Business Funding Glossary
The funding world is full of jargon and acronyms nobody asked for. This glossary covers the terms you'll actually come across when looking at business funding options in the UK in 2026. Plain English, no waffle.
Definitions checked 7 September 2026 against the sources listed at the foot of this page.
Two words that change the price
Jargon in this market is not decoration. Nearly every term below changes what a facility costs or who can have it, and several of them are used loosely by people selling the product. Two worth pinning down before you read the rest.
A monthly rate is not a small annual rate. Bridging is quoted per month, so an illustrative 1% a month (chosen for the arithmetic, not a rate any lender has quoted) is around 12% a year before compounding, and an arrangement fee on top moves the day-one cost again.
A criterion is not a preference. When a lender says it needs a homeowning director or two years of trading, that is a hard filter, not a starting position. Lenders draw those lines in different places, so knowing which side of each one you are on saves an application.
Where a definition below quotes a number, it comes from the named public source, read on 7 September 2026. Rules and rates change, so treat every figure as a guide rather than a promise.
APR (Annual Percentage Rate)
The yearly cost of borrowing, shown as a percentage. Used mainly for traditional loans and credit cards.
Personal Guarantee (PG)
A promise that you'll personally repay the debt if your business can't. Most business funding providers require one. A personal guarantee means you are personally liable for the outstanding amount. While no property is typically taken as collateral, it is a serious financial commitment. Always read the full terms carefully.
Learn more →Unsecured Funding
Funding that doesn't require you to put up property or assets as collateral. However, a personal guarantee is still usually required, which creates personal liability.
Learn more →Secured Funding
Funding where you offer an asset (like property or equipment) as security. If you can't repay, the lender can claim that asset. Usually comes with lower rates because the lender's risk is lower.
Learn more →Term Loan
A lump sum you borrow and repay in fixed monthly instalments over a set period (the "term"). The amount you pay each month stays the same regardless of how your business is doing.
Learn more →Soft Credit Check
A credit check that doesn't show up on your credit file and won't affect your credit score. Some providers run one at quotation; ask each when a hard search is recorded. Enquiring through us does not affect your credit score.
Hard Credit Check
A credit check that does appear on your credit file. Too many in a short period can lower your score. Traditional lenders like banks usually run these before making a decision.
Underwriting
The process a lender goes through to decide whether to approve your application and on what terms. Each lender has its own underwriting model, which is why the same business can get different answers from different providers.
Risk Appetite
How much risk a lender is willing to take on. Every lender has a different risk appetite, which is why some approve businesses that others turn down. Think of it like car insurance: same driver, different quotes.
Total Repayable
The full amount you'll pay back, including the original sum borrowed plus all fees and costs.
Funding Speed
How quickly money lands in your account after you're approved. Each lender publishes its own timing and sets it on every case.
Minimum Trading History
The shortest time your business needs to have been trading before a lender will consider you. Ranges from 3 months at some lenders to 2+ years (most term loan providers).
CCJ (County Court Judgment)
A court order that says you owe money. Having a CCJ on your record can make it harder to get traditional finance. Some lenders can still work with businesses that have CCJs.
Flexible credit line
A facility you can draw down and repay flexibly, a bit like an overdraft. You only pay interest on what you've actually borrowed.
Broker Fee
A fee a broker charges for arranging funding. CapExpand is a commercial finance broker. We will receive commission from lenders. On some cases we also charge a fee, which we set out in writing and agree with you before you proceed. The commission model, calculation and amount are disclosed to the client throughout the customer journey.
Drawdown
The act of taking money from an approved credit facility. With a flexible credit line, you might be approved for £50,000 but only draw down £20,000 initially.
Working Capital
The money your business uses to cover day-to-day expenses like rent, stock, wages, and bills. Many businesses use short-term funding to top up their working capital.
Learn more →Invoice Factoring
Invoice finance where the funder pays out most of an invoice's value and also takes over collecting payment from your customers. Customers know a funder is involved.
