Business Finance Glossary
Plain-English definitions of 103+ key UK business finance terms. From APR and LTV to hire purchase and invoice factoring.
Adverse Credit
A credit history that includes missed payments, defaults, CCJs, or other negative markers.
Full definitionAnnual Investment Allowance (AIA)
A UK tax relief allowing businesses to deduct the full cost of qualifying assets from taxable profits in the year of purchase.
Full definitionAPR (Annual Percentage Rate)
The total annual cost of borrowing, expressed as a percentage, including interest and mandatory fees.
Full definitionArrangement Fee
A fee charged by a lender or broker for setting up a finance facility, typically 1-3% of the loan amount.
Full definitionAsset Refinance
Releasing cash from equipment or assets your business already owns by selling them to a lender and leasing them back.
Full definitionAssignment of Debt
The legal transfer of the right to collect a debt from one party to another, commonly used in invoice finance and debt factoring arrangements.
Full definitionBalloon Payment
A large lump-sum payment due at the end of a hire purchase or loan agreement, above the normal monthly instalment amount.
Full definitionBank of England Base Rate
The interest rate set by the Bank of England's Monetary Policy Committee, which influences the cost of borrowing across the UK economy.
Full definitionBridging Loan
A short-term loan secured against property, used to bridge a financial gap until longer-term finance or a property sale completes.
Full definitionBalance Sheet
A financial statement showing a business's assets, liabilities, and net worth at a specific point in time.
Full definitionBase Rate
The Bank of England's benchmark interest rate, which influences the cost of borrowing across the UK economy.
Full definitionBusiness Credit Score
A numerical rating of a company's creditworthiness, used by lenders and suppliers to assess risk before extending finance or credit terms.
Full definitionCapital Allowance
A UK tax deduction that allows businesses to write off the cost of capital assets against taxable profits.
Full definitionCCJ (County Court Judgement)
A court order issued in England and Wales requiring a person or business to repay a debt.
Full definitionCharge (Legal Charge)
A legal claim registered against an asset or property as security for a debt, giving the lender rights to the asset if the borrower defaults.
Full definitionClosed Bridge
A bridging loan with a clearly defined and confirmed exit date, typically where contracts have exchanged on a property sale.
Full definitionCovenant
A condition attached to a loan agreement requiring the borrower to maintain certain financial ratios or operational standards.
Full definitionCredit Score
A numerical representation of a person or business's creditworthiness, used by lenders to assess lending risk.
Full definitionCapital Expenditure (CapEx)
Spending on assets that will provide long-term benefit to a business, such as machinery, vehicles, equipment, or property.
Full definitionCreditor Days
The average number of days a business takes to pay its suppliers, calculated from the balance sheet trade payables figure.
Full definitionCovenant
A contractual condition attached to a loan that the borrower must maintain during the life of the facility.
Full definitionConcentration Risk
The risk arising when a significant proportion of a business's sales ledger is owed by a single customer.
Full definitionCredit Insurance
Insurance that protects a business against the risk of a customer failing to pay an invoice, typically due to insolvency or protracted default.
Full definitionDebenture
A legal document creating a fixed and floating charge over a company's assets as security for a lender.
Full definitionDefault
A failure to meet the repayment obligations of a loan or credit agreement, typically after a defined number of missed payments.
Full definitionDevelopment Finance
A structured, staged lending facility used to fund property development projects, based on the gross development value (GDV) of the completed scheme.
Full definitionDrawdown
The act of accessing funds from an agreed credit facility, either in a lump sum or in staged amounts.
Full definitionDebtor Days
The average number of days a business waits to be paid by its customers, calculated from the balance sheet trade receivables figure.
Full definitionDepreciation
The accounting process of allocating the cost of a tangible asset over its useful economic life.
Full definitionDrawdown
The act of accessing funds from an approved loan facility, either as a lump sum or in stages.
Full definitionDebenture
A legal document giving a lender a charge over a company's assets as security for a loan or other financial facility.
Full definitionDilution
The reduction in the collectible value of an invoice due to credit notes, returns, disputes, or other adjustments after it has been raised.
Full definitionEBITDA
Earnings Before Interest, Taxes, Depreciation and Amortisation - a measure of a business's core operating profitability.
Full definitionExit Fee
A fee charged by a lender when a loan is repaid early or at the end of the agreed term.
