Access to Finance Definitions


APR (Annual percentage rate) – is the interest rate charged for the whole year and includes any interest and charges due on the finance, shown as an annual rate.

Asset finance – Businesses use assets such as stocks or plant and machinery to borrow money, providing the asset as security to the creditor.  This can be quick to arrange and with less compliance than a bank loan. 

Assets - Property owned by a person or a business, which is valuable and can be used to meet debts and other financial commitments.

Base rate – The official bank interest rate that the Bank of England sets and charges other banks for borrowing.

Business angels -  An investor who is usually an affluent or business individual who provides capital for a new business, usually in the form of Equity

Capped rate – A capped interest rate has a limit which the interest rate on a loan cannot exceed but allows the rate to fluctuate below this level.  The borrower can take advantage when the interest rate falls and has the comfort that the interest rate will not rise above a certain rate.  A capped rate is usually related to some underlying variable interest rate such as the Base Rate.

Company – An entity which is owned usually by individuals or other companies who hold shares in the company (Equity) and which is run by individuals acting as directors of the company (company managers).  A company has its own legal identity and can trade and enter into contracts in its own name.

Credit checks – The evaluation of a loan applicant's request for a loan in order to determine the likelihood that the borrower will meet the repayments includes collecting personal and financial information regarding the applicant and checking credit histories and voters roll. 

Creditor – An individual or company that is owed money by another individual or company.

Debtor – An individual or company that owes money to another individual or company.

Debt Finance – enables the raising of funds via a loan owed by one party (debtor) to another (creditor).   Debt is usually granted with an expected repayment of the original sum, plus interest

Drawdown –  Where a loan facility has been provided and the money can be taken and used in variable amounts at variable times, each time funds are taken from the facility there is a drawdown of funds.

Due diligence –  Investigation into and confirmation of a person’s or business’s financial affairs and history in order to verify information provided as part of an application for funding.

Equity Finance - enables the raising of share capital from external investors in return for handing over a share of the business. The main providers of equity finance for SMEs are venture capitalists (VCs), business angels and for start-ups, friends and family.

Exit strategy – The plan to exit an investment in a company or trade via the sale of the business or sale of shares.

FCA – the Financial Conduct Authority, which regulates the majority of securities, lending and mortgage activities in the UK.   Visit

Fixed rate - A fixed interest rate does not change during the fixed rate period of the loan allowing the borrower to accurately predict their future payments.

Interest - It is the monthly or annual price paid for the use of borrowed money usually shown as a percentage of the sum borrowed.

Loan – An amount of money or assets that a borrower initially receives from the lender, and is obligated to pay back.

Mezzanine finance - A mixture of debt and or quasi equity financing. In preference to other company debt such as banks and venture capital companies, Mezzanine finance ranks lower in order of payback and as little or no security is provided, this type of financing is costly with the lender seeking a high return.

Peer to peer lending – Secured and unsecured loans provided by unrelated individuals and companies via on line website intermediaries.  The interest rates are set by lenders who compete for the lowest rate or are fixed by the intermediary company on the basis of an analysis of the borrower's credit. The lender's investment in the loan is not protected by any government guarantee and there is a risk of bankruptcy of the peer-to-peer lending company however, these loans can be cheaper than banking alternatives.

Philanthropic – Donations given by individuals who wish to undertake private projects for the good of the society, be it the public at large, specific groups or businesses.

Return – The amount of money or assets gained or lost as a proportion of the money loaned or invested, sometimes referred to as profit, gain or interest

Risk – has a number of definitions but in relation to borrowing is the perceived chances of the finance provider not receiving back the money provided to the borrower or the perceived return on an investment (income received back) is less than planned.

Sales invoices – A document raised by one party who is selling (seller) to another party (buyer) to record the products or services sold and document the price payable to the seller by the buyer.  Also records the VAT  (Value Added Tax) that is also payable by the buyer to the seller, where appropriate.

Secured/security –  Where a legal charge is taken over an asset by the creditor, which in the event of non-payment, a sale of the asset can be forced by the creditor to repay the amount owed.

Supply chain finance – As for invoice financing coupled with trade credit, where suppliers take longer to pay but the debtor can access the income from a bank or specialist finance firm who advance them the income and collect the invoice on the debtors behalf.

Syndicates of business angels - Usually at least three investors who invest together in projects and business to spread the risk and to increase the level of knowledge and experience.

Term – Either the length of time that a contractual or finance obligation exists for, say 24 months or a condition of the finance or equity contract

Unsecured loan – a loan on which no assets have been made available to the borrower as security should the loan not be repaid.

Variable rate – A variable rate changes during the period of the loan and is usually related to some underlying variable rate of interest such as the Base rate.  A change in the variable interest rate alters the amount of interest paid on the loan from the date of the change and therefore means unpredictability in repayments.

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