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General explanations for UK limited-company owners. Examples are illustrative. The written terms of an actual agreement determine its costs, rights and commitments.

40 terms

A

Costs and agreements↗

APR

Annual percentage rate expresses borrowing costs as a yearly percentage, combining interest with certain charges under standard assumptions. It is different from a flat interest rate or a factor rate, and it does not include every possible charge.

Why it matters

A small headline percentage can describe a different calculation from the one on another proposal. Compare like-for-like amounts and repayment periods, then check the complete cash cost.

An illustrative example

Two quotations for the same equipment may show an annual rate and a flat rate. The percentages alone do not tell you which costs less.

What to check

  • Ask which rate calculation is being shown and whether it is fixed or variable.
  • Compare the net money received, repayment schedule, fees and total amount repayable.
Compare funding costs

Related terms Factor rateTotal amount repayableLoan term

Sources and further reading
Funding options↗

Asset finance

Funding that spreads the cost of acquiring or using equipment, machinery, vehicles or other business assets. Hire purchase and leasing are common forms, with different rules about ownership and what happens at the end.

Why it matters

A machine may start earning its keep before the business has saved its full purchase price. Spreading the cost preserves some cash, but creates payments and conditions that continue beyond delivery.

An illustrative example

A workshop needs a replacement machine to fulfil orders. It compares the deposit and instalments with buying outright and keeping a cash reserve.

What to check

  • Confirm who owns the asset, who maintains it and whether it can be sold or changed.
  • Include deposits, fees, insurance and any final payment in the budget.
Explore asset finance Read the asset finance guide

Related terms Hire purchaseLeasingBalloon paymentAsset refinance

Sources and further reading
Funding options↗

Asset refinance

Raising money against an asset already used by the business, such as a vehicle or machine. The new arrangement may settle existing finance and release an additional sum, subject to the asset's value and the lender's assessment.

Why it matters

Useful equipment can hold value while cash is needed elsewhere. Refinance changes the financial commitment attached to that equipment; it does not turn its whole purchase price into available cash.

An illustrative example

A company owns machinery but needs money for a new contract. It investigates what could be released while keeping the machinery in use.

What to check

  • Compare the asset valuation, existing settlement figure and net cash released.
  • Understand the new ownership, repayment and repossession terms before putting essential equipment at risk.
Understand asset finance arrangements

Related terms Asset financeSecurityEarly settlement

Sources and further reading

B

Costs and agreements↗

Balloon payment

A larger payment left until the end of a finance agreement. Deferring part of the balance can reduce the regular payments, but the deferred sum still has to be dealt with under the contract.

Why it matters

An affordable monthly figure can hide a significant final commitment. Refinancing or selling an asset later may be possible, but neither should be treated as certain when planning how to pay it.

An illustrative example

A company compares two vehicle proposals. One has lower monthly payments because a substantial balance remains at the end.

What to check

  • Write the final payment and due date into the cash-flow forecast.
  • Confirm the end-of-term choices, ownership conditions and any option-to-purchase fee.
Read the asset finance guide

Related terms Hire purchaseTotal amount repayableCash-flow forecast

Sources and further reading
Funding options↗

Bridging loan

Short-term borrowing intended to cover a gap until a defined repayment event, often a property sale or longer-term refinance. Security is normally required, and the agreement needs a credible exit plan.

Why it matters

A purchase deadline can arrive before other money is available. The deadline for repaying the bridge matters just as much: delays can add cost or put the security at risk.

An illustrative example

A company considers a bridge to complete a property purchase before its longer-term funding is ready.

What to check

  • Confirm the exit evidence, term and consequences of a delay.
  • Add interest, arrangement, valuation, legal, broker and exit charges where applicable.
Explore bridging finance

Related terms Exit strategyLoan-to-valueSecurityDevelopment finance

Sources and further reading
Funding options↗

Business credit card

A card that lets a business make purchases using credit up to an agreed limit. Repaying the balance can restore available credit, subject to the card's terms. Interest, fees and minimum payments depend on the agreement and use.

Why it matters

A card can separate company spending and cover short gaps between a purchase and a customer receipt. Paying only the minimum may leave the balance outstanding for much longer.

