that comes from adding new offices or manufacturing plants, moving beyond previously defined geographical borders or adding new products or business lines. It does not refer to growth that only comes from increased revenue.
Factoring
Factoring is an asset-based financing method whereby a company sells an invoice, or invoices, to a factoring company in return for an advance of 80 to 90 percent of the invoice’s value. When the invoice is paid, the selling company receives the balance — typically minus a commission of 1 to 3 percent retained by the factoring company. Read more
Franchise
A franchise is a business model that involves one business owner licensing trademarks and methods to an independent entrepreneur. Sometimes, franchises are referred to as chains.
Grant
Money, time or something of value that is awarded for a particular purpose. Generally, grants do not need to be paid back unless the recipient does not perform to the specifications of the grant.
Growth-Stage Business
A business that is typically at or near breakeven in terms of operating expense to revenue and is poised to grow quickly.
Hackerspace
A community-operated workspace where people can share knowledge, collaborate and make things, often using everyday objects and re-purposing or “hacking” them into something else.
Lab Spin-Off
In New Mexico, there are several federal government laboratories and universities that create new technologies. Sometimes these technologies have commercial uses. Lab employees are allowed to use the technology as the basis for their own start-up ventures.
Lean Concepts
Services designed to streamline the processes of your facilities and supply chain to help you lower your expenses and downtime while increasing productivity.
LIBOR
LIBOR, which stands for London Inter-bank Offered Rate, is a trademarked term that refers to benchmark short-term interest rates. It is a daily average derived from the interest rates international banks charge one another, and it is used to establish retail lending interest rates. The Wall Street Journal is a good source of current LIBOR rates.
Line of Credit
A bank loan with features similar to credit card financing where the bank agrees to a maximum amount it will loan a business, and the business draws on the money only as needed. The bank only charges interest when the business taps into the line of credit, and interest is charged only on the outstanding balance. The borrower can make payments to the outstanding balance at any time, but he or she must make a minimum monthly payment that includes accumulated interest. Most lines of credit require that the loan be completely paid off for at least one month each year.
Loan
A loan is a type of debt. The borrower receives an amount of money from a lender such as a bank or community development financial institution (CDFI), and the money is typically paid back in regular installments. This service is generally provided at a cost that is referred to as interest on the debt. Often a loan is secured with collateral. (See Collateral)
Loan Guarantee
A promise made by a person or organization other than the borrower to assume the borrower’s debt if the borrower defaults on the loan. When a loan guarantee is extended by the US Small Business Administration (SBA) or the US Department of Agriculture (USDA), the local bank’s risk is decreased and the borrower is often able to obtain a larger loan than if the bank assumed all of the risk.
Manufacturing Industry
The manufacturing industry includes any businesses involved in the transformation of raw materials into finished goods for sale.
Market Intelligence
Market intelligence is the information relevant to a company’s markets, gathered and analyzed specifically for the purpose of accurate and confident decision-making in determining market opportunity, market penetration strategy, and market development metrics.
Mentor
A mentor is a person with more experience in business, who can help an entrepreneur hone her or his abilities and advise him or her on navigating new challenges. A mentor can be a boon to an entrepreneur in a broad range of scenarios, whether they provide pointers on business strategy, bolster your networking efforts or act as confidantes.
Mezzanine Funding
A source of expansion capital for companies that have loans and are unable to obtain another loan but need additional capital. Mezzanine funding is a hybrid of a loan and an equity capital investment. It is typically set up as loan to a mature and growing business, where the company pays interest but collateral is provided by ownership in the company. It is appropriate for businesses in service industries that find it hard to get loans because people, rather than typical collateral such as equipment, are their primary assets.
Microloans
The extension of very small loans to borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed not only to support entrepreneurship, but also in many cases to empower women and uplift entire communities by extension.
Networking
Business networking is a socioeconomic activity by which groups of like-minded businesspeople recognize, create or act upon business opportunities. A business network is a type of social network whose reason for existing is business activity.
Nonprofit / Not-for-Profit
A nonprofit or not-for-profit organization is an entity whose primary objective is to support an issue or matter of private interest or public concern for non-commercial purposes, without concern for monetary profit.
Participation Loan
A participation loan allows a bank to transfer some of its risk to a third party, thereby either enabling the bank to make a loan it might not otherwise make or to provide better terms than it could offer on its own. Participating entities include government agencies such as the SBA and USDA, which purchase part of the loan. Participation loans are initiated by the bank, and each participation program has its own rules.
Re-Lending
The dispersal of funds from a primary lender by a secondary lender.
Scalable Business
Refers to the ability of a business to grow beyond a narrow audience to a larger one (usually beyond state lines) while maintaining an operations-to-revenue ratio where profits can be maintained during growth.
Seed-Stage Business
A seed-stage business is one that is typically in the idea or concept phase. There may be one or more people committed to the business concept, but there is no revenue yet.
Service Industry
Businesses in the service industry are primarily concerned with providing services for the benefit of the consumer and/or other businesses. Services may include insurance, banking and finance; provision of gas, electricity and water; transport; communications; retailing and wholesaling.
Software as a Service (SaaS)
An increasingly popular software distribution model, Software as a Service (SaaS) makes applications that are hosted by a vendor or service provider available to customers over a network (like the Internet). The benefits of SaaS include compatibility, global accessibility, and easier administration and collaboration.
Startup Business
A startup business is in its earliest stages of development, typically before it has an established revenue stream. A seed stage business is the earliest point in the start-up phase.
Subordinated Loan
A loan or part of a loan that has a secondary position to another loan if the borrower should default on their debt. In the case of default, the subordinated loan would receive payment after the primary lender is paid off. Subordinated loans are typically provided by government entities and may represent a portion of the total loan.
Technology Commercialization
In New Mexico, there are several federal government laboratories and universities that create new technologies in the course of their work. When a technology is seen as having a commercial use – for example, to improve an existing product or create a new product – the lab or university may assist scientiests and entrepreneurs with getting the technology into the marketplace.
Technology Industry
The technology industry can include businesses such as high-tech manufacturing, communications services, and software and computer-related services. It can also include businesses such as biotechnology and other physical or material sciences.
Trade Missions
Trade missions are international trips by government officials and business people that are organized by agencies of national or provincial governments for the purpose of exploring international business opportunities.
Value Proposition
Taking a product or service to market begins with a value proposition: an evaluation of who the product is for, what need it will fulfill, what dissatisfies consumers about the products currently being used to fulfill that need, and how the new product is a marked improvement. Read more
Venture Capital
Venture capital firms have a pool of money that has been raised from investors. They make equity capital investments (see Equity capital) in return for partial ownership of the business in which they invest, and they anticipate a profit upon exit (see Exit Strategy). Venture capital firms specialize in various industries and have different amounts they are willing to invest.