Debt

Acceleration Clause: An acceleration clause is a provision that allows a lender to demand payment of the total outstanding balance or demand additional collateral under certain circumstances, such as failure to make payments, bankruptcy, nonpayment of taxes on mortgaged property, or the breaking of loan covenants.

Bond: A bond is a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Bridge Financing: Bridge financing is a short-term loan that is used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short-term (typically up to one year and backed by some form of collateral).

Convertible Debt: Convertible debt is can be exchanged for a specified amount of another related security, at the option of the issuer and/or the holder. It is also called convertible.

Convertible Note: A convertible note is a debt instrument that can be converted into stock at the option of the holder or the issuer. More specifically, the investor can choose to convert the note into equity when an institutional investor (such as a VC) makes an investment.

Debt Financing: Raising money for a business through loans or by issuing bonds.

Debt Refinancing: Debt refinancing is the process through which a company reorganizes its debt obligations by replacing or restructuring existing debts. Refinancing may also involve issuing equity to pay off a percentage of debt. Debt is replaced or refunded by a company with money that is raised by issuing or creating other borrowing. In restructuring, a company works with its creditor to change the terms of a loan; these terms can include the reduction of interest rates, the improvement of covenants or the extension of the loan’s terms.

Debtor in Possession: Debtor in possession (DIP bankruptcy) refers to a company that continues to operate while in the Chapter 11 bankruptcy.

Gross Debt: All interest-bearing debt (both current and long-term).

Junior Debt: Junior debt is debt that is either unsecured or has a lower priority than of another debt claim on the same asset or property.

Leverage: Leverage is the use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. Leverage (or gearing) is the amount of debt used to finance a firm’s assets.

Secured Debt: Secured debt is debt that is backed or secured by an underlying asset, which is considered collateral. Collateral is used to reduce the risk associated with lending.