An illustrative example

A company buys materials on a card and plans to clear the statement when its customer pays.

What to check

  • Check purchase, cash withdrawal and transfer charges separately.
  • Confirm the interest-free conditions, annual fee, credit limit and any director guarantee.
Explore business credit cards

Related terms Revolving creditAPRPersonal guarantee

Sources and further reading
Checks and security↗

Business credit score

A credit reference agency's or provider's summary of its assessment of a company's credit risk. Models and score ranges differ. A score is one part of a funding assessment, rather than an approval decision.

Why it matters

Lenders and suppliers may use credit information alongside accounts, trading figures and the proposed borrowing. An incorrect company record or unexplained change deserves attention before an application.

An illustrative example

A director reviews the company's report before seeking equipment finance and checks whether the latest filings have been reflected.

What to check

  • Check which agency and date the score comes from, and review the underlying information.
  • Ask when company or personal searches would happen and what type they would be.
Understand business credit scores What a funding score can tell you

Related terms Business loanPersonal guaranteeTurnover

Sources and further reading
Funding options↗

Business loan

An agreed sum lent to a business and repaid under a contract, usually over a set period with interest and any agreed fees. Business loans may be secured or unsecured, and their repayment structures vary.

Why it matters

A lump sum can fund several costs in one plan, such as stock and recruitment. The company still needs money for repayments while those costs turn into sales and cash receipts.

An illustrative example

A company plans a refit and compares a loan's full repayment schedule with the expected reopening and trading dates.

What to check

  • Confirm the net advance, term, repayment frequency and full cost.
  • Read security, guarantee, early repayment and missed-payment terms.
Explore business loans Prepare for a funding conversation

Related terms Secured loanUnsecured loanLoan termTotal amount repayable

Sources and further reading

C

Business cash↗

Cash flow

The movement of money into and out of a business over a period. Cash flow is different from profit: a profitable sale may not produce spendable money until the customer pays.

Why it matters

Wages, rent and suppliers need payment on specific dates. A busy company can still have a cash shortage if its outgoings come before its receipts.

An illustrative example

A contractor completes profitable work this month, but the invoice is due next month and this week's payroll still needs covering.

What to check

  • Put actual payment dates alongside the amounts, rather than treating invoice dates as cash receipts.
  • Check whether a shortfall is a temporary timing gap or a continuing loss.
Build a cash-flow forecast Turnover is not cash in the bank

Related terms Cash-flow forecastTurnoverWorking capitalInvoice finance

Sources and further reading
Business cash↗

Cash-flow forecast

A dated estimate of money expected in and out, showing the cash balance the business may have at each point. It should reflect when payments are likely to happen, not just when sales or costs are recorded.

Why it matters

The lowest projected balance helps explain how much money may be needed and when. Adding proposed repayments shows whether a funding arrangement fits the same calendar.

An illustrative example

A retailer forecasts stock payments before a busy season, then tests what happens if sales arrive later than planned.

What to check

  • Include normal bills, tax, existing finance and the proposed new commitment.
  • Test slower customer payments or lower sales, and update estimates as facts change.
Create a simple cash-flow forecast

Related terms Cash flowWorking capitalLoan term

Sources and further reading

D

Funding options↗

Development finance

Finance arranged around a property construction, conversion or substantial refurbishment project. Funds are often released in stages as agreed work progresses, with repayment normally planned from a sale or refinance.

Why it matters

A construction budget needs to work between drawdowns as well as at completion. A delay, cost increase or lower final valuation can change the cash the developer must contribute.

An illustrative example

A limited company plans a conversion and maps the lender's staged releases against contractor invoices and contingency costs.

What to check

  • Confirm the funding schedule, conditions for each release, monitoring costs and contingency.
  • Understand which costs and valuation measures the lender uses, and how the facility will be repaid.
Explore development finance

Related terms Bridging loanExit strategyLoan-to-valueSecurity

Sources and further reading

E

Costs and agreements↗

Early settlement

Paying off finance before its scheduled end. A settlement figure is the amount the provider says is needed to close the agreement on a particular date, including any applicable interest, fees or adjustments.

