We know that it can be hard navigating the business finance market, so we’ve created a glossary of terms and jargon to help.
Annual Percentage Rate
The APR refers to the total interest you will need to pay annually on a loan amount you’re approved for.
A loan arrangement that is structured as such that regular repayments are made monthly with one larger, balloon payment at the end of the loan term. This is attractive to start-ups and small businesses because payments are smaller at the outset when the business is likely to have more financial constraints.
Business Cash Advance
Also known as a merchant cash advance, a business cash advance is a lump sum of money given from a lender in return for a % of future card transaction sales. It works well for businesses that take their sales via card terminals, and the amoint loaned is typically calculated as an average value of card sales for a month.
Business Credit Card
Business credit cards enable you to spend money to a set credit limit, however it can be difficult for start-ups and sole traders to get approved for this type of finance.
Business Credit Report
Similar to an individual’s personal credit report but generated for a business. The information is maintained by credit bureaus which record a business’s financial history, allowing lenders to evaluate risk and the financial health of a business they may loan to.
Grants are offered by charities, private companies and the government and are usually given to fund a specific project or purpose. Business grants are hugely competitive and the application process is lengthy but if successful, the grant usually won’t need to be repaid.
Typically provided by banks, business overdrafts are a short-term facility that can help to cover business emergencies or cash-flow gaps. Overdrafts allow you to borrow additional funds at a set interest rate when you go over your bank balance. The amount of money granted will differ business to business but is usually far less than monthly turnover.
Equity Financing Refers to the process of using funds from an investor to raise capital in exchange for a share in your business. Equity financing typically comes from family friends or angel investors. Those who invest in your company usually want to have input on any business decisions made.
In relation to loan arrangements, is an account offered by a financial insitution to a business.
Fixed Interest Rate
When the interest rate of a loan remains the same for the term of the loan and agreed repayment period.
Refers to the person who signs and legally agrees to repaying the loan in the event the borrower is unable to meet the repayments.
Loan To Value (LTV )
The term LTV is used by financial lenders to signify the ratio of a secured loan to the value of the borrower’s purchased asset. Lenders use the LTV ratio to determine how risky a loan is.
Revolving Line Of Credit
Similar to lines of credit, the only difference is that once the loan amount has been repayed it can then be borrowed again.
This short-term funding options allows you to buy necessary stock without paying upfront to the supplier. These agreements are made between buyer and supplier and the extended payment terms typically last up to 30-60 days.