TERMINOLOGY
Institutional Finance Terminology
Understanding the language of banking, structured finance, digital assets, trade finance, and private capital.
Understanding the Language of Institutional Finance
Institutional finance involves specialized terminology, complex transaction structures, and processes that can be unfamiliar even to experienced business owners and investors.
At Michigan Secure Capital Group, we believe clarity is essential to informed financial decisions. This glossary explains commonly used terms across institutional banking, structured finance, trade transactions, digital assets, and private capital markets.
Whether you’re exploring funding for a project, evaluating an asset-backed transaction, or preparing for institutional due diligence, understanding the terminology is an important first step toward identifying suitable financial opportunities.
Banking & Treasury
Assets Under Management (AUM)
The total market value of assets managed by a financial institution or investment manager on behalf of its clients.
Assets Under Custody (AUC)
The total value of assets held and safeguarded by a custodian on behalf of clients, without necessarily having investment management authority over those assets.
Know Your Customer (KYC)
A regulatory compliance process used by financial institutions to verify customer identities, understand financial activities, and assess potential risks.
Anti-Money Laundering (AML)
Laws, regulations, and procedures designed to prevent, detect, and report money laundering and other illicit financial activities.
Proof of Funds (POF)
Documentation demonstrating that an individual or organization has access to sufficient financial resources to complete a proposed transaction.
Source of Funds (SOF)
Information or documentation establishing the origin of money being used in a particular transaction.
Source of Wealth (SOW)
An explanation of how an individual or entity accumulated its overall wealth, often required during enhanced financial due diligence.
Beneficial Owner
The individual who ultimately owns or controls an account, company, or financial asset, directly or indirectly.
Custodian
A financial institution or specialized service provider responsible for safeguarding assets on behalf of clients.
Correspondent Banking
An arrangement in which one financial institution provides banking services to another, often facilitating international payments and cross-border transactions.
Liquidity
The ability to convert an asset into cash quickly without significantly affecting its market value.
Settlement
The process of completing a financial transaction through the transfer of funds, securities, or other assets between parties.
Bank Comfort Letter (BCL)
A communication issued by a bank that may provide limited information about a customer’s financial standing or banking relationship. Its content and evidentiary value depend on the issuing institution.
Bank Officer-to-Bank Officer Verification
Direct communication between authorized banking representatives to confirm information relevant to a proposed transaction, subject to confidentiality, consent, and institutional policies.
Compliance Review
An assessment conducted to determine whether a client, transaction, or financial activity meets applicable regulatory requirements and institutional policies.
Structured Finance & Lending
Structured Finance
A specialized approach to financing that combines financial assets, collateral, contractual arrangements, or multiple funding sources to address complex capital requirements.
Loan-to-Value (LTV)
A financial ratio comparing the amount of a loan to the assessed value of the asset securing it. LTV is commonly used to evaluate lending risk and collateral requirements.
Collateral
An asset pledged by a borrower to secure a financial obligation. Collateral may include real estate, securities, commodities, receivables, or other eligible assets.
Asset-Backed Financing
A financing arrangement secured by specific assets or their associated cash flows, rather than relying solely on the borrower’s general creditworthiness.
Credit Enhancement
A financial mechanism designed to reduce credit risk and improve the creditworthiness of a financing arrangement. Examples include guarantees, reserve accounts, insurance, and additional collateral.
Special Purpose Vehicle (SPV)
A separate legal entity established for a specific financial transaction, investment, or business purpose. SPVs are commonly used to isolate assets, liabilities, and transaction risks.
Self-Liquidating Loan
A financing arrangement structured so that proceeds or cash flows generated by the underlying transaction or financed assets are expected to repay the loan.
Debt Service Coverage Ratio (DSCR)
A financial metric measuring the cash flow available to meet required principal and interest payments. Lenders use DSCR to evaluate a borrower’s ability to service debt.
Bridge Financing
Short-term financing intended to provide capital until permanent financing, an asset sale, or another anticipated funding event occurs.
Mezzanine Financing
A form of financing positioned between senior debt and equity in a company’s capital structure. It generally carries greater risk than senior debt and may include equity participation rights.
Senior Debt
Borrowed capital that holds a higher repayment priority than subordinated debt in the event of default, restructuring, or liquidation.
Subordinated Debt
A financing obligation that ranks below senior debt in repayment priority, typically carrying higher risk and potentially higher financing costs.
Capital Stack
The combination of debt, equity, and other financing instruments used to fund a project, acquisition, or business. Each layer has its own risk, return, and repayment characteristics.
Recourse Financing
A lending arrangement that permits a lender to pursue specified assets or obligations of the borrower or guarantor beyond the primary collateral, subject to the loan agreement and applicable law.
Non-Recourse Financing
A lending arrangement in which the lender’s recovery is generally limited to specified collateral, subject to contractual exceptions and applicable law.
Debt-to-Equity Ratio
A financial metric comparing a company’s total debt to its shareholders’ equity, commonly used to assess financial leverage.
Loan Covenant
A contractual requirement or restriction included in a financing agreement. Covenants may address financial performance, reporting obligations, asset management, or additional borrowing.
Underwriting
The process through which a lender or financial institution evaluates the financial condition, collateral, risks, and overall suitability of a proposed financing transaction.
Digital Assets & Trading
Digital Asset
A digitally represented item of value or contractual rights that can be stored, transferred, or traded electronically. Digital assets may include cryptocurrencies, stablecoins, tokenized securities, and other blockchain-based instruments.
Blockchain
A distributed digital ledger that records transactions across a network of computers. Blockchain technology enables participants to verify transaction histories without relying on a single central recordkeeper.
