Business Finance Glossary

Adverse credit describes negative information in a credit history, such as missed payments, defaults or court judgments, relevant to a lender’s assessment.

An affordability assessment examines whether a borrower can meet the proposed repayments alongside its other commitments, using the lender’s criteria.

An aged creditors report lists amounts owed to suppliers, grouped by age or overdue period.

An aged debtors report lists money owed by customers, grouped by how long invoices have been outstanding or overdue.

In loan terminology, amortisation is the scheduled repayment of principal over time through instalments.

Annual Investment Allowance is a UK capital allowance that can give a deduction for qualifying plant and machinery expenditure within the applicable limit and conditions.

Annual Percentage Rate is an annualised measure of credit cost calculated using specified rules, intended to help compare borrowing where the measure applies.

An arrangement fee is a charge for setting up a finance facility, payable according to the terms of the offer.

Asset finance is funding used to acquire or use business equipment, vehicles and other assets, commonly through hire purchase or leasing.

Asset refinance raises funding against the value of eligible business assets already owned or financed, sometimes settling an existing agreement as part of the transaction.

Asset-based lending is funding supported by a business’s eligible assets, potentially combining receivables, stock, plant, machinery or property.

A balance sheet is a statement of a business’s assets, liabilities and equity at a specified reporting date.

A balloon payment is a larger payment scheduled at the end of a finance agreement, in addition to the regular instalments.

In UK finance, base rate commonly refers to the Bank of England’s Bank Rate, which influences interest rates across the economy.

A bridging loan is short-term borrowing designed to cover a temporary funding gap, commonly secured on property and repaid through a defined exit.

A business loan is money advanced to a business under an agreement to repay the borrowing, usually with interest and any agreed fees.

Capital allowances are UK tax reliefs that can allow qualifying capital expenditure to be deducted when calculating taxable profits under the applicable rules.

Capital expenditure is spending on acquiring or improving assets expected to provide benefit beyond the immediate accounting period, subject to the applicable accounting rules.

Cash flow is the movement of cash into and out of a business over a period.

Cash flow finance is a broad description of funding intended to help a business manage the timing of receipts and payments.

A commercial mortgage is borrowing secured on commercial property, commonly used to acquire or refinance premises or investment property.

Commercial vehicle finance is funding used by a business to acquire or use vehicles such as vans, trucks and specialist working vehicles.

A Companies House filing is information or a document submitted to the UK register for a company or other registered entity, such as accounts, a confirmation statement or charge particulars.

Contract hire is an agreement to use an asset, commonly a vehicle, for a fixed period and payment schedule without an automatic route to ownership.

Corporation Tax is a UK tax charged on the taxable profits of companies and certain other organisations, according to the rules applying to them.

A credit score is a numerical indicator produced by a credit agency or lender to summarise selected information about credit risk.

A credit search is a check of information held by a credit reference agency about an individual or business.

Creditworthiness is a lender’s assessment of how likely a borrower is to meet its financial obligations on the proposed terms.

A debenture in UK secured business lending is commonly a document granting a lender security over specified company assets, often using fixed and floating charges.

Debt service coverage ratio compares a defined measure of cash available for debt payments with the principal and interest payments due over the same period.

Depreciation is the accounting allocation of the depreciable amount of a tangible asset over its estimated useful life.

Development finance is funding for a property construction or substantial development project, usually structured around project costs, staged advances and a repayment exit.

Drawdown is the release or use of funds under an approved finance facility, once the relevant conditions are met.

An early repayment charge is a contractual cost that may apply when finance is repaid before the agreed date.

EBITDA is earnings before interest, tax, depreciation and amortisation, used as one measure of operating financial performance.

Equipment finance is funding arranged to acquire or use equipment needed by a business, commonly through hire purchase or leasing.

Excess mileage is usage above the mileage allowance in a vehicle agreement, which may trigger a charge under the contract.

An exit strategy in short-term or property finance is the evidenced plan for repaying the facility by its contractual end date.

Factoring is a form of invoice finance in which the provider typically supplies funding and manages some or all credit control and customer collections.

A finance lease is a lease that transfers substantially the risks and rewards of owning an asset to the lessee without necessarily transferring legal ownership.

A fixed charge is security attached to identifiable assets, with restrictions on dealing with those assets determined by the charge and applicable law.

A fixed interest rate remains unchanged for the fixed period specified in the agreement, even if relevant market rates change.

A floating charge is security over a changing class of company assets that generally allows ordinary business dealings until a specified event fixes the charge.

FRS 102 is a financial reporting standard used by many entities preparing accounts under UK and Republic of Ireland accounting requirements.

Full expensing is a UK capital allowance for qualifying company expenditure on certain new and unused plant and machinery, subject to statutory conditions and exclusions.

A gearing ratio measures financial leverage by comparing debt with equity or another stated measure of capital.

Gross development value is an estimate of the total value of a development once completed, usually before deducting development costs and finance.

Gross profit is revenue less the cost of sales for a reporting period, before the other expenses included in net profit.

Guaranteed future value is a contractually specified future asset value used in some finance arrangements, subject to the conditions written into the agreement.

Hard assets is a commercial-finance term commonly used for tangible assets with identifiable physical value and a potential resale market.

