Glossary of Financial Terms

Bridge loan: An outlay of money that will get a business another type of financing or grant.

Capital: A business’ resources, including cash and assets.

Catalytic capital: Capital uses to reduce the risk of a loan for other lenders, primarily by guaranteeing a portion of the other lenders loan. The guarantee unlocks financing for entrepreneurs who would likely not have been able to receive it without the guarantee.

Collateral initiative: A tool that Michigan Good Food Fund has that reduces the risk of a loan for other lenders and, therefore, unlocking financing for entrepreneurs who would likely not have been able to receive it without the guarantee. The Fund raises a pool of capital that encourages other lenders to make loans that the lenders wouldn’t otherwise make because of the risk or a lack of collateral. The Fund works in collaboration with other lenders and requires agreements with the lender(s) and the entrepreneur.

Collateral shortfall: A scenario where there isn’t enough things (in other words, security) for a lender to lend on. The risk is too high for them because, if the loan doesn't get paid, there’s nothing for them to sell to recoup the loan. Michigan Good Food Fund’s collateral initiative reduces the risk by providing something that they can count on getting if the loan is not paid back in full.

Convertible debt: A loan that converts into equity or ownership in a company at a later time.

Convertible note: Debt that automatically changes to equity based on the pre-set terms or will be repaid in cash at a later date.

Credit enhancement: Strategies for improving the credit risk profile of a business.

Equity investment: When investors purchase ownership of a business. Investors give the business money and get to own a part of the company in exchange.

Farm-to-fork or field-to-fork: A description of food that has been cultivated from a local farm to the restaurants, farmers markets, and other community members near that farm.

Flexible financing: The blending debt, equity, and grants to deliver customized capital solutions.

Financial products: Items—usually in the form of a contract—provided to customers, businesses, and other organizations by financial institutions, such as banks and investors.

Financial sustainability: Businesses that are profitable or can demonstrate a path to profitability.

Foundation grants: A sum of money given by a nonprofit organization or charitable trust to organizations, institutions, and/or individuals for new, beneficial, and/or creative projects for the charitable purpose(s) such as science, education, and culture.

Impact Investment: A financial strategy involving an outlay of money and other capital that seeks to attain a social or environmental goal as well as generate a profit. For Michigan Good Food Fund, that means bringing holistic support that weaves together catalytic capital and wrap-around business assistance.

Line of credit: Extending a certain amount of money for borrowing, paying back, and reborrowing.

Loan: Traditional debt that catalyzes a business’ growth. Some things these are used for include equipment, property, construction, and working capital.

Locally sourced: Food products that are grown within a particular area.

Microloan: A small sum of money lent at low interest to a new business.

Mission fit: How a particular business matches with Fair Food Network’s objective or purpose.

Near-equity: Neither an equity investment or a traditional loan, but an investment structure which doesn’t require a lot of paying the money back but functions as a loan in the sense of smaller amounts of paying back the money as the lender requires.

Participation loan: Lending an outlay of money to a lead lender so the lead lender can handle all of the ‘lending work,’ such as dealing with legal documents.

Program-related investments (PRIs): An outlay of money from a private tax-exempt foundation that furthers the foundation’s charitable purpose while providing the foundation with a potential for financial return. (Source)

Purchase Order Advance: Advance operating capital against a purchase order before crops are grown, products are delivered, etc.

Recoverable grants: A type of grant “where a philanthropist or non-profit organization decides to lend out money on the hope that an entrepreneur will be successful. If an entrepreneur is not successful, they don’t have to pay anything back, regardless of how much they originally borrowed.” (Source)

Revenue-based financing: A loan that returns a percentage of gross revenues over a certain period of time, up to a specific amount; a loan that’s repaid as a percentage of future revenue or cash flows.

Social impact: Focusing investments on businesses with the main outcomes of increasing healthy food access and affordability, supporting family farms through increasing their sales and profits, centering plant-based food, broadening access to resources, less food waste, and creating quality jobs. This also means committing to advancing greater equity by supporting businesses led by people marginalized due to their race, ethnicity, and/or gender.

Social-impact notes: A kind of debt a borrower must pay back plus interest over a set period of time. This kind of debt supports projects with positive impacts.

Term loan: A sum of money that’s repaid in regular payments over a set period of time—usually between one and 25 years. These loans are usually meant for equipment or working capital, among other things,

Venture debt: A type of loan offered by banks and other financial institutions to fund working capital or capital expenses, such as purchasing equipment.

Working capital: A business’ resources, including cash and assets, which is used in its day-to-day operations. It’s measured by the business’ current resources subtracted from its current liabilities, such as debts.

Wrap-around business assistance: Michigan Good Food Fund’s non-financial support program that includes one-on-one consulting, group workshops, and curated support to accompany financing.