Reference Guide
Finance Glossary
Plain English definitions of the finance terms you'll encounter when applying for business finance.
Adverse credit
A credit history that includes missed payments, defaults, CCJs, or insolvency. Many specialist lenders still consider applications from directors with adverse credit, though rates may be higher.
Annual Investment Allowance (AIA)
A tax relief that allows businesses to deduct the full value of qualifying plant and machinery from profits before tax. Relevant when financing equipment or vehicles.
See: Asset Finance →APR
Annual Percentage Rate, the total cost of borrowing expressed as a yearly percentage, including fees. Allows comparison between different products, though not all commercial finance uses APR.
Asset finance
A type of lending where the asset being purchased acts as security for the loan. Includes hire purchase, finance lease, and operating lease.
See: Asset Finance →Balloon payment
A larger final payment at the end of a finance agreement. Reduces monthly payments during the term but requires a lump sum at the end.
Bridging loan
Short-term secured finance, typically 1–18 months, used to bridge a gap, usually between buying a property and selling another or arranging long-term finance.
See: Bridging Loans →Business credit score
A score assigned to your business by credit agencies (Experian, Equifax, Creditsafe) based on filing history, payment behaviour, and director information. Lenders use this alongside personal credit.
CCJ (County Court Judgement)
A court order registered against a person or company for unpaid debt. CCJs remain on your credit file for 6 years and affect your ability to borrow.
Contract hire
A fixed-term rental agreement for a vehicle. You pay monthly, the vehicle goes back at the end. Includes road tax and sometimes maintenance. You never own the vehicle.
See: Vehicle Finance →Covenant
A condition written into a loan agreement that the borrower must comply with, for example, maintaining a certain level of turnover or not taking on additional debt without the lender's consent.
Debenture
A legal charge registered against a company giving the lender security over all company assets, stock, equipment, debtors, and goodwill. Standard practice for business lending at meaningful levels.
Deed of priority
A legal agreement between two or more lenders establishing which lender has first claim on an asset if the borrower defaults. Required when multiple lenders have security over the same assets.
Default
Failure to make a payment on time as agreed in the loan contract. Defaults are recorded on credit files and significantly affect future borrowing.
Factor rate
A multiplier used in merchant cash advance pricing. A factor rate of 1.3 on a £10,000 advance means you repay £13,000. Not an interest rate, the cost is fixed regardless of repayment speed.
See: Merchant Cash Advance →Finance lease
You pay to use an asset for a fixed period. At the end you can extend, return it, or sell it and keep a share of proceeds. The finance company owns the asset throughout.
See: Asset Finance →Fixed charge
Security registered against a specific, identifiable asset, such as a named property or piece of equipment. The borrower cannot sell the asset without the lender's consent.
Floating charge
Security registered against a class of assets that changes over time, such as stock, debtors, or cash. The borrower can trade these assets normally until the charge crystallises.
GDV (Gross Development Value)
The estimated market value of a property once development or refurbishment is complete. Used by development finance lenders to assess loan-to-value ratios.
See: Development Finance →Hire purchase
You pay fixed monthly instalments and own the asset outright at the end of the agreement. The finance company owns the asset until the final payment is made.
See: Asset Finance →Invoice discounting
A form of invoice finance where you retain control of your sales ledger and collect payments from your customers yourself. The facility is usually confidential.
See: Invoice Finance →Invoice factoring
A form of invoice finance where the factoring company manages your sales ledger and collects payments from your customers on your behalf. Your customers know the facility exists.
See: Invoice Finance →LTV (Loan to Value)
The loan amount expressed as a percentage of the asset value. A £75,000 loan on a £100,000 property is 75% LTV. Lower LTV generally means better rates.
MCA (Merchant Cash Advance)
A lump sum advance repaid through a fixed percentage of future card sales. Not a loan, technically a purchase of future receivables. Repayment flexes with your card turnover.
See: Merchant Cash Advance →Payment on account
An advance tax payment to HMRC based on the previous year's tax bill. Payments on account are due in January and July each year for self-assessment taxpayers.
See: Self Assessment Finance →Personal guarantee
A commitment by a director to personally repay the company's debt if the business cannot. Standard in most SME lending. Can be limited (capped) or unlimited.
See: Personal Guarantee Guide →RCF (Revolving Credit Facility)
A pre-approved credit limit that you can draw from and repay repeatedly. Interest is charged only on drawn amounts. Works like a flexible overdraft from a specialist lender.
See: Revolving Credit Facility →Redemption
Paying off a loan or finance agreement in full before the end of the agreed term. Some products have early redemption penalties; others do not.
Refinancing
Replacing an existing loan or finance arrangement with a new one, usually to get better terms, release equity, or consolidate multiple debts into one.
Security
An asset or legal charge pledged to a lender to secure a loan. If the borrower defaults, the lender can use the security to recover their money. Can be property, assets, or a debenture.
Time to Pay (TTP)
A formal arrangement with HMRC to pay a tax bill in instalments over an agreed period. HMRC may charge interest. A TTP arrangement is not a loan, it is a payment plan with the tax authority.
See: HMRC Finance →Trade finance
Funding that bridges the gap between paying an overseas supplier and receiving payment from your customer. Includes letters of credit and supply chain finance.
See: Trade Finance →Working capital
The cash available to run your business day to day, the difference between current assets (cash, debtors, stock) and current liabilities (creditors, short-term debt).
See: Working Capital Loans →