Why it matters

A strong trading period may make early repayment possible, but the saving depends on the contract. A fixed funding fee may not fall simply because the balance is cleared sooner.

An illustrative example

A company receives a delayed customer payment and asks for a written settlement figure before using the cash to close its loan.

What to check

  • Ask whether future interest or charges are reduced and whether a repayment fee applies.
  • Check the figure's expiry date and keep enough cash for normal trading.
Compare the full funding agreement

Related terms Total amount repayableLoan termFactor rate

Sources and further reading
Checks and security↗

Exit strategy

For short-term property funding, the specific plan for repaying the facility, such as selling the property or replacing the borrowing with longer-term finance. It describes the source and timing of repayment, not simply an intention to find money later.

Why it matters

A property can be valuable while its sale takes longer than expected. A refinance can also depend on valuation, rental income, condition and a future lender's criteria.

An illustrative example

A developer expects to repay a bridge from a sale and considers what happens if completion moves beyond the loan's end date.

What to check

  • Ask what evidence the lender needs for the proposed exit.
  • Allow for selling costs, delays and the cost of any extension; do not assume new finance will be approved.
Understand bridging finance

Related terms Bridging loanDevelopment financeLoan term

Sources and further reading

F

Costs and agreements↗

Factor rate

A multiplier used in some funding agreements to calculate an agreed total repayment from the amount advanced. It is not an annual interest rate and does not, by itself, show how quickly the money will be collected.

Why it matters

The same total charge collected over a shorter period places a different demand on cash. Comparing the multiplier with an APR as if both were percentages can be misleading.

An illustrative example

Illustration only: a £10,000 advance at a factor rate of 1.20 gives £12,000 to repay before any separate charges. That does not mean 20% APR.

What to check

  • Ask for the total cash cost, collection percentage and expected payment pattern.
  • Check extra fees and whether early payment changes the fixed charge.
Understand merchant cash advance costs

Related terms Merchant cash advanceAPRTotal amount repayableEarly settlement

Sources and further reading
Funding options↗

Factoring

A form of invoice finance in which a provider advances money against eligible invoices and also manages agreed sales-ledger or payment-collection tasks. Customers will commonly know a finance provider is involved.

Why it matters

A business may need both earlier access to invoice money and help collecting it. The service, customer contact and cost differ from an arrangement where the company keeps its own credit control.

An illustrative example

A supplier with a growing customer list compares a factoring service with continuing to chase every overdue invoice internally.

What to check

  • Agree who speaks to customers, handles disputes and collects payment.
  • Check fees, eligible invoices and responsibility if a customer does not pay.
Read the invoice finance guide

Related terms Invoice financeInvoice discountingCash flow

Sources and further reading

G

Costs and agreements↗

Gross loan amount

The gross loan amount is the headline principal recorded for a borrowing before any deductions that affect the amount paid out. Provider documents may use these labels differently, so check whether fees are withheld, added to the balance or paid separately.

Why it matters

A company can owe an amount that differs from the money reaching its bank account. Compare the agreement balance with the net funds available and the full repayment schedule.

An illustrative example

A proposal shows £30,000 as the principal, with a £450 fee deducted before payment. The company receives £29,550, while the agreement and total repayment figures determine what it owes.

What to check

  • Confirm the amount the agreement says is borrowed and the date it starts accruing charges.
  • List every fee or supplier payment taken from the advance and compare the net money available with the total repayable.
Compare funding costs Review a business loan checklist

Related terms Net advanceTotal amount repayableTotal amount repayable

Sources and further reading

H

Funding options↗

Hire purchase

An agreement that lets a business use an asset while paying for it over time, with ownership transferring after the agreed payments and purchase conditions are satisfied. A deposit and final option-to-purchase fee may apply.

Why it matters

The business can use equipment without paying the full price immediately, but cannot assume it owns the asset during the agreement or can sell it freely.

An illustrative example

A company plans to keep a production machine for years and compares hire purchase with a lease that ends without ownership.

