Types of Capital

The different ways a financial investment is made.

CONVERTIBLE DEBT Loan that can be converted into an equity investment at a future date or under certain circumstances. Upon conversion, the value of the debt is used to buy shares at a pre-negotiated, typically discounted price.

EQUITY Ownership of stock in an enterprise, purchased either directly from the company or from another investor. Equity investors may receive voting rights and/or board seats.

GRANT Financial award given to an organization to address a stated goal with no repayment obligation.

GUARANTEE Binding promise made by one individual or organization to cover the debts of another individual or organization in the event they cannot repay a debt.

LINE OF CREDIT Credit facility that can be drawn upon and replenished, typically to fund working capital. The line can include commitment fees as well as interest rate charges.

PREFERRED EQUITY Preferred equity investments give the investor a higher claim to dividends or asset distribution than other equity positions.

PURCHASE ORDER FINANCE Loan made with an incoming receivable, such as a customer order or grant, used as collateral. Repayment occurs when the receivable is collected.

RECOVERABLE GRANT Grant made by nonprofit organizations or donors that, under predetermined circumstances, becomes repayable, potentially with interest.

ROYALTY FINANCE Loan with repayment obligations based on a percent of revenue.

SAFE Simple Agreement for Future - Equity that provides rights to an investor for future equity without determining a specific price per share until a later priced round or liquidity event occurs. Often used with start-ups.

TERM LOAN Loan that is repaid in regular payments over a set period of time, usually greater than one year. Term loans can have a range of interest rates and amortization schedules.

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