UK business funding glossary.

Every term you are likely to meet on an offer document or in an underwriting call, defined without jargon. Search the list, or open a term for a fuller explanation with worked examples.

Advance rate

The proportion of an asset's value, or of monthly revenue, that a funder is prepared to advance. An 80% advance rate against a £100,000 debtor book releases £80,000.

Affordability

The assessment of whether a business can service a facility from reliable free cash flow after existing commitments, rather than whether it merely looks profitable on paper. Read the full explanation

Amortisation

The gradual repayment of a facility through instalments that cover both interest and capital, so the balance reduces to zero by the end of the term.

Annual percentage rate (APR)

A standardised annual measure of borrowing cost that combines interest with certain fees. APR can help compare interest-bearing loans, but it is not normally used for factor-priced commercial advances.

Arrangement fee

A one-off fee charged for putting a facility in place. It may be deducted from the amount drawn down or added to the balance, which changes the effective cost. Read the full explanation

Asset finance

Funding used to acquire or refinance equipment, vehicles or plant, where the asset itself provides the security. Usually structured as hire purchase or a lease.

Balloon payment

A larger final payment at the end of a facility, used to keep monthly instalments low. Common in vehicle and equipment finance.

Bridging loan

Short-term secured borrowing used to cover a timing gap, typically pending a property sale or a longer-term refinance.

Broker

An intermediary that places a business with a funder. Brokers may charge the client, receive a commission from the funder, or both. Disclosure of fees should be in writing.

Capital repayment

The portion of an instalment that reduces the outstanding balance, as opposed to the interest element. Capital repayments are not tax deductible.

CCJ

County Court Judgment. A court ruling that a debt is owed. A satisfied CCJ affects a credit file far less than an unsatisfied one. Read the full explanation

Charge

A security interest registered over a company's assets at Companies House. A fixed charge attaches to a specific asset; a floating charge sits over a shifting class of assets such as stock.

Collateral

An asset offered as security for borrowing, such as commercial property, equipment or receivables. If the borrower defaults, the finance provider may enforce its security against that asset under the agreement. Read the full explanation

Credit score

A numerical indicator produced by a credit reference agency or finance provider from information such as payment history, filed accounts, court judgments and existing borrowing. Business funding decisions use it alongside cash flow, affordability and other evidence, not in isolation. Read the full explanation

Debenture

A document creating fixed and floating charges over a company's assets in favour of a lender, registered at Companies House. Read the full explanation

Debt service cover

A measure of how comfortably cash flow covers debt repayments. A ratio of 1.25 means the business generates £1.25 of available cash for every £1 of service. Read the full explanation

Default

A breach of the finance agreement, most commonly non-payment. Default typically triggers default interest, credit file reporting and recovery action.

Drawdown

The point at which funds are released to the borrower's account, after the agreement is signed and all conditions are met.

Factor rate

A multiplier used to express the total repayable on a merchant cash advance or revenue based facility. A factor of 1.2 on £50,000 means £60,000 is repaid in total. Read the full explanation

Fixed interest rate

An interest rate that stays unchanged for an agreed period, making scheduled repayments predictable even if wider market rates move.

Hire purchase

An asset finance structure where the business pays instalments and takes ownership of the asset at the end of the agreement, usually after a nominal option fee.

Holdback

The agreed percentage of daily card settlement retained by the funder to service a merchant cash advance. Read the full explanation

Interest rate

The percentage charged for borrowing money, usually stated annually and applied to the outstanding balance. The actual cash cost also depends on the repayment frequency, term, fees and whether the rate is fixed or variable. Read the full explanation

Invoice discounting

Funding released against unpaid sales invoices while the business retains control of its own credit control. Usually confidential to customers. Read the full explanation

Invoice factoring

Funding released against unpaid invoices where the funder also manages collections. Customers are typically aware of the arrangement.

Loan-to-value (LTV)

The amount borrowed as a percentage of the asset's assessed value. A £600,000 facility secured against a property valued at £1,000,000 has an LTV of 60%.

Merchant cash advance

A lump sum advanced against future card takings, repaid as a fixed percentage of each day's card settlement rather than a set monthly instalment. Read the full explanation

Open Banking

A UK framework allowing a business to share read-only bank transaction data securely with a funder, which speeds up underwriting and removes manual statement collection. Read the full explanation

Personal guarantee

A director's personal promise to repay company borrowing if the company cannot. May be capped or unlimited, and joint and several where there are multiple directors. Read the full explanation

Refinance

Replacing an existing facility with a new one, usually to reduce cost, extend the term or release equity from an asset already owned.

Repayment plan

The agreed schedule for returning capital and paying interest or fees. It sets the payment amount or calculation, frequency, term and any final payment, and should be tested against the business's expected cash flow. Read the full explanation

Revenue based financing

Capital advanced against forward revenue and repaid as an agreed share of top-line receipts, so service flexes with actual trading. Read the full explanation

Revolving credit facility

A pre-agreed limit that can be drawn, repaid and redrawn as needed, with interest charged only on the balance in use.

Secured lending

Borrowing supported by a charge over a specific asset. Larger, longer and cheaper than unsecured borrowing, but the asset is at risk on default. Read the full explanation

Soft search

A credit check generally visible only to the business or individual searched. It does not usually affect a credit score, but the provider should confirm the search type. Read the full explanation

Term

The contractual period over which a facility is repaid. Short-term commercial facilities commonly run from 3 to 24 months.

Time to Pay

An HMRC arrangement allowing a business to spread a tax liability over an agreed period. Interest applies and the arrangement may be visible to other creditors. Read the full explanation

Total repayable

The full cash amount a business will pay back, including interest and fees. The single most useful figure for comparing offers on a like-for-like basis. Read the full explanation

Trade finance

Funding that supports the purchase of goods for resale, often released directly to suppliers and repaid once the goods are sold.

Underwriting

The assessment of a funding application, covering affordability, conduct, sector risk, security and the credibility of the stated use of funds. Read the full explanation

Unsecured lending

Borrowing advanced against trading performance without a charge over a specific asset. Faster to arrange, usually smaller and shorter, and priced for the additional risk. Read the full explanation

Variable interest rate

An interest rate that can rise or fall during the facility, normally by tracking a stated reference rate plus a fixed margin. Repayments may therefore change over time.

Working capital

The cash a business needs to fund day-to-day trading: stock, wages, rent and supplier payments, before revenue from those activities is collected. Read the full explanation

Yield

The return a funder earns on capital deployed, expressed over the expected life of the facility. It is the funder's mirror of the borrower's total cost.