Chapter 15

crowdfunding

a method of raising capital that taps the power of social networking and allows entrepreneurs to post their elevator pitches and proposed investment terms on specialized Web sites and raise money from ordinary people who invest as little as $100

initial public offering (IPO)

a method of raising equity capital in which a company sells shares of its stock to the general public for the first time

credit union

a nonprofit financial cooperative that promotes saving and provides loans to its members

certified development company (CDC)

a nonprofit organization licensed by the SBA and designed to promote growth in local communities by working with commercial banks and the SBA to make long-term loans to small businesses

bootstrapping

a process in which entrepreneurs tap their personal savings and use creative, low-cost start-up methods to launch their businesses

accelerator program

a program, possible sponsored by a community or university, that provides a small amount of seed capital and a wealth of additional support for start-up companies

line of credit

a short-term bank loan with a preset limit that provides working capital for day-to-day operations

margin (maintenance) call

a situation that occurs when the value of a borrower's portfolio drops and the broker calls the loan in, requiring the borrower to put up more cash and securities as collateral

capital access program (CAP)

a state leading program that encourages lending institutions to make loans to businesses that do not qualify for traditional financing because of their high risk

International Trade Program

an SBA loan program for small businesses that are engaging in international trade or are adversely affected by competition from imports

Export Working Capital (EWC) program

an SBA loan program that is designed to provide working capital to small exporters

Export Express Program

an SBA loan program that offers quick turnaround times to small companies that are developing or expanding their export initiatives

Disaster loan

an SBA loan to a small business devastated by some kind of financial or physical loss

7 (a) loan guaranty program

an SBA program in which loans made by private lenders to small businesses are guaranteed up to a ceiling by the SBA

letter of intent

an agreement between the underwriter and the company about to go public that outlines the details of the deal

capital

any form of wealth used to produce more wealth

term loan

a bank loan that imposes restrictions (covenants) on the business decisions an entrepreneur makes concerning the company's operations

loan broker

a business that specializes in helping small companies find loans by tapping into a wide network of lenders

managing underwriter (investment banker)

a financial company that serves two important roles: helping to prepare the registration statement for an issue and promoting the company's stock to potential investors

factor

a financial institution that buys a business's accounts receivable at a discount

road show

a gathering of potential syndicate members sponsored by the managing underwriter for the purpose of promoting a company's IPO

margin loan

a loan from a stockbroker that uses the stocks and bonds in the borrower's portfolio as collateral

microloan

a loan made through an SBA program aimed at entrepreneurs who can borrow amounts of money as small as $100 and up to a maximum of $50,000

merchant cash advance

a method of financing in which a provider prepurchases credit and debit card receivables at a discount

Rollovers as Business Startups (ROBS)

a method of financing that allows entrepreneurs to use their retirement savings to fund their business start-ups

CAPLine Program

An SBA program that makes short-term capital loans to growing companies needing to finance seasonal buildups in inventory or accounts receivable.

equity capital

Capital that represents the personal investment of the owner (or owners) of a company; sometimes called risk capital

revolving loan funds

community programs that combine private and public funds to make loans to small businesses, often at below-market interest rates

community development financial institutions (CDFIs)

community-based financial institutions that designate at least a portion of their loan portfolios to otherwise "unbankable" business owners and aspiring entrepreneurs

accredited investors

investors who have a sustained net worth (excluding their primary residences) of at least $1 million or annual income of at least $200,000

peer-to-peer loans

loans made via Web-based platforms that create online communities of lenders who provide funding to creditworthy small businesses

venture capital companies

private, for-profit organizations that purchase equity positions in young businesses that they believe have high-growth and high-profit potential

Small Business Investment Companies (SBICs)

privately owned financial institutions that are licensed by the SBA and use a combination of private capital and federally guaranteed debt to provide long-term venture capital to small businesses

registration statement

the document a company must file with the SEC that describes both the company and its stock offering and discloses information about the rick of investing

debt capital

the financing that an entrepreneur borrows and must repay with interest

prime rate

the interest rate that banks charge their most creditworthy customers

advance rate

the percentage of an asset's value that a lender will lend

layered financing

the technique of raising capital from multiple sources

private investors (angels)

wealthy individuals, often entrepreneurs themselves, who invest in business start-ups in exchange for equity stakes in the companies