Full definitionExit Strategy
A defined plan for repaying a short-term finance facility, required by lenders for bridging loans and development finance.
Full definitionEarly Repayment Charge (ERC)
A penalty fee charged by some lenders when a borrower repays a loan before the agreed end of term.
Full definitionEquity
The residual value of a business or asset after deducting all liabilities - the owner's stake.
Full definitionFacility
An agreed credit arrangement between a lender and borrower, defining the maximum amount available, conditions, and repayment terms.
Full definitionFactor Rate
A pricing mechanism used by merchant cash advance providers, expressing the total repayment as a multiple of the amount advanced.
Full definitionFCA (Financial Conduct Authority)
The UK regulator responsible for financial services firms, including credit brokers and lenders.
Full definitionFinance Lease
An asset finance structure where the business uses an asset for most of its useful life while the lender retains legal ownership.
Full definitionFirst Charge
The primary security interest over a property, giving the first charge holder priority in recovering their debt in the event of a sale.
Full definitionFlat Rate
An interest calculation method where interest is charged on the original loan amount throughout the term, rather than on the declining balance.
Full definitionFRN (Firm Reference Number)
A unique identifier assigned by the FCA to every authorised financial services firm in the UK.
Full definitionFactor Rate
The pricing mechanism used for merchant cash advances, expressed as a multiplier applied to the amount advanced to determine total repayment.
Full definitionFixed Rate
An interest rate that remains constant for the agreed term of a loan, regardless of changes in market rates.
Full definitionFunding Limit
The maximum amount a finance provider will advance against a business's sales ledger at any one time.
Full definitionGDV (Gross Development Value)
The estimated total value of a property development project once all units are completed and sold or let.
Full definitionGrowth Guarantee Scheme
A UK government-backed lending scheme providing partial guarantees to lenders, enabling them to lend to businesses that may not meet standard criteria.
Full definitionGoing Concern
An accounting assumption that a business will continue to operate for the foreseeable future - an important factor in lender credit assessment.
Full definitionGross Margin
The percentage of revenue retained after deducting direct costs of goods or services sold, before overheads.
Full definitionHard Credit Search
A full credit check that leaves a visible footprint on a credit file, potentially affecting the credit score.
Full definitionHire Purchase (HP)
An asset finance arrangement where a business hires an asset and eventually owns it outright after making all agreed payments.
Full definitionHoldback Rate
The fixed percentage of daily card sales retained by a merchant cash advance provider as repayment.
Full definitionHard Search
A full credit check that leaves a visible footprint on a credit file and is seen by other lenders - as opposed to a soft search.
Full definitionInterest Cover Ratio
A measure of how easily a business can pay its interest obligations from its operating profit.
Full definitionInvoice Discounting
A confidential form of invoice finance where businesses borrow against their sales ledger while retaining control of credit management.
Full definitionInvoice Factoring
A form of invoice finance where the lender purchases invoices, advances cash, and manages credit control on the business's behalf.
Full definitionInsolvency
The state of being unable to pay debts as they fall due, or of having liabilities exceeding assets - the precursor to formal insolvency proceedings.
Full definitionInterest-Only
A loan structure where monthly payments cover only the interest charge, with the capital balance repaid in full at the end of term.
Full definitionIndividual Voluntary Arrangement (IVA)
A formal insolvency procedure allowing an individual to reach an agreed settlement with creditors, typically paying a proportion of debts over 5 years.
Full definitionInvoice Verification
The process used by invoice finance providers to confirm the validity of invoices submitted for funding.
Full definitionLetter of Credit
A bank-backed payment guarantee used in international trade, ensuring the seller receives payment provided they meet the agreed terms.
Full definitionLTGDV (Loan to Gross Development Value)
The ratio of total development finance to the projected completed value of a development project.
Full definitionLTV (Loan to Value)
The ratio of a loan amount to the value of the asset used as security, expressed as a percentage.
Full definitionLiquidity
The ease with which assets can be converted to cash, and more broadly, a business's ability to meet short-term financial obligations.
Full definitionLoan Covenant
A contractual condition embedded in a loan agreement requiring the borrower to maintain certain financial metrics or behaviours.
Full definitionMerchant Cash Advance (MCA)
A form of business finance where a lump sum is advanced against future card sales, repaid as a fixed percentage of daily card takings.
Full definitionManagement Accounts
Internal financial reports prepared monthly or quarterly for business management purposes, distinct from annual statutory accounts.
