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GLOSSARY Definitions used in July 2009 Funding Announcement Nebraska Microenterprise Development Act Nebraska Enterprise Fund (NEF)
All definitions are adapted from the "Micro Enterprise Glossary of Terms," Association for Enterprise Opportunity, April 1994; the “Core and Intermediary Component Glossary,” US Treasury, CDFI Fund, [undated]; and publications of the Opportunity Finance Network and The Aspen Institute. Underlining indicates a definition which is included in the Glossary. Client: A client is someone who had an active outstanding micro loan or other micro financing product with the program during the FY and/or received at least 10 hours of microenterprise related training or technical assistance from the program during the FY. Core Grant Applicants: Those micro lending or training/TA programs which meet the minimum performance record of 7 microloans or 30 training/TA participants during the 12 month period July 2008 – June 2009. Credit-led microenterprise programs: These programs put more resources into making loans and monitoring their portfolios than in providing business development training or technical assistance. They may do some training. Debt capital: See Total adjusted notes payable.
Default rate: A defaulted loan is a loan which has been charged off or one in which any portion of the loan is past due more than 120 days. The amount defaulted is the total unpaid dollar amount. A program's micro loan default rate is the total defaulted dollar amount of all defaulted micro loans as a percentage of the dollar value of all micro loans made since the date the first micro loan was made by the program. Delinquency rate: See Portfolio-at-Risk. Deployment ratio: Total outstanding loan portfolio divided by total capital. The Deployment Ratio indicates the extent to which a microlending program’s lending capital (debt and equity) has been deployed into the field as business loans. In the case of a micro lender which also makes business loans over $35,000, two deployment ratios should be calculated. The first should be restricted to micro loans only and the second should use all business loans in the total outstanding loan portfolio. Distressed geographic area: All core programs must meet the general targeting requirement (see this Glossary). The micro program sets out the distressed geographic criteria to be followed i.e. loss of population, income at or below 80% of county or metro median income (LMI), environmental problems, federal or state enterprise zones, hot zones, Indian reservations, loss of jobs, etc. Draw-down: Forty percent of any evergreen loan amount is distributed after the evergreen loan agreement is signed. The second installment (60%) can be drawn down by the program-borrower as soon as half of the first installment (plus half of any eligible match) is loaned out as micro loans. In the event that the second 60% is not drawn down by the borrower within time limits established in the loan agreement, NEF may redeploy these funds in response to the needs and program capacities of other programs waiting for lending capital. Earned Income: Program earned income is income generated from lending, training, and TA services provided to clients. Evergreen loan: This is a five-year, interest-only (currently 4%), renewal loan. This type of instrument allows the programborrower greater flexibility to plan and to keep funds revolving in the community for the intended purposes. Evergreen loans over $10,000 require a 1-to-1 match, and are disbursed in two performance-based draw-downs. General targeting: NEF requires that activities of all programs be principally targeted (60% of client base) to “distressed geographic areas” or “low-income populations.” This means either: (a) that a majority of the program’s borrowers and/or training clients reside or have businesses in a distressed area or (b) be members of a low-income population using federal indices of low-income. See also this Glossary for: “distressed geographic area,” and “low-income population.” Inquiries: The number of telephone or drop-in inquiries the microenterprise program received in the FY. This number includes number of participants and number of clients. Investment Area: A Target Market made up of a Geographic Unit or contiguous Geographic Units that: 1) Are entirely located within the geographic boundaries of the US and either: 2) meet at least one of the criteria of economic distress as defined under 12 CFR S1805.201 (b) (3) (ii) (D) and has significant unmet needs for loans, Equity Investments, or financial services, as described under 12 CFR S1805.201 (b) (3) (iii) (E): or 3) encompasses or is located in an Empowerment Zone (EZ) or Enterprise Community (EC) designated under Section 1391 of the Internal Revenue Code
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of 1986, 12 CFR S1805.104 (cc). An Investment Area will be considered distressed if it meets at least one of the following criteria of economic distress: 1) has a high concentration of poverty; 2) has a low median family income, or 3) has a high rate of unemployment (2-4-03). Innovation Grant Applicants: These are proven microloan programs which meet the minimum performance record of 7 microloans or 25 training/TA clients during the year July 2008 through June 2009 and are seeking additional funds to increase loan volume. Leveraged capital: This is “off-balance-sheet” source of financing available from another organization, with loans guaranteed by your organization. An example is a line of credit at a bank of $100,000 available for loans for your clients that is backed by a $50,000 loan loss reserve from your organization. The leveraged capital amount would be $100,000. Loan loss reserves:Funds set aside as cash reserves or through an accounting-based accrual reserve to protect against future losses. Loan Referral: Loan referrals are those loans a program makes possible by referring a customer to another program through an agreement between the programs-i.e. the loans GROW makes possible by referrals to REAP. Low-income population: (See also General targeting) For purposes of general targeting, this term means, any identifiable group of people which have low or moderate incomes (as defined by HUD definition of 80% of median income for county) or are unable to access commercially available business credit. Match: Evergreen loans require that an equal amount of the program-borrower’s total capital is dedicated to micro lending and comes from non- NEF sources or appropriations from the State of Nebraska. The dedicated Match can come from previously existing total capital or from committed but unreceived funds. In the latter case, the first installment of the evergreen loan will not be distributed until at least that amount has been received. For evergreen loan applications of $10,000 or less, no match is required. NEF grants require a total match of 1:4. (For every dollar of state grant funds awarded, the grantee program will provide a $.25 match.) Micro business (or microenterprise): employees including the owner. Means any small business that is run by the owner and has five or fewer total
