Negative
Negative cash flow occurs when a business has more outgoing money than incoming money. New companies and startups are typically cash flow negative, while creditors and financiers are willing to overlook this in the early stages of a company’s life cycle – eventually, these companies need to move towards being cash flow positive to receive additional funding.
Negative Covenant
Negative covenants are restrictions placed on a borrower that restricts certain actions or behaviors. Examples of negative covenants can include: non-compete agreements that prevent a company from competing directly with another business for a specific period or a non-disclosure agreement that prevents a company from sharing trade secrets and proprietary information.
Net Income
Net income, also referred to as net earnings, is calculated as sales minus cost of goods sold, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes, and other expenses. Net Income is a proxy for a company’s profitability and is a business metric investors may use to evaluate how much revenue exceeds the expenses of a company.
Net Profit
Net profit is the amount of money a business earns after deducting all operating, interest, and tax expenses over a fixed period of time. In order to determine net profit, you need to know a company’s gross profit.
Net profit is an important business metric that signals the profitability of a business. If the value of net profit is negative, then it is called net loss.
Net Worth
Net worth provides a quick snapshot of an entity’s financial position, the metric can be applied to corporations, individuals, countries, and even sectors. Net worth can be calculated by taking the value of all the assets an individual or corporation owns and subtracting the liabilities they owe.
No Obligation to Advance
Clause that states or prevents the lending party from making an advance payment to the borrower.
Non Dilutive Funding
Non-dilutive funding is a financing tool businesses can deploy to fund their operations. Non-dilutive funding differs from dilutive financing options in that the business is not giving up equity (diluting their ownership) in exchange for funding.
Pros:
- No equity dilution – Because companies aren’t giving up an ownership stake in exchange for capital, debt financing helps founders maintain control over their business.
- Cheaper – While debt funding has to be paid back, the overall cost is far less than equity financing as future profits are all yours.
- Leverage – While debt financing requires revenue, it allows you to convert current and future revenue to leverage larger amounts of capital to power your growth.
Cons:
- Debt is senior to equity in the capital structure which means debt lenders have priority in claims in the event of a bankruptcy.
- Harder to qualify for – Because debt lenders aim to minimize risk, qualifying for debt financing can be harder than equity financing.
- Liability – Some lenders require a personal guarantee as a backup which could mean founders are personally liable for repayment in the event of business failure.
- Warrants/Covenants – Some lenders include covenants(conditions) that have to be maintained as part of their funding requirement. Common covenants include the right to purchasing equity or pre-determined debt-to-equity ratios.