A hard credit search is a credit-file check normally associated with a formal credit application and visible to other lenders on the relevant personal credit report.

Hire purchase is an agreement to hire an asset with an option to acquire ownership after the required payments and contractual conditions are met.

IFRS 16 is the international accounting standard for leases, including how a lessee recognises and measures many rights to use assets and the related obligations.

An initial rental is a payment made at the start of a lease or hire agreement, usually forming part of the contractual cost of using the asset.

Input VAT is VAT a business incurs on purchases, which may be recoverable only to the extent permitted by the VAT rules.

Insolvency is a legal and financial condition in which a company cannot meet the relevant tests for paying its debts or the relationship between assets and liabilities.

An interest rate is the percentage used to calculate the charge for borrowing money over a stated period and on a stated balance.

An interest-only loan requires interest payments during a stated period while leaving the capital to be repaid separately, commonly at the end.

Invoice discounting is invoice finance where the business typically retains responsibility for its sales ledger and credit control while borrowing against eligible receivables.

Invoice finance is funding linked to eligible unpaid business invoices, allowing a business to access part of their value before customers pay.

Liquidity is the ability of a business to meet obligations as they fall due using cash or assets that can be converted into cash in time.

A loan covenant is a contractual promise or condition that a borrower must satisfy during a finance agreement.

Loan to cost is the amount of development or project borrowing expressed as a percentage of the costs included in the lender’s stated calculation.

Loan-to-value is the amount of a loan expressed as a percentage of the value assigned to the asset securing it.

Machinery finance is funding for production or operational machinery, structured around an agreed repayment or rental term.

A maintenance contract sets out services provided to keep an asset operating, sometimes offered alongside a vehicle or equipment finance agreement.

Management accounts are financial reports prepared for internal business management, commonly covering more recent trading than filed annual accounts.

A merchant cash advance provides business funding typically repaid through an agreed share of card takings until the contracted repayment amount is collected.

Net profit is the profit remaining after the expenses included in the stated accounting measure have been deducted from income.

Operating expenditure is spending recognised as an expense of running a business rather than as the cost of a qualifying capital asset.

An operating lease is a lease that does not transfer substantially all the risks and rewards of asset ownership to the lessee under the relevant classification rules.

Output VAT is VAT that a VAT-registered business accounts for on its taxable sales under the applicable VAT rules.

A personal guarantee is a legally binding promise by an individual to meet specified business obligations if the business does not satisfy them.

Plant finance is asset funding for business plant such as excavators, loaders and other machinery used in construction, agriculture or industrial operations.

Private equity is investment in a business’s ownership by investors, usually outside a public stock-market listing, in exchange for shares or an equivalent equity interest.

A profit and loss account reports income, expenses and resulting profit or loss over a reporting period.

Purchase order finance is funding intended to help a business fulfil an eligible customer order before the related goods are delivered and invoiced.

Refinancing means replacing or restructuring an existing finance commitment with a new arrangement, which may change its cost, term, security or lender.

Residual value is an estimate of what an asset will be worth at the end of a specified period, allowing for its expected age, condition and use.

Retained interest is interest reserved or deducted from a facility at the outset to cover an agreed period, rather than paid separately each month.

Return on investment compares a defined financial return with the cost of an investment, usually expressed as a percentage.

A revolving credit facility lets a borrower draw, repay and redraw funds within an agreed limit and availability period, subject to its terms.

Sale and leaseback is a transaction in which a business sells an asset and then leases it from the buyer so it can continue using it.

A secondary rental period is a contractual period after the main term of some finance leases during which continued use may be permitted on stated rental terms.

A secured business loan is borrowing supported by rights over specified assets or assets covered by a charge, which the lender may enforce following default.

Security in lending is a legal right over assets or other support that helps a lender recover money if contractual obligations are not met.

Soft assets is a commercial-finance term for assets that may offer a lender limited resale security, such as certain IT systems, software or specialist fit-outs.

A soft credit search is a credit-file check that is generally not visible to other lenders as an application for credit on the person’s report.

Supply chain finance commonly describes buyer-led arrangements enabling suppliers to receive early payment of approved invoices through a finance provider.

A term loan is borrowing with an agreed duration and a specified repayment schedule, rather than an open-ended revolving facility.

Trade finance is a broad group of funding and risk-management arrangements supporting the purchase, movement and sale of goods in domestic or international trade.

Turnover generally means a business’s revenue from its ordinary trading activities over a specified period, rather than its profit.

Underwriting is the process a finance provider uses to assess an application’s risks and decide whether to offer funding and on what terms.

Unregulated asset finance describes an asset agreement outside the relevant consumer-credit regulatory regime; its scope depends on the borrower, purpose and legal structure.

An unsecured business loan is borrowing without a specific asset charge supporting that loan, although personal guarantees or other contractual protections may still apply.

A variable interest rate can change during an agreement under the mechanism specified in its terms.

Value Added Tax is a UK tax on taxable supplies of goods and services, accounted for by VAT-registered businesses under the rules applying to their activities.

VAT registration is the process by which a business becomes registered to account for VAT on the supplies and activities covered by the UK rules.

Working capital commonly means current assets minus current liabilities; in funding discussions it also describes the cash needed to support day-to-day trading.

The working capital cycle is the time between committing cash to trading inputs and recovering cash from the related customer receipts.