AFO · Glossary
The language of capital, without the jargon.
19 concept terms from the world of Canadian small-business financing — covenants, coverage ratios, mezzanine layers, refundable tax credits, and the rest of the vocabulary your first lender conversation will assume you already know.
Letter A — 1 term
- Glossary entry
Asset-Based Lending (ABL)
Revolving credit secured by receivables and inventory, with the borrowing capacity tied to the eligible collateral.
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Letter B — 1 term
- Glossary entry
Bridge Financing
Short-term debt that funds a specific gap between a triggering event and a known refinancing or capital event.
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Letter C — 3 terms
- Glossary entry
Cap Table & Dilution
The record of who owns what percentage of a company's equity, and how new investment dilutes existing owners.
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- Glossary entry
Convertible Note
Debt that converts into equity at a future priced round, typically with a discount or a valuation cap.
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- Glossary entry
Covenant
A contractual promise in a loan agreement that the borrower will (or won't) do something, breach of which triggers lender remedies.
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Letter D — 1 term
- Glossary entry
Debt Service Coverage Ratio (DSCR)
The ratio of a business's operating cash flow to its scheduled debt service — the lender's single most-watched number.
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Letter E — 2 terms
- Glossary entry
EBITDA
Earnings before interest, taxes, depreciation, and amortization — the standard proxy for a business's underlying cash-generating capacity.
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- Glossary entry
Equipment Finance
Term debt or lease structured against a specific piece of equipment, with the equipment itself as primary collateral.
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Letter F — 1 term
- Glossary entry
Factoring
Sale of receivables to a third party (the "factor") who advances cash up front and collects from the customer.
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Letter M — 2 terms
- Glossary entry
Material Adverse Change (MAC) Clause
A contractual provision letting the lender or buyer walk away if the borrower's condition materially worsens between signing and closing.
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- Glossary entry
Mezzanine Debt
Subordinated debt sitting between senior debt and equity in the capital structure, typically with a higher coupon and sometimes a warrant.
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Letter P — 2 terms
- Glossary entry
Personal Guarantee
A commitment by an individual (typically a founder or controlling shareholder) to be personally liable for a business loan if the business defaults.
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- Glossary entry
PIK (Payment In Kind)
Interest paid by issuing additional debt rather than cash — common in mezzanine and private-credit structures.
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Letter R — 2 terms
- Glossary entry
Refundable Tax Credit
A tax credit that pays out as cash to the taxpayer even when no income tax is owed — economically a grant, mechanically a tax-return filing.
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- Glossary entry
Revolving Credit Facility (Revolver)
A line of credit that can be drawn, repaid, and redrawn multiple times within the facility limit during the commitment period.
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Letter T — 1 term
- Glossary entry
Term Loan
A loan drawn in a single advance (or a defined schedule of draws) with a fixed amortization and maturity.
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Letter U — 1 term
- Glossary entry
Unitranche
A single debt facility that combines what would otherwise be senior + mezzanine layers, blended into one rate from one lender.
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Letter W — 2 terms
- Glossary entry
Warrant
A contractual right to buy equity in the company at a fixed price for a defined period — used as an equity sweetener on subordinated debt.
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- Glossary entry
Working Capital
Current assets less current liabilities — the cash tied up in the business's day-to-day operations.
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Got a specific situation in mind?
Definitions are useful background. The right answer for your business — which instrument, what stack, what providers — comes out of a twenty-minute conversation with the CPA.