Glossary of Finance Products We Routinely Trade In

Fixed-rate commercial mortgages come with a consistent interest rate and unchanging monthly payments throughout the entire loan duration. These loans typically feature fixed interest rates for terms ranging from 5, 10, and 30 years, making them a prevalent financial instrument for real estate ownership. This financing option simplifies long-term budgeting and provides reliability in an ever-volatile real estate market.

Small-balance commercial real estate loans are designed for smaller commercial property purchases or refinances, typically ranging from $500,000 to $2.5 million, but can be lower or higher depending on the lender. Investors and small business owners often prefer these loans due to their faster approval and closing times compared to larger commercial loans. 

Preferred equity is a type of financing that sits between debt and common equity in the capital stack. It offers investors a fixed return and a priority claim on cash flows and liquidation proceeds, ahead of common equity but behind debt. Preferred equity holders have a preferential claim to distributions before common equity holders, but they typically do not have the same level of control or potential upside as common equity holders. 

Commercial real estate loan conduits, also known as CMBS ( Commercial Mortgage-Backed Securities ) lenders, are a key source of financing for commercial properties. These conduits typically offer flexible underwriting, allowing access to capital for investors who may not meet the stricter requirements of traditional banks. Conduit loans are often structured as fixed-rate, non-recourse loans, and they are pooled together and securitized to be sold on the secondary market to institutional investors. 

Factoring and revenue-based financing (RBF) are both methods for businesses to obtain funding, but they differ in their approach to securing capital and repayment. Factoring involves selling outstanding invoices to a third-party for a cash advance, while RBF is based on a percentage of future revenue. 

Bridge funding refers to short-term financing used to support a business or project during a transitional period, typically until a more permanent or longer-term funding arrangement is secured. It acts as a "bridge" between two financial milestones, like raising a larger funding round or securing a long-term loan. 

Mezzanine financing is a hybrid of debt and equity financing, bridging the gap between traditional debt and equity. It is often a second lien position, meaning it is subordinate to senior debt but ranks higher than equity in the event of a company's financial distress. This type of financing offers companies a way to access capital without selling ownership stakes, as it is structured as a loan or bond with characteristics of both debt and equity.   

Corporate debt can take various forms, including bank loans, bonds, and other debt securities. Debt financing vs. equity financing: Unlike equity financing (issuance of stock), debt financing does not dilute ownership but requires the company to repay the borrowed funds with interest. Corporate debt can also be structured as revolving credit, in which a company iteratively borrows and repays cash over a period – in effect, a corporate credit card. This debt is typically held by groups or syndicates of commercial banks and is short-term in nature (from one to four years). 

In a company, equity represents the value of ownership. It is the difference between a company's assets and its liabilities, indicating the amount of capital that belongs to the owners (shareholders or members). In simpler terms, equity is the "net worth" of a company, the value remaining after all debts are paid. Corporate equity financing involves a company raising capital by selling ownership shares (stock) to investors, rather than borrowing money. This means the company does not have to repay the funds, but the investors gain a stake in the company's ownership. The main advantage of equity financing is that it offers companies an alternative funding source to debt. Startups that may not qualify for large bank loans can acquire funding from angel investors, venture capitalists, or crowdfunding platforms to cover their costs. In this case, equity financing is viewed as less risky than debt financing because the company does not have to pay back its shareholders. Investors typically focus on the long term without expecting an immediate return on their investment. It allows the company to reinvest the cash flow from its operations to grow the business rather than focusing on debt repayment and interest.  

The Small Business Administration (SBA) offers a range of resources and support to help small businesses thrive, making it a valuable resource for entrepreneurs and business owners. The SBA provides access to funding, counseling, and education to help businesses start, grow, and succeed. The SBA guarantees a portion of loans made by private lenders, which reduces the risk for lenders and makes it easier for small businesses to access funding. The SBA offers various loan guarantee programs, including the popular 7(a) Loan Program, which can be used for various purposes like real estate acquisition, working capital, and more.  

Debtor in possession (DIP) financing is a form of financing offered to companies undergoing bankruptcy proceedings, particularly Chapter 11 reorganization in the US. It allows the company to continue operating while restructuring its finances, typically by paying creditors and operating expenses. DIP financing is often granted high priority, meaning it takes precedence over existing debts, equity, and other claims.     

Whole loan and loan portfolio acquisitions involve the buying and selling of individual loans or groups of loans. This is a customary practice in the financial industry, particularly among banks and institutional investors, for various reasons. By selling to the Southern Cross, banks, credit unions, equity funds and other financial Institutions can focus on their principal business and divest of underperforming assets that consume vital resources, time, and money.