Microcredit loans typically are used to

microcredit loans typically are used to

A Glossary of Loan Terms

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EAssets%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EBad" /> A debt that is not collectible and is therefore worthless to the creditor.

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.

Short-term loan to provide temporary financing until more permanent financing is available.

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.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3ECapital%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3ECapitalization%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ECapital" /> Those financial markets, including institutions and individuals, that exchange securities, especially long-term debt instruments.

Short-term loan providing additional cash to cover cash shortfalls in anticipation of revenue, such as the payment(s) of receivables.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3ECollateral%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3ECovenant%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ECurrent" /> Assets that will normally be turned into cash within a year.

Liability that will normally be repaid within a year.

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.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EDebt%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EDebt" /> Amount of payment due regularly to meet a debt agreement; usually a monthly, quarterly or annual obligation.

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.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EDefault%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3EDelinquent%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EDue" /> 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.

A fund that contains assets whose use is restricted only to the income earned by these assets.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EEquity%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EEquity" /> 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.

Net worth in a nonprofit organization; total assets minus total liabilities.

Rights to demand payment from the general assets of the debtor, without seniority in access to any specific assets.

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.

Short-term loan to provide temporary financing until more permanent financing is available.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EIntermediaries%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3ELeverage%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ELiabilities," /> Total value of financial claims on a firm's assets. Equals total assets minus net worth.

Limitation of shareholders' losses to the amount invested.

Rights only to specifically stipulated assets to satisfy an unpaid debt.

Agreement by a bank that a company may borrow at any time up to an established limit.

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.

A written contract between a lender and a borrower that sets out the rights and obligations of each party regarding a specified loan.

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.

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.

Statements of actions or events of the borrower must prevent from occurring or existing, for example, additional borrowing without the lender's consent.

Current assets minus current liabilities.

Total assets minus total liabilities. Aggregate net value of the organization.

The potential benefit that is foregone from not following the best (financially optimal) alternative course of action.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EPortfolio%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3EPrincipal%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EProgram-Related" /> A business or enterprise designed to promote the social purpose goals of an organization as well as generate revenue. Among nonprofits, products and services are usually, but not exclusively, identified with the purpose of the organization. Activities can range from fee-for-service charges to full-scale commercial ventures.

Broad, functional definition: A method of providing support to an organization, consistent with program goals involving the potential return of capital within an established time frame. In the context of this study, program-related investments include loans, loan guarantees, equity investments, asset purchases or the conversion of asset(s) to charitable use, linked deposits, and, in some cases, recoverable grants.

Promise to pay. Written contract between a borrower and a lender that is signed by the borrower and provides evidence of the borrower's indebtedness to the lender.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3EReceivables%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3ERecourse%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ERecoverable" /> Funds provided by a philanthropist to fulfill a role similar to equity. A recoverable grant may include an agreement to treat the investment as a grant if the enterprise is not successful, but to repay the investor if the enterprise meets with success.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3ERestructure%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ERoll" /> 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.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3ESecurity%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3ESenior" /> Debt that must be repaid before subordinated debt receives any payment in the event of default.

Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debt-holders receive payment only after senior debt is paid in full. A subordination of security interest in property allows another creditor to have the rights to the proceeds of the sale of that property before the claim of the subordinated creditor.

%img src="http://www.gdrc.org/icm/images/redsquare.gif%3ETerm%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3EUser%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%25img%20src="http://www.gdrc.org/icm/images/redsquare.gif%3EWarranties%3C/b%3E%3C/p%3E%0D%0A%3Cp%3E%3Cb%3E%3Cimg%20 src="http://www.gdrc.org/icm/images/redsquare.gif%3EWorking" /> 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.

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. Source: Loren Renz and Cynthia W. Massarsky, "Program-Related Investments: A Guide to Funders and Trends". The Foundation Center. Hari Srinivas - hsrinivas@gdrc.org

Source: www.gdrc.org

Category: Payday loans

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