Full definitionNet Profit
The profit remaining after all operating costs, interest, depreciation, amortisation, and tax have been deducted from revenue.
Full definitionNon-Recourse Factoring
Invoice factoring where the lender absorbs the credit risk if a customer fails to pay due to insolvency - unlike recourse factoring where the risk stays with the business.
Full definitionNon-Recourse Factoring
An invoice factoring arrangement in which the finance provider absorbs the risk of customer non-payment due to insolvency, providing built-in credit protection.
Full definitionOpen Bridge
A bridging loan without a fixed repayment date, used when the exit route is planned but not yet contractually confirmed.
Full definitionOperating Lease
A short-term asset rental agreement where the lender retains a meaningful residual value in the asset, resulting in lower monthly payments than a finance lease.
Full definitionOpen Banking
A regulatory framework allowing businesses and individuals to share their bank account data securely with authorised third parties, including lenders.
Full definitionOperating Lease
An asset lease that does not transfer ownership or the majority of risks and rewards to the lessee - treated as off-balance-sheet under older accounting standards.
Full definitionPersonal Guarantee (PG)
A commitment by a company director to repay a business debt from their personal assets if the company cannot.
Full definitionPurchase Order Finance
Finance provided against a confirmed purchase order, enabling businesses to fund the production or procurement of goods before customer payment.
Full definitionPayables Finance (Supply Chain Finance)
A facility that allows a buyer's suppliers to receive early payment of approved invoices from a lender, funded by the buyer's credit rating.
Full definitionPrincipal
The original capital amount borrowed, excluding interest and fees.
Full definitionPurchase Order Finance
A short-term funding solution that finances the fulfilment of a confirmed customer purchase order, paying the supplier on behalf of the business.
Full definitionPurchase Ledger
The accounting record of all amounts owed by a business to its suppliers, also known as accounts payable.
Full definitionRedemption
The full repayment of an outstanding loan balance, discharging the borrower from the debt and releasing any security.
Full definitionRevolving Credit Facility (RCF)
A flexible credit facility allowing a business to draw down, repay, and re-borrow up to an agreed limit on a rolling basis.
Full definitionRefinance
Replacing an existing loan or facility with a new one, typically to obtain better terms, release equity, or extend the loan term.
Full definitionRecourse Factoring
An invoice factoring arrangement in which the business retains liability for invoices that are not paid by its customers.
Full definitionReserve Account
A buffer held by an invoice finance provider against which dilution, credit notes and disputed invoices are offset.
Full definitionSale and Leaseback
A transaction where a business sells an asset it owns to a finance provider and immediately leases it back, releasing equity while retaining use.
Full definitionSecond Charge
A security interest over a property that is subordinate to an existing first charge (typically a mortgage).
Full definitionSME (Small and Medium Enterprise)
A business classification for small and medium enterprises, defined by employee count and turnover thresholds.
Full definitionSoft Credit Search
A background credit check that does not leave a footprint on the credit file and does not affect the credit score.
Full definitionSupply Chain Finance
A financing solution that allows buyers to extend payment terms to suppliers while the supplier receives early payment from a finance provider.
Full definitionSale and Leaseback
A transaction where a business sells an asset it owns to a finance company and simultaneously leases it back, releasing the capital tied up in the asset.
Full definitionSoft Search
A credit check that does not leave a visible footprint on a credit file, used for initial eligibility assessment without impacting credit score.
Full definitionSales Ledger
The accounting record of all amounts owed to a business by its customers, also known as accounts receivable or trade debtors.
Full definitionTerm Loan
A business loan for a fixed amount, repaid in regular instalments over a defined period with an agreed interest rate.
Full definitionTrade Finance
A broad category of financial instruments used to facilitate international trade by managing payment risk and funding supply chains.
Full definitionTerm Loan
A business loan for a fixed amount repaid over a defined period, typically in regular monthly instalments of capital and interest.
Full definitionTrust Deed
A legal document used in some invoice finance structures that holds customer payments on trust for the finance provider pending allocation.
Full definitionVariable Rate
An interest rate that can change during the loan term, typically linked to a benchmark rate such as SONIA or the Bank of England base rate.
Full definitionVAT Loan / VAT Finance
A short-term loan specifically designed to fund VAT payments due to HMRC, typically repaid over 3-12 months.
Full definition