What to check

  • Confirm the deposit, instalments, final payment and ownership-transfer conditions.
  • Check maintenance, insurance, early settlement and restrictions on selling or modifying the asset.
Compare asset finance arrangements

Related terms Asset financeLeasingBalloon paymentEarly settlement

Sources and further reading

I

Funding options↗

Invoice discounting

Invoice finance where the business normally keeps responsibility for its sales ledger and collecting customer payments. The provider advances money against eligible invoices under agreed rules. Some facilities are confidential, but disclosure depends on the terms.

Why it matters

A company with an established credit-control process may want earlier access to cash while continuing to manage customer relationships itself.

An illustrative example

An agency pays its staff before client invoices fall due and explores discounting while retaining its own collections team.

What to check

  • Confirm collection and reporting duties, account arrangements and confidentiality conditions.
  • Ask what happens to disputed or overdue invoices and who carries the non-payment risk.
Compare invoice finance arrangements

Related terms Invoice financeFactoringCash flow

Sources and further reading
Funding options↗

Invoice finance

Funding that releases part of the value of eligible unpaid customer invoices. Availability depends on the invoices and the provider's rules; the remaining balance is normally released after customer payment, less the advance and charges.

Why it matters

A company can have completed work and recorded sales while still waiting for cash. Invoice finance addresses that timing gap, but adds cost and does not automatically cover a bad debt.

An illustrative example

A business supplier needs to pay wages while customers have several weeks left on their invoice terms.

What to check

  • Compare advance rates, service fees, discount charges and any minimum commitment.
  • Confirm eligible invoices, collection arrangements and liability if a customer fails to pay.
Explore invoice finance Read the invoice finance guide

Related terms FactoringInvoice discountingCash flowWorking capital

Sources and further reading

J

Checks and security↗

Joint and several liability

Joint and several liability means that, where an agreement applies this wording to multiple guarantors, each may be responsible for the whole guaranteed amount rather than only a fixed share. The exact obligation depends on the signed guarantee and any limits in it.

Why it matters

A director may be asked to support a company borrowing personally. Do not assume that two guarantors each risk only half, or that the company’s limited liability removes a personal guarantee.

An illustrative example

Two directors sign a guarantee described as joint and several. If the company does not pay, the lender’s rights against each director depend on the guarantee wording; the label can expose either person to a claim for the full covered amount.

What to check

  • Read the guarantee limit, covered debts, duration and release conditions.
  • Ask an independent solicitor to explain the effect before signing if the wording is unclear.
Prepare for a funding conversation

Related terms Personal guaranteeSecured loanSecurity

Sources and further reading

K

Checks and security↗

Key person insurance

Key person insurance is cover a business takes out against specified financial losses following the death or, if selected, serious illness of someone whose contribution is important to the business. The policy, insured events and recipient of any payment depend on its terms.

Why it matters

The loss of a founder or specialist may affect trading or the company’s ability to meet commitments. This cover is not the same as a personal guarantee or a lender’s security, and it is not automatically required for a funding application.

An illustrative example

A small engineering company depends on one qualified specialist to complete contracted work. The company reviews whether cover could help with replacement costs or disruption, then checks what the policy actually pays for.

What to check

  • Confirm who owns the policy, who receives any payment and which events are covered.
  • If a lender asks for a policy or assignment, ask for the requirement and its effect in writing.
Review information for a business loan

Related terms Personal guaranteeSecurityCash-flow forecast

Sources and further reading

L

Funding options↗

Leasing

Paying to use an asset owned by a finance provider for an agreed period. Different lease types divide maintenance, risk and end-of-term responsibilities differently. A lease should not be assumed to transfer ownership to the business.

Why it matters

Access to equipment may matter more than owning it, especially if it will need replacing. The rental figure is only part of the comparison with buying or hire purchase.

An illustrative example

A business considers leasing equipment it expects to upgrade, then checks return conditions and whether maintenance is included.

What to check

  • Confirm who insures, maintains and repairs the asset.
  • Check use restrictions, return standards, extension options and the cost of ending the agreement.
Understand asset finance and leasing

Related terms Asset financeHire purchaseLoan term

Sources and further reading
Costs and agreements↗

Loan term

The agreed length of a loan or finance arrangement. The term is separate from the repayment frequency: a three-year loan might collect payments monthly, weekly or under another agreed schedule.