Learn more →Invoice Discounting
Invoice finance where the funder lends against unpaid invoices but you keep collecting payment yourself, so customers don't know a funder is involved. Usually needs stronger financials than factoring.
Learn more →Arrangement Fee
A one-off fee some lenders charge for setting up a facility, either paid upfront or added to the balance. Always ask whether the quoted repayment includes it.
Learn more →Early Settlement
Repaying a facility before the end of its term. On interest-bearing loans this usually saves money (check for early repayment charges).
Learn more →Debenture
A charge a lender registers over a company's assets as security, visible at Companies House. Common with invoice finance and larger facilities. It ranks the lender ahead of unsecured creditors if the company fails.
Learn more →Loan-to-Value (LTV)
The size of a property loan as a percentage of the property's value. A £150,000 loan on a £200,000 property is 75% LTV. Lower LTV generally means better pricing on commercial mortgages and bridging.
Learn more →Bridging Exit
The plan for repaying a bridging loan at the end of its short term, usually a sale or a refinance onto a mortgage. Lenders assess the exit as closely as the loan itself; a weak exit is the main reason bridging applications fail.
Learn more →Balloon Payment
A larger final payment at the end of some asset finance agreements, in exchange for lower monthly payments during the term. Common in vehicle finance.
Learn more →Open Banking
A secure, regulated way to share read-only bank transaction data with a lender during an application, instead of sending PDF statements. Speeds up decisions; you approve access through your own banking app.
Credit Broker
A firm that arranges credit between borrowers and lenders. Where the credit is regulated, arranging it requires FCA authorisation or an appointment as an Appointed Representative of an authorised firm; check any firm’s status on the Financial Services Register at register.fca.org.uk.
Appointed Representative (AR)
A firm that acts under the responsibility of an FCA-authorised "principal" firm rather than holding its own authorisation; the principal takes responsibility for the business the AR does on its behalf. The principal appears on the FCA register with its ARs listed against it. CapExpand Ltd (FRN 1060885) is a credit broker and an Appointed Representative of White Rose Finance Group Limited (FRN 630772), which is directly authorised and regulated by the Financial Conduct Authority. We work with UK limited companies and LLPs only, for business and commercial purposes.
FCA Register
The public register at register.fca.org.uk listing every firm authorised by the Financial Conduct Authority, including their permissions and any appointed representatives. The right place to verify any lender, broker, or principal firm.
EBITDA
Earnings before interest, tax, depreciation and amortisation. Treated as a rough proxy for the cash a business throws off, and it matters because cashflow lenders size a facility as a multiple of it rather than against an asset. Adjustments are where the argument happens: a lender will strip out one-off gains you would rather keep in.
Loan to Value (LTV)
The loan as a percentage of what the property is worth, and the single number that sets your deposit. On bridging it drives the price directly, because a lender's monthly rate usually steps up as the loan to value rises: the same £100,000 bridge is priced higher at 75% than at 60%. Every lender sets its own maximum. Usually calculated against the lower of price and valuation.
Loan to Cost (LTC)
On a development scheme, the facility as a percentage of total project cost, meaning land plus build plus fees. Land at £200,000, a £400,000 build and £50,000 of fees make a £650,000 project, so a £520,000 facility is 80% loan to cost. Each development lender publishes its own maximum. Read it beside loan to GDV rather than on its own: whichever binds first is the one that caps your borrowing.
Learn more →Loan to GDV
The facility as a percentage of gross development value, meaning what the finished scheme is expected to sell for. On a scheme with a thin margin this is almost always the constraint that binds, which is why an optimistic end valuation costs a developer more than an optimistic build cost does.
Learn more →Covenant
Two meanings, and confusing them is expensive. A financial covenant is a condition inside the facility agreement, such as maintaining a minimum level of cover on the repayments; breaching it can make the loan repayable on demand even while every payment has been made on time. The covenant strength of a tenant means how creditworthy they are, which is what an investment property lender is really assessing when it reads your lease.
Learn more →Debt Service Cover Ratio (DSCR)
Net operating income divided by the loan payments over the same period. A lender wants headroom rather than a dead heat, so a ratio of 1.25 means income covers the payments a quarter over. It is the test that decides how much an investment property will support, and it bites hardest when rates rise, because the payments move while the rent does not.
