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Plain-language glossary
Capital-raising terms explained
Definitions for important terms used across the Center. Meanings can vary by contract, market, accounting treatment, and jurisdiction; when a legal definition matters, follow the relevant official source and qualified advice.
Core terms
A vocabulary for comparing funding and capital options clearly
These definitions are educational explanations by 1BusinessWorld. They are not universal legal, tax, or accounting definitions.
- 01Funding source
- The broad economic source used to organize this guide, such as internal funds, customer-related cash, grants and incentives, debt, equity, or a combined structure. Internal cash and ordinary receipts can fund a need without being external financing, and real arrangements may fit more than one category.
- 02Financing instrument
- The agreement or security that sets out economic and legal rights and obligations, such as a loan, bond, share, preferred security, or convertible instrument.
- 03How capital is accessed
- The way an organization reaches or receives funding. Depending on the arrangement, this may involve a bank, private negotiation, a program application, a crowdfunding model, or public issuance.
- 04Rules that may apply
- Laws, regulations, exemptions, authorizations, program rules, or market requirements that could govern an arrangement. Their application depends on the facts and jurisdiction.
- 05Business purpose
- The reason capital is sought, such as working capital, research, growth, an acquisition, a strategic relationship, or project delivery. Purpose alone does not determine which option is suitable.
- 06Official source
- Information published by a legislature, regulator, public authority, official register, market operator, or program owner within that body's remit.
- 07Page content review date
- The date on which the Center last reviewed a page’s explanatory content. It is separate from a source-directory metadata date and does not guarantee that linked information remains current.
- 08Information limitation
- A clear statement of what an explanation or source does not establish, including gaps, geographic limits, uncertainty, and the need for specialist advice.
- 09Collateral and security
- Collateral is property used to support an obligation; security is the legal right or interest granted over that property. The terminology, priority, and enforcement process depend on the documents and applicable law.
- 10Covenant
- A promise, restriction, or financial test in an agreement, such as a duty to provide information, maintain a specified measure, or limit certain actions. The consequences of a breach depend on the agreement and applicable law.
- 11Guarantee
- A guarantee is a broad label for an undertaking under which a guarantor agrees, on specified terms, to pay or perform in circumstances described by the arrangement.Payment guarantees, performance guarantees, surety arrangements, indemnities, and public-program guarantees can operate differently. The exact document, facts, defenses, limits, reimbursement rights, and applicable law control.
- 12Dilution
- A reduction in an existing holder's percentage ownership, voting power, or economic participation when additional interests are issued or an instrument converts. The effect depends on the rights and transaction terms.
- 13Convertible instrument
- A convertible instrument has terms that provide for conversion into another security.The complete terms determine who may cause conversion, whether and when it occurs, the price or formula, conditions, and resulting rights. A disclosure rule does not create or validate those terms.
- 14Mezzanine financing
- Financing commonly positioned between senior debt and common equity in priority and risk. It may combine repayment and interest with warrants, conversion, participation, or other equity-like features; the label is not a universal legal classification.
- 15Contingent right or obligation
- A right, payment, conversion, repayment duty, or other outcome that depends on a specified event or condition occurring.
- 16Clawback
- A contractual or legal mechanism that may require money or another benefit to be returned or recovered when specified conditions are met, such as ineligibility, a breach, or failure to meet program terms.
- 17Intercreditor agreement
- An agreement that sets out how two or more creditors share priority, payments, information, security, and enforcement rights in relation to the same borrower or assets.
- 18Offtake agreement
- An agreement under which a buyer commits to purchase some or all of a project's or business's future output on stated terms. It can support expected revenue but does not necessarily provide funding by itself.
- 19Concessional finance
- Concessional finance is a provider- and program-dependent umbrella used in development-finance contexts.It may refer to pricing, maturity, grace periods, subordination, guarantees, grants, or other risk-bearing support, but the label does not establish a particular package. Check the provider's exact instrument, eligibility rules, conditions, and repayment terms.
- 20Issuer
- An issuer is a person, entity, government, or other body treated under the applicable law as issuing or proposing to issue securities.The precise definition, filing and disclosure duties, authorization, and other obligations depend on the jurisdiction, instrument, transaction, governing documents, and facts.
