Financial capital is any economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their products or to provide their services to the sector of the economy upon which their operation is based. In other words, financial capital is internal retained earnings generated by the entity or funds provided by lenders to businesses in order to purchase real capital equipment or services for producing new goods or services.
A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money (leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loans, along with the assets of the acquiring company. The use of debt, which normally has a lower cost of capital than equity, serves to reduce the overall cost of financing the acquisition. This is done at the risk of magnified cash flow losses should the acquisition perform poorly after the buyout.
In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common long position, where the investor will profit if the market value of the asset rises. An investor that sells an asset short is, as to that asset, a short seller.
In finance, a loan is the transfer of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is a form of short-term borrowing, mainly in government securities. The dealer sells the underlying security to investors and, by agreement between the two parties, buys them back shortly afterwards, usually the following day, at a slightly higher price.
Title insurance is a form of indemnity insurance predominantly found in the United States and Canada which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Unlike some land registration systems in countries outside the United States, US states' recorders of deeds generally do not guarantee indefeasible title to those recorded titles. Title insurance will defend against a lawsuit attacking the title or reimburse the insured for the actual monetary loss incurred up to the dollar amount of insurance provided by the policy.
A financial transaction is an agreement, or communication, between a buyer and seller to exchange goods, services, or assets for payment. Any transaction involves a change in the status of the finances of two or more businesses or individuals. A financial transaction always involves one or more financial asset, most commonly money or another valuable item such as gold or silver.
A bridge loan is a type of short-term loan, typically taken out for a period of 2 weeks to 3 years pending the arrangement of larger or longer-term financing. It is usually called a bridging loan in the United Kingdom, also known as a "caveat loan," and also known in some applications as a swing loan. In South African usage, the term bridging finance is more common, but is used in a more restricted sense than is common elsewhere.
A management buyout (MBO) is a form of acquisition in which a company's existing managers acquire a large part, or all, of the company, whether from a parent company or individual. Management- and/or leveraged buyouts became noted phenomena of 1980s business economics. These so-called MBOs originated in the US, spreading first to the UK and then throughout the rest of Europe. The venture capital industry has played a crucial role in the development of buyouts in Europe, especially in smaller deals in the UK, the Netherlands, and France.
Mezzanine capital is a type of financing that sits between senior debt and equity in a company's capital structure. It is typically used to fund growth, acquisitions, or buyouts. Technically, mezzanine capital can be either a debt or equity instrument with a repayment priority between senior debt and common stock equity. Mezzanine debt is subordinated debt that represents a claim on a company's assets which is senior only to that of the common shares and usually unsecured. Redeemable preferred stock equity, with warrants or conversion rights, is also a type of mezzanine financing.
Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date. The resources provided by the first party can be either property, fulfillment of promises, or performances. In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.
Down payment, is an initial up-front partial payment for the purchase of expensive items/services such as a car or a house. It is usually paid in cash or equivalent at the time of finalizing the transaction. A loan of some sort is then required to finance the remainder of the payment.
This article gives descriptions of mortgage terminology in the United Kingdom.
A line of credit is a credit facility extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds. A financial institution makes available an amount of credit to a business or consumer during a specified period of time.
A land contract,, is a contract between the buyer and seller of real property in which the seller provides the buyer financing in the purchase, and the buyer repays the resulting loan in installments. Under a land contract, the seller retains the legal title to the property but permits the buyer to take possession of it for most purposes other than that of legal ownership. The sale price is typically paid in periodic installments, often with a balloon payment at the end to make the timelength of payments shorter than in the corresponding fully amortized loan. When the full purchase price has been paid including any interest, the seller is obligated to convey legal title to the property. An initial down payment from the buyer to the seller is usually also required.
Murabaḥah, murabaḥa, or murâbaḥah was originally a term of fiqh for a sales contract where the buyer and seller agree on the markup (profit) or "cost-plus" price for the item(s) being sold. In recent decades it has become a term for a very common form of Islamic financing, where the price is marked up in exchange for allowing the buyer to pay over time—for example with monthly payments. Murabaha financing is similar to a rent-to-own arrangement in the non-Muslim world, with the intermediary retaining ownership of the item being sold until the loan is paid in full. There are also Islamic investment funds and sukuk that use murabahah contracts.
A mortgage loan or simply mortgage, in civil law jurisdictions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".
In real estate, creative financing is non-traditional or uncommon means of buying land or property. The goal of creative financing is generally to purchase, or finance a property, with the buyer/investor using as little of his own money as possible, otherwise known as leveraging. Using these techniques an investor may be able to purchase multiple properties using little, or none, of his "own money".
Seller financing is a loan provided by the seller of a property or business to the purchaser. When used in the context of residential real estate, it is also called "bond-for-title" or "owner financing." Usually, the purchaser will make some sort of down payment to the seller, and then make installment payments over a specified time, at an agreed-upon interest rate, until the loan is fully repaid. In layman's terms, this is when the seller in a transaction offers the buyer a loan rather than the buyer obtaining one from a bank. To a seller, this is an investment in which the return is guaranteed only by the buyer's credit-worthiness or ability and motivation to pay the mortgage. For a buyer it is often beneficial, because he/she may not be able to obtain a loan from a bank. In general, the loan is secured by the property being sold. In the event that the buyer defaults, the property is repossessed or foreclosed on exactly as it would be by a bank.
Stocks consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (stockholder) to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued, for example, without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.
