Business finance glossary

The jargon, explained.

APR (Annual Percentage Rate): The total cost of credit, including interest and most compulsory fees, expressed as a yearly rate worked out in a set way. It is a consumer credit concept: lenders must show it on regulated credit agreements and in their advertising under the Consumer Credit Act and FCA rules. Unregulated business finance, which is all Welcome Finance arranges, has no such requirement, so lenders may quote a monthly rate, flat rate, factor rate or total amount repayable instead. To compare offers, ask each lender for the total repayable, every fee and the term.
Advance rate: The percentage of an asset's value that a funder will lend against. In invoice finance it is the share of each approved invoice paid upfront, often somewhere between 70% and 90%, with the balance, less fees, paid when the customer settles. For stock or machinery it is usually lower and based on a valuation. The rate depends on your customers, your debtor book and the funder's view of risk.
Aged debt report: A list of unpaid customer invoices grouped by how long they have been outstanding, for example current, 30, 60, 90 and over 90 days. Invoice finance providers use it to decide which invoices they will fund and how much to advance. Debts well past their due date, disputed invoices and heavy reliance on one customer usually reduce the amount available, so expect to be asked for a recent report that matches your sales ledger.
Arrangement fee: A fee charged by the lender for setting up a loan or facility, sometimes called a facility or completion fee, and often a percentage of the amount borrowed. It may be paid upfront, added to the loan or deducted from the funds advanced; if it is deducted, you receive less than the headline amount, so check which applies.
Asset-based lending: Borrowing secured against a company's assets, such as its invoices, stock and plant and machinery, often combined into a single facility. The amount available rises and falls with the value of those assets, which the lender monitors regularly. Lenders usually take a debenture, and the product tends to suit larger, established companies with good financial reporting.
Balloon payment: A larger lump sum due at the end of a finance agreement, which reduces the regular monthly payments during the term. It is common in vehicle and equipment finance, and you need to plan how you will pay or refinance it.
Broker fee: A fee a finance broker may charge for preparing an application and arranging a facility. Brokers may also, or instead, be paid commission by the lender, which can be a fixed sum or linked to the amount borrowed or the rate. You should be told whether a fee applies, how much it is and when it is payable, and whether the broker receives commission, before you commit to anything.
CCJ (County Court Judgment): A court order made in England and Wales when a person or company fails to pay money it owes; Scotland and Northern Ireland have their own equivalents. If paid in full within one month it can be removed from the public register; otherwise it stays for six years, marked as satisfied once paid. Lenders check for CCJs against the business and its directors, and recent or unpaid ones can make borrowing harder or more expensive, so tell your broker about them upfront.
Capital allowances: Tax relief on business spending on plant and machinery, claimed instead of deducting the cost as an ordinary expense. Companies can claim full expensing (100% in year one) on most new, unused main-rate plant and machinery, or 50% on new special-rate assets, and the Annual Investment Allowance gives 100% relief on up to £1 million of qualifying spend a year, including second-hand items. Since 1 January 2026 a 40% first-year allowance also applies to some new main-rate spending, including assets for leasing, and from April 2026 the main-rate writing-down allowance fell from 18% to 14%. Cars have their own rules. On hire purchase the business can usually claim; on most leases the funder claims instead. Check your position with your accountant.
Cash flow: The movement of money into and out of a business over a period of time. A profitable company can still run short of cash if money goes out before customers pay.
Companies House: The UK's official registrar of companies and LLPs, where they file accounts, confirmation statements and details of directors, members and charges. Lenders check it to confirm trading history, that accounts and confirmation statements are up to date, who the directors and people with significant control are, and any charges already registered. A charge granted by a company or LLP should be registered there within 21 days of being created; if it is not, it is void against a liquidator, administrator and other creditors.
Confidential invoice discounting: Invoice discounting where customers are not told that their invoices are being funded, so the business continues to collect payments under its own name. It is usually offered to more established companies with good credit control and larger turnover.
