A form created by the American Institute of Architects to document the costs of work completed as of a certain date and the cost of work yet to be completed under a construction contract. A formal report usually created by a certified real estate appraiser evaluating a real estate property in order to determine its value. One or more of three valuation methods are used: cost, replacement value, and market value. An item of current or future economic benefit to an organization. An alternate name under which an individual or a legal entity may conduct business.
Also known as a DBA or doing business as name. A financial statement as of a certain date, usually covering a twelve-month period, prepared by a Certified Public Accountant CPA.
A resolution passed by a board of directors or trustees acknowledging and approving the incurrence of debt. Also known as a borrowing resolution. Statement showing an organization's financial position assets, liabilities and net assets at the close of business on a particular date. Final payment of a loan which is larger than the previous payments, arising when the amortization is longer than the maturity of the underlying note.
See amortization. A fraction of a percentage point, equal to one one-hundredth of a percent. Used to describe interest rates; i. See points. A mechanism for monitoring that funds advanced under a line of credit bear some proportionality to either the asset being financed or the source of repayment. Loan made on a short-term basis in anticipation of being paid out by permanent or long-term funding. Also refers to loans made against contract receivables or capital campaign pledges, expected to be repaid as those funds are collected.
Regulations, ordinances or statutory requirements of a governmental unit relating to building construction and occupancy. Permission granted by a local government to build or renovate a specific structure at a particular site. More than one permit may be required, depending on the situation. A capital improvement reserve fund. Money set aside to pay for facility upkeep, where the amounts can be large, the ultimate need a certainty, but where the exact timing is uncertain. How an organization raises and spends money, or how an organization delivers and supports its activities through a cost structure and revenue strategy that comprises earned and contributed sources.
A document outlining the governance of and what activities a legal entity may or may not engage in. The funding and financing available for an organization to achieve its mission over the long term. Capital is reflected in the composition and distribution of Assets, Liabilities, and Net Assets.
A facility or equipment upgrade as distinguished from maintenance or repair that will have a life of more than one year, and that adds to an organization's asset base. See facility project. The nature, composition, and magnitude of the assets, liabilities, and net assets comprising the balance sheet. A well-balanced capital structure helps organizations to take risks, innovate, and pursue new opportunities.
Also known as capital structure. A case for support, written primarily for a capital campaign, that outlines an organization's history, current status, future plans, including facility plans, and fundraising objectives. Cash changes in working capital items, such as accounts and grants receivable, inventory, accounts payable, accrued liabilities and deferred revenue.
A document usually issued by a government authority such as a secretary of state documenting that a legal entity has been formed, including when and where and its full legal name. A document from a local government building department which authorizes use of a certain space for specified activities by a certain number of people.
Change Capital is a concept NFF pioneered to distinguish reliable, repeatable revenue from one-time infusions of capital. Organizations use Change Capital for a variety of purposes, which include but are not limited to:. Change Capital is not intended to be used as a substitute for revenue. For example, it cannot be used to cover structural or unplanned deficits, paying for an existing program, or cover ongoing, regularly-needed improvements ie. Instead, the spirit of Change Capital is to ensure that an organization emerges from a planned period of extra-ordinary change entirely stable and sustainable.
Unfortunately, in our client work, NFF has often seen that change can actually negatively reverberate throughout an organization for many years after the period of change has ended. This is one of the reasons why NFF advocates that organizations pursuing Change Capital should conduct in-depth business planning to effectively tie its goals for change to financial models that ensure recurring revenue after the change is over.
NFF has written extensively about the need for change capital in a sector that rarely has the opportunity to pursue transformation with support that is patient, flexible, and well-planned. To read more about our ideas on Change Capital, visit these pages:. Net assets are calculated by taking total revenue including restricted and non-operating less total expenses including non-operating.
Term used to describe the requirement by the lender that a line of credit be completely paid out for a pre-defined period, usually a minimum of 30 days, during a one-year cycle. Expenses involved in transferring real estate from a seller to a buyer, including lawyer's fees, survey charges, title searches and insurance, and fees to file deeds and mortgages.
A fee charged by a lender to provide a loan to a borrower. Considered compensation for the costs involved with underwriting the loan and holding the commitment available for a specified period of time until closing.
Asset pledged to a lender until a loan is repaid; also called security. If the borrower defaults, the lender has the legal right to seize the collateral and sell it to pay off the loan.
See closing fee. A statement in writing outlining and acknowledging the terms of a lender. Community development financial institutions CDFIs are private financial institutions that deliver responsible and affordable loans to help low-income, low-wealth, and other disadvantaged people and communities.
CDFIs finance nonprofits and community businesses that spark job growth and retention in underserved markets across the nation. A financial report as of a certain date, usually covering a twelve-month period, put together, but not reviewed or audited, by a Certified Public Accountant CPA. A calculation that estimates average annual percentage growth over a specified period of time, e. Drawings, specifications and legal documents setting forth in detail the requirements for the construction of the project.