- 21Underwriter and underwriting
- In a securities distribution, 'underwriter' may be a statutory status broader than a formally engaged investment bank. The word 'underwriting' is also used differently in bank credit and insurance.The complete law and facts determine whether a person has a statutory status or whether a credit or insurance process meets applicable standards. Insurance-specific treatment is outside this edition.
- 22Prospectus
- A formal disclosure document provided in connection with a securities offering when applicable rules require it. Its required content, review process, and legal effect depend on the jurisdiction and offering.
- 23Primary issuance
- The sale of newly issued securities by an issuer to raise capital. The issuer generally receives the proceeds, after transaction costs and subject to the offering structure.
- 24Secondary trading
- The purchase and sale of existing securities between investors after issuance. The proceeds ordinarily go to the selling holder rather than to the issuer.
- 25Term sheet
- A document that summarizes proposed commercial and structural terms before final agreements are completed. Some provisions may be non-binding while others, such as confidentiality or exclusivity, may be binding; the wording and applicable law control.
- 26Due diligence
- A structured review of information relevant to a proposed financing or transaction. Scope can include financial, legal, commercial, technical, tax, operational, regulatory, and other matters, and the review does not guarantee that every issue will be found.
- 27Capitalization table
- A record of an organization's ownership interests and, where included, options, warrants, convertible instruments, and other potential claims on ownership. Accuracy depends on the governing documents, issuances, transfers, and conversion assumptions.
- 28Valuation
- An estimate or negotiated measure of what an organization, asset, security, or project is worth for a stated purpose and date. Method, assumptions, rights, market conditions, and transaction terms can produce different results.
- 29Pre-money valuation
- The negotiated equity value assigned to an organization immediately before a financing, subject to the transaction's definitions and capitalization assumptions.
- 30Post-money valuation
- The equity value described immediately after a financing, commonly combining the defined pre-money value and new investment, subject to the transaction's treatment of options, convertibles, and other interests.
- 31Liquidation preference
- A contractual economic right that can determine what certain holders receive before or in relation to other holders after a liquidation, sale, or other defined event. Priority, amount, participation, and triggers depend on the terms.
- 32Anti-dilution provision
- Anti-dilution is an umbrella label for mechanisms that adjust specified security or conversion terms after defined events.Contractual price-based protection after a later financing and registration-statement coverage for stock splits, stock dividends, or similar events are different contexts. The complete documents and applicable law determine the formula, exceptions, approvals, enforceability, and consequences.
- 33Maturity
- The date or event by which a debt or other obligation becomes due, subject to any extension, acceleration, conversion, refinancing, or other terms.
- 34Amortization
- The scheduled reduction of an obligation through payments over time. A payment may include principal, interest, fees, or other amounts according to the agreement.
- 35Balloon payment
- A comparatively large payment due near or at the end of a repayment schedule because the obligation has not been fully repaid through earlier installments.
- 36Seniority and subordination
- The relative priority of claims to payment or assets. Senior claims generally rank ahead of subordinated claims, but exact priority depends on law, security, agreements, and insolvency or enforcement context.
- 37Personal guarantee
- An undertaking by an individual to answer for another person's or organization's obligation under stated conditions. It can expose the guarantor's assets and should be understood from the exact document and applicable law.
- 38Use of proceeds
- The purposes for which raised funds are expected or permitted to be used. Descriptions, restrictions, approvals, tracking, and consequences of a different use depend on the arrangement and applicable requirements.
- 39Material information
- Information that is important under the relevant decision, document, rule, or legal standard. Materiality is context-specific and should not be inferred from this general definition.
- 40Securities-offering exemption
- A legal basis that may permit an offer or sale of securities without a full registered offering when all applicable conditions are met. Exemptions differ by jurisdiction and do not remove every disclosure, filing, communication, intermediary, or state-law requirement.
- 41Financial promotion
- A term used in some jurisdictions for communications that invite or encourage specified financial activity. Its legal meaning, restrictions, exemptions, approval requirements, and territorial reach depend on the applicable rules and facts.
- 42Funding portal
- An intermediary or online portal used in certain crowdfunding arrangements. Registration, permitted activities, responsibilities, and terminology depend on the jurisdiction and model; a directory entry is not an endorsement.