Covenant: A condition in a loan agreement that the borrower must meet, such as keeping debt service cover within agreed limits or providing regular accounts. Breaching a covenant can give the lender the right to review, reprice or call in the loan.
Credit search (soft vs hard): A soft search lets a lender view a credit file without leaving a footprint other lenders can see, so it does not affect the credit score. A hard search is recorded when a formal application is made, and several in a short period can count against the applicant. For business finance, lenders usually search the company and often the directors or members personally. Our eligibility check does not run a credit search; the lender will run its own searches if you go on to apply.
DSCR (Debt Service Coverage Ratio): A measure of how comfortably a business's income covers its loan repayments, calculated by dividing available income or profit by the total debt payments due. A ratio above 1 means income exceeds repayments, and lenders set their own minimum levels.
Debenture: In UK lending, a security document in which a company or LLP gives the lender fixed and floating charges over all or most of its assets, present and future. It must be registered at Companies House within 21 days to be effective against a liquidator, administrator and other creditors. If the borrower defaults, the lender can enforce, for example by appointing an administrator. Invoice finance, asset-based lending and many secured loans require one, and it is often taken alongside a personal guarantee. Ordinary partnerships are not companies, so lenders usually take other forms of security from them.
Director's loan: Money a director lends to their company, or takes out of it, other than salary, dividends or expense repayments, recorded in a director's loan account. Lenders may ask for money owed to directors to stay in the business, or to rank behind their own lending, for the life of a facility. An overdrawn director's loan account can also trigger an extra corporation tax charge if it is not repaid within nine months of the year end, and lenders will ask about it.
Early repayment charge: A fee charged if you repay all or part of a loan before an agreed date or before the end of its term. It compensates the lender for interest it would otherwise have earned. Unregulated business agreements carry no statutory right to an early settlement rebate, so what you pay depends entirely on the agreement: check it before signing.
Exit fee: A fee charged when a loan or facility is repaid or closed, seen on some short-term loans and invoice finance agreements. It is usually a fixed sum or a percentage of the facility and should be factored into the total cost of borrowing.
Factor rate: A pricing method used on merchant cash advances and some short-term loans, expressed as a multiplier of the amount advanced. For example, a factor rate of 1.2 on £10,000 means £12,000 is repaid in total, however quickly it is repaid. It is not an interest rate and cannot be compared directly with one: because the total is fixed, the faster you repay, the higher the equivalent annual cost. Compare offers on the total repayable and the likely repayment period.
Finance lease: An asset finance agreement where the funder buys the equipment and rents it to the business for most of its useful life, with the business responsible for maintenance and insurance. Ownership does not normally pass to the business; at the end it can usually keep using the asset for a small secondary rental or sell it on the funder's behalf and receive most of the proceeds. VAT is charged on each rental, and the funder normally claims the capital allowances.
Fixed charge: Security over specific, identifiable assets, such as a named piece of machinery, that the borrower cannot sell or dispose of without the lender's consent. It ranks ahead of a floating charge and should be registered at Companies House within 21 days. Whether a charge is truly fixed depends on how much control the lender has in practice, not just what the document calls it.
Flat rate: An interest rate charged on the original amount borrowed for the whole term, even though the balance falls as you repay. Because of this, a flat rate looks lower than the equivalent annual rate on a reducing balance, which can be close to double the flat rate on a loan repaid in equal instalments. Flat rates are common in asset finance and some business loans, so compare the total amount repayable rather than the headline rate.
Floating charge: Security over a changing pool of assets, such as stock, debts or cash, that the company can keep using and selling in the normal course of trading. It crystallises, becoming fixed, on events set out in the charge, such as the appointment of an administrator or receiver or the company going into liquidation. In an insolvency it is paid after fixed charges, insolvency costs and preferential creditors, which include HMRC for certain taxes such as VAT and PAYE, and after a share set aside for unsecured creditors (the prescribed part).
