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How Start-up Capital Works


Glossary

Asset

Any item owned by an individual or company that could be converted into cash

This includes stock, vehicles, office equipment, real estate, accounts receivable, etc.

Asset-Backed Borrowing

Secured business loans with assets pledged as collateral

Asset/Equity Ratio

Total assets divided by the shareholder's equity

Collateral

Assets that a borrower pledges in order to secure a loan or other credit. Those assets can then be taken in the event of default on the loan.

Cosigner

Someone other than the borrower who signs a promissory note

In doing so, this person assume equal liability for the loan.

Debt Capital

Capital that is raised via loans, bonds, etc., that must be repaid with interest within a set period of time

Debt Ratio

Debt capital divided by total capital

Dilution of Ownership

The reduction in share value resulting when additional shares of common stock are issued, or convertible securities are converted

This equally reduces each shareholder's ownership of the company.

Equity Capital

Capital raised from a company's owners

Equity financing is done through the selling of common stock or preferred stock to investors.

Fund

A pool of money collected by investment companies from individual investors for purchasing securities in various companies

Personal Guarantee

The guarantee from the owner that in the event that the company cannot pay the loan, he or she will assume personal responsibility for it

Post-Money Valuation

The value of a company right after its latest round of financing

This amount is equal to the number of outstanding shares multiplied by the share price from the latest financing.

Pre-Money Valuation

The agreed upon value of a company right before its latest round of financing

Promissory Note

An IOU, or promise, to pay back money borrowed

It usually takes the form of a signed agreement between to the lender and the borrower and specifies all of the terms of the loan (sample form).

Secured Loan

A loan backed by hard assets as collateral

A creditor may seize the assets used as collateral in the event of an unpaid loan.

Unsecured Loan

A loan not backed by hard assets as collateral, but solely on good credit of the borrower

Valuation

The process of determining a company's (or asset's) current value