A loan, usually short-term, which is made to finance construction. A licensed general contractor who provides pre-construction services, professional management and technical services, including helping identify cost-effective means of meeting facility requirements. An amount budgeted usually a percentage of total construction costs to cover unexpected hard costs or soft costs. Revenue or income received from individual, foundation, corporate, or government donations with no products or services provided by the organization in direct exchange for the funds.
Any form of subsidy that encourages a lender to make a loan. Often allows lenders to provide more financing than they could under ordinary circumstances, or lend to borrowers that do not meet traditional risk profiles.
Process used to understand and analyze the financial history and future prospects of an organization. Items that generally will be turned into cash, sold, or consumed within one year. Obligations due in one year or less from the date of a financial statement. It includes advances under lines of credit, notes with maturities of one year or less, and the current portion amount due in the next twelve months of long-term debt.
Money owed to an organization within the upcoming twelve months for goods and services it has sold or that have been committed to the organization as a grant, donation or pledge. Obligations that will usually be repaid within one year.
Amount of principal on long term debt due within one year. Interest is not included in this amount. Comparison of current assets to current liabilities, commonly used as a measure of short-run solvency. The number of days on average it takes for an organization to pay bills that it owes to outside vendors.
The number of days on average it takes for an organization to collect receipts it is owed. Doing business as. See assumed name. An amount owed to a person or organization for money borrowed. Debt can be represented by a promissory note, bond, mortgage or other form stating repayment terms and interest requirements. Required repayment of principal and interest for a loan, usually expressed annually. Note: financial statements prepared on an accrual basis will show interest expense on the Statement of Activities, while principal will appear on the Balance Sheet.
There are two types of default: Debt service default occurs when a borrower fails to make a scheduled payment of interest or principal on a loan. Technical default occurs when a covenant of the loan is violated. Payment received from a client for a transaction that has not yet occurred e. The excess of expenses over revenue during an accounting period.
Deficits can be measured before or after depreciation and non-operating activities. See surplus. Depreciation is only an approximation of the amount needed to replace fixed assets. Direct expenses are expenses that can be traced back directly to a program, product, or service directly associated with a nonprofit's mission-fulfillment. Revenue or income received by an organization in exchange for its products or services, e. Theory that the more you produce of a good or service, the less it costs for each additional unit, i.
Also called investment reserves. Typically represents donated capital that is kept intact and grown to generate investment income. A report usually issued by an environmental engineering or other qualified entity to determine the risk or reality of environmental contamination of a real estate property.
Represents the difference between an asset's market value and the amount of debt associated with that asset. Also refers to the amount a developer or owner invests in a project.
Represent the total cost of operating the organization, including payments made to employees and other parties, operating expenses, debt, principal payments, capital expenditures, non-cash expenses, fixed assets, and funds set aside for future use.
The acquisition of a building or other physical space through purchase or leasehold; a renovation; a construction project; a relocation; a change in number of sites; or an equipment purchase. Any project that involves a change in a facility. Financial Standards Accounting Board. Independent board responsible for establishing and interpreting generally accepted accounting principles GAAP. Financial Accounting Standards and govern the nonprofit sector.
A determination of the likelihood that a proposed idea, plan or project will fulfill certain economic and operational objectives. Often undertaken to predict the viability of a new venture, facility project or capital campaign. Examples of financial intermediaries can include foundations, commercial banks, and CDFIs.
A written report that quantitatively describes the financial health of an organization. A complete financial statement includes a balance sheet, an income statement, a statement of cash flows, and often a statement of functional expenses.
The net worth of the physical items an organization owns e. Generally Accepted Accounting Principles. A widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board.
The portion of the construction contract document in which the rights, responsibilities, and relationships of the involved parties are itemized. Items include security, job site insurance, temporary structures, demolition and utilities. The main contractor for a project who provides on-site management of the construction project and performs the actual construction work or hires smaller, more specialized subcontractors to perform specific tasks.
Stands for Guaranteed Maximum Price contract and is a term used in construction projects to define the most money that the agreed upon construction specifications can cost. A document issued by a government authority, usually a secretary of state, affirming that a legal entity such as a corporation or partnership has complied with all of the filing requirements to be authorized to do business in that state. See accounts receivable.
A formal obligation by a third party to provide repayment of a loan owed by another entity should that entity default on the loan. The guarantor may be an individual or a corporation. The direct costs to construct a building or structure, otherwise known as 'bricks and mortar' costs, as distinguished from legal, financing, architects', and similar fees required for the project but that are not visible in the physical structure.
An acronym referring to Heating, Ventilation, and Air Conditioning systems, which in a modern building usually come as a package. Broadly describes investments that intend to generate positive social or environmental impact along with financial return.
Non-cash items of value, such as specialized volunteer labor, donated goods or professional services. Specific accounting rules govern the recognition of in-kind revenue and expenses. A summary of the revenue and expenses of an organization during an accounting period.