Hire purchase: A way of buying an asset such as a vehicle or machine by paying in instalments, usually after a deposit. The finance company owns the asset until the final payment, and any option-to-purchase fee, after which ownership passes to the business. VAT on the asset is normally payable upfront, and the business can usually claim capital allowances from the start as if it owned the asset.
Invoice discounting: A form of invoice finance where a business borrows against its unpaid invoices but keeps control of its own sales ledger and credit control. Customers usually pay into an account controlled by the funder and, on a confidential facility, do not know it exists. Funders usually want good credit control and reporting, and take a debenture.
Invoice factoring: A form of invoice finance where the funder advances a percentage of unpaid invoices and also manages the sales ledger and collects payment from customers. The balance, less fees, is released once the customer pays. Your customers will know you use a factor, because they pay the funder directly.
LLP (Limited Liability Partnership): A business structure registered at Companies House that is a separate legal entity from its members, whose liability is generally limited to what they have invested. Like limited companies, LLPs file accounts publicly. Because an LLP is a body corporate rather than an individual, credit to it is not a regulated credit agreement, although lenders may still ask members for personal guarantees.
LTV (Loan to Value): The loan amount expressed as a percentage of the value of the asset it is secured against, such as a machine, vehicle or fleet. A lower LTV generally means less risk for the lender and can lead to better terms.
Management accounts: Up-to-date internal financial reports, usually monthly or quarterly, showing a company's recent profit and loss, balance sheet and cash position. Lenders often ask for them alongside filed accounts because they show current trading rather than last year's.
Merchant cash advance: A lump sum advanced against a business's future card takings, repaid by the funder taking an agreed percentage of daily or weekly card sales. Repayments rise and fall with takings, and the cost is usually expressed as a factor rate. It is often structured as a purchase of future card receivables rather than a loan, can be quicker to arrange than a bank loan and usually costs more.
Mezzanine finance: A layer of funding that sits between senior debt and equity, often used in acquisitions and management buyouts to reduce the amount of cash the buyers must contribute. It ranks behind the main lender, so it usually costs more.
Non-recourse factoring: Invoice factoring where the funder takes on the risk of a customer failing to pay because it becomes insolvent, usually only up to approved credit limits for each customer and subject to conditions. It typically costs more than a recourse facility and does not cover disputed invoices or customers without an approved limit.
Operating lease: A rental agreement for equipment or vehicles over a period shorter than their useful life, after which the asset is returned to the funder. Monthly payments are often lower than on hire purchase over the same term because the funder keeps the residual value, but you never own the asset and may pay extra for excess use or damage.
Personal guarantee: A legally binding promise by a director, LLP member, partner or other individual to pay a business's debt personally if the business does not. Lenders can often call on it without first taking action against the business, and it may be capped at a set amount or unlimited, and joint and several with other guarantors, meaning each can be pursued for the full amount. Guarantees of unregulated business finance do not carry Consumer Credit Act protections and can put personal assets at risk. Read it carefully and take independent legal advice before signing; some providers offer personal guarantee insurance.
Purchase order finance: Funding that pays a supplier to produce or deliver goods for a confirmed customer order, so a business can fulfil orders it could not otherwise afford. It is repaid when the customer pays, often by moving the resulting invoice into an invoice finance facility.
Recourse: In invoice finance, an arrangement where the business remains responsible for any invoice the customer does not pay. If an invoice is still unpaid after an agreed recourse period, or the customer becomes insolvent, the business must repay the funder's advance on it or replace it with another invoice. Most UK invoice finance facilities are offered on a recourse basis.
Refinance: Replacing an existing loan with a new one, often to secure better terms, change the repayment period, consolidate business debts or release cash from assets the business owns, such as machinery or vehicles. Early repayment charges and new arrangement fees should be included when comparing the cost.