Interest Cover Ratio (ICR)
The buy-to-let version of debt service cover: rent measured against the mortgage interest, and usually stress-tested at a rate above the one you are paying. Each lender publishes its own rental cover requirement and the rate it stresses at, and they change.
Learn more →Gearing
How much of a business is funded by debt rather than by its own equity, usually expressed as a percentage or a ratio. A lender reads it as the answer to one question: how much of the risk is already carried by somebody else. High gearing does not decline a case on its own, but it moves the decision onto cash generation, which is why a heavily geared business with strong, predictable receipts still gets funded and a lightly geared one with lumpy income sometimes does not.
Capital Employed
Total assets minus current liabilities: the money actually tied up in running the business. Return on capital employed, which divides operating profit by it, is the ratio a commercial lender uses to sanity-check whether a business earns enough from what it has to justify being given more. It is the reason two companies with identical turnover can get very different answers.
Enterprise Value
What a whole business is worth to a buyer, counting its debt and netting off its cash, as distinct from the value of its shares alone. It matters in funding when the money is for an acquisition or a management buyout, because the facility is sized against the target rather than against your own balance sheet.
Learn more →Amortisation
Repaying a balance gradually across the term, so each payment is part interest and part capital and the debt reaches zero at the end. Its opposite is an interest-only facility, where the payments cover the interest and the full balance falls due on the last day. The choice is a cash flow decision rather than a cost one, and on commercial property it is worth modelling both before you commit.
Asset Finance
Funding secured on the equipment it is buying, so the lender's decision turns on whether it would be willing to own and resell that thing. Appetite varies widely by asset class: mainstream plant is easy to place, while marine kit is a specialist corner. Splits into hire purchase, where you own the asset at the end, and leasing, where you pay for use.
Learn more →Fixed Charge
Security over a specific, identified asset, such as a property or a machine, that the company cannot sell or deal with without the lender’s consent. On insolvency the fixed-charge holder is paid from that asset ahead of everyone else.
Learn more →Floating Charge
Security over a class of assets that changes from day to day, such as stock and book debts, which the company keeps using until a default or an administration crystallises the charge. Paid after the expenses, the preferential creditors and the prescribed part.
Learn more →Crystallisation
The moment a floating charge fastens on the assets then in its class and becomes a fixed charge over them, triggered by an event the debenture names: a default, the lender’s notice, or an administrator being appointed.
Learn more →Negative Pledge
A covenant in a debenture under which the company promises not to grant further security over its assets without the lender’s consent. Recorded on the Companies House register, and the first line a later lender checks.
Learn more →Legal Charge
The form of mortgage over land in England and Wales: a charge by way of legal mortgage registered at HM Land Registry, giving the lender the right to take possession and sell on a default. A first charge ranks ahead of a second.
Learn more →Deed of Priority
An agreement between two lenders with security over the same asset setting out who is paid first, who may enforce and when. Needed whenever a second charge sits behind a first, or a mezzanine lender behind a senior one.
Learn more →Hire Purchase (HP)
An asset finance agreement under which the finance company buys the asset and hires it to the business for fixed instalments, with ownership passing on the final payment and the option fee. VAT is charged on the price at the start.
Learn more →Finance Lease
An asset finance agreement under which the lender owns the asset throughout and the business pays rentals, with VAT on each, over a primary period. The business never owns the asset, though it may sell it on the lender’s behalf at the end.
Learn more →Bridging Loan
A loan secured on property for a short fixed term, counted in months, repaid in one sum at the end from a defined exit such as a sale or a refinance. Interest is charged monthly and either retained, rolled up or serviced.
Learn more →Retained Interest
Interest for the whole term of a bridging loan deducted from the advance on day one, so nothing is paid during the term and the sum that reaches the borrower is smaller than the loan.
Learn more →Rolled-Up Interest
Interest added to the loan balance each month and repaid with the capital at the end, used on bridging and development facilities where the borrower has no income from the property during the term.