Cryptocurrency
A digital asset that uses cryptographic technology to facilitate transactions, establish ownership, and maintain records on a blockchain network.
Bitcoin (BTC)
A decentralized digital currency operating on the Bitcoin blockchain. Bitcoin is widely recognized as the first cryptocurrency and is used as a digital asset, payment mechanism, and potential store of value.
Stablecoin
A digital asset designed to maintain a relatively stable value by referencing another asset, commonly a fiat currency such as the US dollar. Stability depends on the issuer, reserves, redemption mechanisms, and market conditions.
Tether (USDT)
A US dollar-referenced stablecoin issued by Tether. USDT operates across multiple blockchain networks and is widely used for digital asset transfers, trading, and settlement.
USD Coin (USDC)
A US dollar-referenced stablecoin issued by Circle through its regulated issuing entities. USDC is used for digital payments, institutional transactions, and blockchain-based settlement.
Digital Wallet
A software or hardware-based system used to manage the cryptographic keys associated with digital assets, allowing users to access, receive, and authorize transfers.
Wallet Address
A blockchain identifier used to receive digital assets. Wallet addresses are specific to supported networks and must be verified before transferring funds.
Private Key
A confidential cryptographic credential used to authorize transactions and establish control over digital assets. Unauthorized access to a private key may result in irreversible asset loss.
Custodial Wallet
A digital asset arrangement in which a third-party service provider maintains control of the private keys or otherwise safeguards assets on behalf of the owner.
Non-Custodial Wallet
A digital asset arrangement in which the owner retains control of the private keys and directly authorizes transactions without transferring key custody to a third party.
Wallet Verification
A process used to demonstrate control of a blockchain wallet, potentially through cryptographic message signing, test transactions, or other verification procedures.
Wallet Forensics
The analysis of blockchain transaction histories, wallet activity, and related risk indicators to support due diligence, compliance reviews, and investigations into potential illicit activity.
On-Chain Transaction
A digital asset transaction recorded directly on a blockchain network, where its status and transaction details can generally be independently verified.
Off-Chain Transaction
A transaction or transfer of ownership recorded outside the underlying blockchain, often through an exchange, custodian, or private ledger arrangement.
Transaction Hash (TXID)
A unique
Trade Finance & Specialty Transactions
Trade Finance
Financial products and services designed to facilitate domestic and international trade by supporting payment arrangements, managing transaction risks, and providing working capital to buyers and sellers.
Letter of Credit (LC)
A financial instrument issued by a bank that commits to paying a beneficiary when specified documentary conditions are satisfied. Letters of credit are commonly used in international trade transactions.
Standby Letter of Credit (SBLC)
A bank-issued undertaking that provides payment protection if an applicant fails to fulfill specified financial or contractual obligations, subject to the terms and conditions of the instrument.
Bank Guarantee (BG)
A contractual commitment issued by a bank to fulfill a specified financial obligation if its customer fails to perform according to agreed terms.
Documentary Letter of Credit (DLC)
A letter of credit used in trade transactions in which payment is made against the presentation of documents that comply with the credit’s requirements.
SWIFT
The Society for Worldwide Interbank Financial Telecommunication, a global financial messaging network used by banks and other financial
Private Capital & Institutional Readiness
Private Capital
Funding provided outside traditional public capital markets, typically through private investors, investment firms, family offices, private equity funds, and other institutional or qualified capital sources.
Private Placement
An offering of securities to selected investors rather than through a broadly marketed public offering. Private placements are subject to applicable securities laws, exemptions, and investor eligibility requirements.
Private Equity
Investment capital used to acquire ownership interests in privately held businesses or to take public companies private, generally with the objective of creating long-term enterprise value.
Private Credit
Debt financing provided by nonbank lenders, investment funds, or other private capital sources, often through directly negotiated lending arrangements.
Institutional Investor
An organization that invests capital on behalf of itself or others, such as a pension fund, insurance company, investment fund, endowment, or financial institution.
Accredited Investor
An individual or entity meeting specified financial, professional, or institutional criteria under applicable securities regulations, allowing participation in certain investment offerings.
Qualified Purchaser
An individual or entity meeting investment ownership thresholds or other requirements established under applicable securities laws, particularly for certain private investment funds.
Family Office
A private organization established to manage the financial affairs, investments, wealth planning, and related services of an individual or family.
Capital Raising
The process of securing financing from investors, lenders, or other capital providers to support business operations, acquisitions, development projects, or strategic initiatives.
Capital Commitment
A contractual promise by an investor or financing participant to provide a specified amount of capital, subject to the terms and conditions of the applicable agreement.
Capital Call
A formal request for an investor to contribute a portion of previously committed capital to an investment fund or financing arrangement.
Equity Financing
The process of raising capital by issuing ownership interests in a business or project, generally without creating a traditional repayment obligation.
Debt Financing
The process of obtaining capital through borrowing arrangements that establish contractual repayment obligations, interest terms, and other financing conditions.
Project Finance
A financing structure in which repayment is primarily supported by the projected cash flows and assets of a specific project, often involving dedicated legal entities and contractual risk allocation.
Acquisition Financing
Capital arranged to support the purchase of a business, asset portfolio, or other investment, potentially using debt, equity, or a combination of financing instruments.
Joint Venture (JV)
A business arrangement in which two or more parties collaborate on a defined project or enterprise, sharing agreed responsibilities, resources, risks, and potential returns.
Special Purpose Vehicle (SPV)
A separate legal entity established for a particular transaction, investment, or project, often used to isolate financial obligations and manage