Financing glossary

A financing file has its own vocabulary. Misunderstood, it leads people to accept commitments they would not have signed. Here are the terms you will meet, explained by what they change for you.

Amortisation

The accounting spread of an asset’s cost over its useful life. No cash leaves the business, but taxable profit falls — which is why a company can report an accounting loss while collecting money.

Break-even point

The level of activity at which the company covers its costs. A financier compares it with actual revenue: the gap between the two measures resilience to a slowdown.

Business plan

The document explaining what the company does, for whom, and how it makes money. A financier mostly reads its assumptions: growth rate, selling price, payment terms.

Capitalisation table

The table of who owns what in the company, before and after the proposed transaction. An investor asks for it early: a poorly documented shareholding stops a signature.

Cash flow plan

The month-by-month schedule of receipts and payments. It is the only document that says on which date money will run short — and therefore when it must already have been raised.

Closing

The moment the transaction completes: documents signed, conditions satisfied, funds released. Until then, an agreement in principle is not financing.

Convertible bond

Debt that can be turned into shares on terms agreed in advance. It postpones the valuation question, which suits both sides when they have not yet agreed on it.

Covenant

A contractual undertaking given to a lender: maintain a ratio, do not borrow beyond a threshold, do not distribute dividends. A breached covenant can make the debt immediately repayable.

Data room

The space, now digital, holding every document the financier will review. Its quality shows immediately: a disorganised data room lengthens the review and casts doubt on everything else.

Debt-to-equity ratio

The relationship between financial debt and equity. Beyond a certain level, a lender considers the risk is no longer fairly shared and stops, whatever the project.

Due diligence

The in-depth review a financier runs before committing: accounting, legal, tax, sometimes social and environmental. Unpleasant surprises cost far more there than weaknesses disclosed upfront.

EBITDA

What the business generates before depreciation, financial charges and tax. It is the indicator a lender uses to judge repayment capacity, more than net profit.

Equity

Money contributed by shareholders plus retained profits. It is not repaid: it is rewarded by the value of the company. It is the cushion every financier checks before lending.

Fundraising

The process by which a company obtains resources from outside financiers, in debt, in equity, or in a combination of both. It is run like a project, with a timetable and someone responsible.

Guarantee

What allows a lender to be paid if the borrower does not: security over an asset, a surety, an assignment, a partial guarantee scheme. Security is built together with the financing structure, not found afterwards.

Information memorandum

The full document given to a seriously interested financier: business, market, accounts, projections, structure of the transaction. It follows the teaser, once a confidentiality agreement is signed.

Mandate letter

The document setting out what the adviser must do, over what scope, and for what fee. Without a written mandate, no one should be presenting your file to a financier.

Mortgage

Security over real property, registered with the land registry. Heavy to create and to release, it remains the strongest security in a lender’s eyes.

OHADA

The Organisation for the Harmonisation of Business Law in Africa, of which Guinea is a member. Its accounting framework, SYSCOHADA, sets the form of the financial statements a financier expects.

Pledge

Security over movable assets: equipment, stock, shares, business goodwill. It is the natural security for equipment finance — the asset financed secures the loan that finances it.

Quasi-equity

Resources sitting between debt and capital: locked shareholder loans, convertible bonds, subordinated debt. They strengthen the balance sheet without immediately diluting shareholders.

Receivables assignment

A mechanism directing a customer’s payment to the bank that financed the contract. It is often the simplest security to put in place once a contract is signed.

Repayment schedule

The calendar of repayments. A schedule matched to the real seasonality of the business avoids the cash walls created by constant repayments on an activity that is anything but constant.

Roadshow

The phase of presenting the file to financiers, run in parallel rather than one after another. Approaching several at once creates the only tension that is useful in negotiation.

Senior debt

Debt repaid first in case of difficulty. Less risky for the lender, therefore cheaper for the company, but more demanding on security.

Subordinated debt

Debt repaid after the others. Riskier, therefore more expensive, but a banker treats it almost as equity: it strengthens the financial structure.

Surety

An undertaking by a third party — a director, a parent company, a specialised institution — to pay if the borrower does not. A personal surety commits the director’s private assets: that is the clause to read twice.

Teaser

A short, anonymous document presenting the opportunity without revealing the company’s identity. It measures a financier’s interest before opening the books to them.

Term sheet

The document setting the main conditions before the legal documents are drafted: amount, price, security, governance, timetable. It is not final, but what is accepted there is rarely renegotiated later.

Valuation

The estimate of what the company is worth, by its earnings, its assets or comparison with similar transactions. It determines the stake given up for a given amount: the most debated point of any equity investment.

Working capital requirement

The money tied up between paying suppliers and being paid by customers. It grows with activity: fast growth consumes cash before it produces any. It is the most frequently misdiagnosed need.