Learn more →Decision in Principle
A lender’s written indication, on the information given so far, that it would lend a stated amount on stated terms, subject to valuation, full underwriting and the legal work. Not an offer and not binding on either side.
Learn more →Valuation Report
A chartered surveyor’s written opinion of a property’s value on a stated basis at a stated date, prepared for the lender under the RICS Red Book. The lender lends against its figure, not the agreed price.
Learn more →Gross Development Value (GDV)
What a finished development scheme is expected to sell for, as the lender’s valuer reports it. Development lenders cap the facility at a published percentage of it, alongside a cap against total cost.
Learn more →Development Finance
A short-term facility that funds the purchase of a site and the cost of building on it, drawn in stages against work the lender’s monitoring surveyor certifies and repaid in one sum from the sale or refinance of the finished scheme.
Learn more →Mezzanine Finance
Borrowing that ranks behind the senior lender and ahead of the equity, secured by a second charge or a subordination agreement and priced for the extra risk, used to fund the slice above what the senior lender will advance.
Learn more →Management Buyout (MBO)
The purchase of a company by the managers who already run it, usually through a new company funded by senior debt sized on the target’s cash flow, a loan note the seller agrees to be paid over time, and the managers’ own equity.
Learn more →Vendor Loan Note
Part of a purchase price that the seller agrees to be paid later, over an agreed period and usually with interest, ranking behind the senior lender. It reduces the cash needed on completion and keeps the seller interested in the business continuing to earn.
Learn more →Director’s Loan
Money that passes between a limited company and one of its directors outside salary, dividends and expenses, in either direction, recorded in the director’s loan account. A lender reads a credit balance as part of the owners’ investment and a debit balance as money that has left the business.
Learn more →Subordination Deed
An agreement under which a director or another lender agrees not to be repaid until the senior lender has been, so that money counted as the owners’ investment stays in the business for the life of the facility.
Learn more →Business Overdraft
An agreed limit below zero on the company’s current account, with interest charged daily on the overdrawn balance and the whole facility repayable on demand. Arranged with the bank that holds the account, not through a broker.
Learn more →Early Repayment Charge (ERC)
The sum a lender charges if a loan is repaid in whole or in part before a date set in the agreement, usually a percentage of the amount repaid that steps down year by year. Distinct from an exit fee, which is charged whenever the loan is repaid.
Learn more →Exit Fee
A fee charged when a loan is repaid, early or on time, common on bridging and some commercial mortgages. A cost of leaving rather than a penalty for leaving early.
Learn more →Minimum Interest Period
A term on many bridging loans under which the lender earns interest for at least a stated number of months even if the loan is repaid sooner.
Learn more →Commercial Loan
Money lent to a business for the purposes of that business on terms set by a loan agreement, as distinct from consumer lending to an individual. The term covers term loans, commercial mortgages, bridging, asset finance, invoice finance and revolving facilities.
Learn more →Invoice Finance
A facility under which a business assigns its unpaid invoices to a lender, receives an advance of part of each invoice when it is raised, and receives the balance less the lender’s charges when the customer pays. Factoring and invoice discounting are its two forms.
Learn more →Prescribed Part
The share of a company’s floating-charge realisations set aside for unsecured creditors on insolvency under section 176A of the Insolvency Act 1986, before the floating-charge holder is paid.
Learn more →What customers say
Trustpilot reviews are quoted as written on Trustpilot; case-study quotes link to the full story
“Everything managed super quickly and without much effort on my part. Just what you need when running a business.”
“Friendly and helpful service. Nice to deal with someone in finance that listened and cared.”
Still got questions?
We speak to business owners every day and we're happy to explain anything on this page in more detail. No pressure, no jargon.
Common questions
Does applying for business funding affect my credit score?▼
Enquiring through us does not affect your credit score. If you apply to a lender, it runs its own credit search, which may be recorded on your file. Some lenders run a soft check at quotation and others record a hard search at application, so ask each when its search is recorded; banks usually perform hard checks, which do appear on your file.