Also known as statement of activities or profit and loss statement. Indirect expenses are expenses that cannot be traced back directly to a program, product, or service directly associated with a nonprofit's mission-fulfillment. A legal document outlining the rights of two or more lenders with loans to the same borrower.
One of the costs of using money, usually expressed as an annual percentage, that a lender charges a borrower for the use of the principal over time.
A loan in which the payments represent only the interest accrued for a period of time. The entire loan amount principal is then either amortized over an agreed upon time period, or paid off in one lump sum payment balloon. A document issued by the Internal Revenue Service to a nonprofit organization confirming its status as exempt from paying federal income taxes and stating the type of exempt organization, for instance, c 3 and the date of that exemption. Renovations to leased space to suit the renter's needs.
These may be paid for either by the landlord or the tenant. An instrument or document issued by a bank guaranteeing the customer's payment up to a stated amount during a specified period, for which the customer is charged a fee.
It substitutes the bank's credit for the buyer's and eliminates the seller's risk. A non-binding proposal from a lender indicating under what terms it would consider lending a certain sum of money to a specific borrower. See commitment. Items owed by an organization or claims against its assets. A legal claim against an asset which is used to secure a loan and which must be paid when the asset is sold.
Liens can be structured in different ways. A loan in which the lender allows advances up to a specific amount over a specific period of time until the maturity date. Essentially this is the liquid amount of unrestricted net assets available to support operations.
Limited liability company, a business structure that is a hybrid of a partnership and a corporation. Its owners are shielded from personal liability, and all profits and losses pass directly to the owners without taxation of the entity itself. Legal session where final loan documents are executed. The loan may or may not be funded at this time.
Documents containing the terms of the loan and outlining the rights and obligations of the borrower and the lender. The amount of time over which a borrower is expected to repay the loan. The loan term may not be the same as the amortization, which determines the periodic repayment amounts and whether there is a large or balloon principal balance due at maturity. The ratio of the amount of money a lender is willing to lend divided by the appraised or other value of the property.
See line of credit. Debt obligations due in longer than one year. It includes multi-year term loans, mortgage loans, and capitalized long-term leases.
Money owed to an organization in more than a year for goods and services it has sold or that have been committed to the organization as a grant, donation or pledge. The organization will not get the money for more than a year. Uneven, inappropriate, or inadequate funding and financing. Mis-capitalization includes under-capitalization insufficient amounts of funding but goes beyond it. While there is no legal definition for an MRI, this term is generally applied to impact investments designed to achieve both financial and social or environmental returns.
While program-related investments PRIs are treated similarly to grants for tax purposes, an MRI is fundamentally a financial investment rather than a grant. The number of months the organization could operate with current cash reserves. The cash position at some point in time usually at fiscal year end divided by the average monthly operating expense before depreciation. Number of months of truly liquid and unrestricted net assets available to meet daily needs.
Security instrument by which the borrower mortgagor gives the lender mortgagee a lien on property as collateral for the repayment of a loan. The difference between total assets and total liabilities, effectively net worth. Net assets are categorized as unrestricted, temporarily restricted, or permanently restricted. The transfer of funds from restricted net assets to unrestricted net assets due to the satisfaction of donor-imposed stipulations with respect to timing or purpose of the contribution.
Net worth of property and equipment after accumulated depreciation. An NFF-coined term to describe the total grant amount minus the costs organizations incur to manage the grant itself e. See working capital. A fee paid by the borrower on the average amount of the commitment that was not drawn or used. Then the business founders may search for and acquire land and facilities in which to operate the business. Along with this is the acquisition of equipment and other assets needed for business operations.
During this phase, the business will often hire management and investigate all regulations that must be met and licenses that must be obtained. Start-up Financing Phase During the start-up phase, also known as the launch phase, production is initiated and sales occur. It is characterized by hiring employees and establishing the products in the marketplace. Funding for the pre-launch stage and the start-up phase may occur at the same time.
After the lender receives payment, he then deducts the financing cost and fees and remits the balance to the company.
However, these loans do have lower interest rates than unsecured loans because of the loan's collateral that allows the lender to recoup any losses if the borrower defaults. Asset-based loans are agreements that secure the loan via collateral, like equipment or property owned by the borrower.
Asset-based lending may be a line of credit or a cash-funded loan, but either way, the loan money is secured by some sort of collateral from the borrower's business or properties, such as inventory or accounts receivable. The most frequent users of asset-based borrowing are small and mid-sized companies that are stable and that have physical assets of value. However, larger corporations do use asset-based loans from time to time, usually to cover short-term cash needs.
Asset-based finance lenders tend to favor liquid collateral that can be easily turned into cash if a default on the loan occurs. Physical assets, like machinery, property, or even inventory, may be less desirable for lenders. When it comes to providing an asset-based loan, lenders prefer companies with not only strong assets but also well-balanced accounts.
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