Regulated credit agreement: A credit agreement that falls within the FCA's consumer credit regime because the borrower is a 'relevant recipient of credit', such as an individual, sole trader or partnership of two or three partners, and no exemption applies. One common exemption covers credit over £25,000 taken wholly or mainly for business purposes, supported by a declaration. Regulated agreements carry Consumer Credit Act and FCA protections such as APR disclosure, affordability checks, a withdrawal period and statutory early settlement rebates. Welcome Finance does not arrange regulated credit agreements.
Relevant recipient of credit: The legal term, in the Regulated Activities Order, for the borrowers whose credit agreements can be FCA-regulated: an individual (including a sole trader), a partnership of two or three partners not all of whom are companies, or an unincorporated body not made up entirely of companies that is not a partnership. Limited companies, LLPs and partnerships of four or more partners fall outside it, which is why finance for them is unregulated and why Welcome Finance only works with those businesses.
Retention (construction): A percentage of the value of construction work, often a few per cent, that the client or main contractor holds back from each payment as security against defects. Part is usually released at practical completion and the rest at the end of the defects period. The UK government has announced plans to ban cash retentions, but until legislation takes effect they remain common.
Revolving credit facility: A flexible credit line up to an agreed limit that a business can draw on, repay and draw again as needed. Interest is normally charged only on the amount drawn, although many providers also charge an arrangement, renewal or non-utilisation fee, and the facility is usually reviewed each year.
Secured loan: A business loan backed by security such as vehicles, equipment, other business assets or a debenture. If repayments are not made, the lender can enforce its security and sell the assets to recover what it is owed. Welcome Finance does not arrange loans secured on property or on a home.
Security: An asset or legal right a lender can rely on to recover its money if a borrower defaults, such as a fixed charge over equipment, a debenture or a personal guarantee. Offering security can increase the amount available or reduce the cost of borrowing.
Selective invoice finance: Invoice finance where the business chooses which individual invoices or customers to fund, rather than financing its whole sales ledger. It is sometimes called spot factoring and suits companies with occasional large invoices, though the cost per invoice is usually higher.
Term loan: A loan of a fixed amount repaid in regular instalments over an agreed period. It is the most common form of business loan and can be secured or unsecured.
Time to Pay arrangement: An agreement with HMRC to pay a tax debt, such as VAT, PAYE or corporation tax, in instalments. HMRC charges late payment interest on the outstanding amount and will expect you to keep up with new liabilities. It is worth asking HMRC before you borrow; a VAT or tax loan is an alternative if an arrangement is not agreed or does not suit you.
Unregulated lending: Lending that falls outside the FCA's consumer credit regime. Credit to limited companies, LLPs and partnerships of four or more partners is not regulated, because they are not 'relevant recipients of credit'. Consumer Credit Act and FCA consumer credit protections, such as APR disclosure, affordability rules and statutory early settlement rebates, therefore do not apply. The lender may or may not be FCA-authorised for other business, and access to the Financial Ombudsman Service is limited: it may be available only if the lender is authorised and your business is small enough to qualify. Welcome Finance is not authorised or regulated by the FCA and only arranges unregulated finance.
Unsecured loan: A loan not backed by a charge over a specific business asset. Lenders often still ask directors or members for a personal guarantee, and some take a debenture on larger loans, so check exactly what security an 'unsecured' offer involves.
VAT quarter: The three-month accounting period covered by a VAT return for most VAT-registered businesses. The return and payment are normally due one month and seven days after the quarter ends, which is why VAT loans are often timed around these dates. Some businesses use other arrangements, such as monthly returns, the annual accounting scheme or payments on account.
Valuation: An independent assessment of the value of an asset, such as a machine, vehicle or stock, usually instructed by the lender. The result helps decide how much the lender will advance, particularly for asset refinance.
Working capital: The money a business has available to fund day-to-day operations, usually measured as current assets minus current liabilities. Working capital finance helps cover gaps between paying costs and receiving income.