Micro loan: (Micro lending) The NEF defines micro loan as any business loan under $35,000 that typically cannot be accessed by a micro business owner through commercial lenders. Two or more loans made to the same business during the same calendar year will be regarded as one loan. For purposes of counting micro loans for meeting the minimum performance record , “micro loans made” are loans which have been irrevocably committed as part of the applicant’s internal process, and it assumes that disbursement of the loan amount has occurred or will automatically occur shortly. Different programs may use different terminology, but normally, “loans approved” cannot be counted unless they meet this test. Minimum performance record: Core grant applicants must meet specified performance thresholds established for each funding round. For the July 2009 Funding Announcement, these minimums are 7 micro loans originated in 2008–09 (July 2008 – June 2009) or 75 new participants. Microlending core programs are expected to have maintained a delinquency rate under 16% and a default rate under 7%. NEF Borrower Grant Applicants: These are existing microloan programs that have current loans of $100,000 or more from NEF. They can apply for additional grant funds equal to 1% of the total amount borrowed from NEF at the current time. New Program: An organization that does not have a proven track record of working with Nebraska micro businesses. Operational Cost Rate (OCR): Credit program should manage enough outstanding microloans to make their credit program operations meet some minimal test of cost efficiency. The OCR is determined by dividing the program’s total cost of operation for a given period by the total loans outstanding during that period. Small credit programs (those with 49 or fewer outstanding microloans) ought to have an OCR of 1.4 or less. Large credit programs (those with 50 or more microloans outstanding) ought to achieve an OCR of o.7 or less. Participants: Program participants are individuals who received one plus hour(s) of training and/or technical assistance from the microenterprise program during the FY. They could include people who attended only a short-term workshop or who received some technical assistance not associated with a financing product. They should also include those who you count as clients. Past due loans: Total micro loans with payments 30 days or more past due. Loans should be considered past due if any part of the payment is past due. Portfolio-at-Risk: The total dollar amount of loans with payments 30 days or more past due divided by the Total outstanding loan portfolio. Past due loans include the entire outstanding balance of loans with payments that are past
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due. This formula measures the percentage of the micro loan portfolio that is potentially at risk because of past due payments. It is also known as the Delinquency rate. Proven Program: Proven Programs are those programs with a minimum performance record of having made 7 or more micro loans ($35,000 or less) or provided training and/or technical assistance of more than one hour to a minimum of 75 new participants in the prior funding year. Re-lending: Investments or loans to the NEF are "re-lent" as $10,000-$100,000 loans to micro lending programs which in turn lend the money as micro loans ($100 to $35,000) to small business borrowers served by their programs. Since the NEF loans the money at 4.0%, and the recipient program lends the funds out at near commercial rates (say 10%), the recipient program retains the interest differential for its own use. Scale Program Applicants: Those microlending or training/TA programs which meet the minimum performance record of making 15 microloans and/or providing training/technical assistane of more than one hour to a minimum of 80 participants from July 2008 through June 2009. Self-sufficiency: Represents a program’s ability to cover operating costs of its credit program with internally generated income. Self-sufficiency ratio is calculated by dividing the financial income derived from the loan fund by the credit program’s operating costs. Sound portfolio record: Core program micro lending applicants must have maintained a default rate under 7% and a delinquency rate under 16%.
Start-up Program Applicants: Those microlending or taining/TA programs that are relatively new to the field of microenterprise services and have little or no record of performance.
Total capital: The sum of Total debt capital and Total equity capital available. Total debt capital: This is the total dollar amount of any loans that an organization has borrowed for purposes of supporting lending. Total equity capital: This is the total dollar amount of capital coming from grants, donations, etc. for which the program is not liable to repay. Total outstanding loan portfolio: The total dollar amount of micro loans receivable as reported in an organization’s statement of financial condition or balance sheet. For new micro lending programs, this can be any internal listing, maintained by your organization, which accurately shows the total dollar amount of outstanding micro loans. NEW in 2009 - Trainees: For the purpose of Microenterprise Development Act applications, trainees are individuals who have satisfied an applicant’s training/TA delivery standards (minimum of 1 hour) for classroom training, counseling, or membership. Business management is the main focus of training and technical assistance. NEF will not use the term “Trainees in this NOFA. The three categories are Inquiries, Participants and Clients. Training Program Efficiency: The cost (number of clients divided by total program costs for training and technical assistance) per business development training and technical assistance client should be less than $1,800. Training & technical assistance (Training/TA): Non-lending activities that are an integral part of micro lending delivery services. Such training services are delivered in different ways by different organizations, including (1) classroom training, (2) one-on-one counseling, and (3) training/TA delivered as part of membership services. Training/TA programs do not need, themselves, to provide direct microlending services, however, they must have documented understandings with micro lenders or commercial lenders to make referrals. Training-led microenterprise programs: Training-led programs dedicate most of their resources to business development training and technical assistance. They may offer loans, but this is not the primary intent of the program.
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