Why it matters

A longer term can lower regular payments and may increase the full amount paid, depending on the pricing. Match the schedule to when the business expects to receive the cash needed for repayments.

An illustrative example

A company compares two terms for the same borrowing amount and puts both repayment schedules beside its expected trading cash.

What to check

  • Compare the complete schedule, total cost and any final lump sum.
  • Match the commitment to the useful life of the purchase and the timing of cash available for repayment.
Compare funding costs and timing Use the illustrative repayment calculator

Related terms Total amount repayableCash-flow forecastBalloon payment

Sources and further reading
Checks and security↗

Loan-to-value

The loan amount expressed as a percentage of the value of the asset used as security. The valuation basis and whether the quoted loan includes retained interest or fees affect what the figure means in practice.

Why it matters

A maximum LTV does not tell you the cash that will reach the business or remove the need to fund a deposit and costs.

An illustrative example

Illustration only: a £150,000 loan against a £200,000 valuation is 75% LTV. Fees deducted from that loan would reduce the net money available.

What to check

  • Ask which valuation and loan amount are used in the calculation.
  • Compare the net advance with the purchase price, deposit and completion costs.
Understand bridging finance

Related terms Bridging loanSecurityDevelopment finance

Sources and further reading

M

Funding options↗

Merchant cash advance

An advance to a business with collections linked to an agreed share of future card takings. The collection amount may move with sales, while the total amount owed and other obligations are set by the contract.

Why it matters

Variable collections can follow trading activity, but every deduction leaves less cash available for stock, staff and other bills. A fixed funding charge is different from interest calculated over time.

An illustrative example

A café considers an advance for a refit and models the cash left after collections in both busy and quieter weeks.

What to check

  • Confirm the net advance, collection percentage, total repayment and any minimum or time conditions.
  • Check early payment, card processor and sales-routing terms.
Explore merchant cash advances Understand the costs

Related terms Factor rateTotal amount repayableCash flow

Sources and further reading

N

Costs and agreements↗

Net advance

The net advance is the amount of money made available after deductions taken from the gross amount, such as an arrangement fee. A provider may also pay part of the borrowing directly to a supplier or another creditor, so the cash sent to the company account can be different from the total value applied for.

Why it matters

The company needs to know how much it can use for its plan and how much it must repay. A low amount paid into the bank does not necessarily mean the agreement balance is equally low.

An illustrative example

A £30,000 facility has a £450 fee withheld, leaving £29,550 paid to the company. If another amount is sent to a supplier, record that payment separately when assessing the funds received and the borrowing cost.

What to check

  • Ask for a written breakdown of the gross amount, every deduction, payments to others and the cash reaching the company.
  • Compare the net funds with the repayment schedule and total amount repayable.
Compare funding costs

Related terms Gross loan amountTotal amount repayableTotal amount repayable

Sources and further reading

O

Business cash↗

Overdraft

A business overdraft is a credit facility linked to a business bank account that lets the account go below zero up to an agreed limit. Interest is generally charged on the amount used, and the provider may charge fees or review the limit under the agreement.

Why it matters

An overdraft can accommodate a short timing gap, but its limit, renewal and repayment terms affect how dependable that cash is. Some arrangements can be repayable on demand.

An illustrative example

A wholesaler pays suppliers before several customer invoices clear. An agreed overdraft may bridge that timing difference, but the owner checks the interest, fees, review date and what happens if the bank reduces the limit.

What to check

  • Check the agreed limit, interest calculation, arrangement and renewal fees, and any review or demand terms.
  • Compare it with the timing of expected receipts and the cost of other facilities.
Plan for cash-flow gaps Compare funding options

Related terms Cash-flow forecastRevolving creditWorking capital

Sources and further reading

P

Checks and security↗

Personal guarantee

A separate promise by an individual to meet specified business obligations if the company does not. It can make an owner or director personally liable even though the borrower is a limited company.

Why it matters

The company agreement and the individual's commitment are not the same thing. An unsecured business loan can still require a personal guarantee, so the word unsecured should not be read as no personal risk.

An illustrative example

A director receives a company loan offer with a separate guarantee to sign and asks for its scope to be explained before proceeding.

What to check

  • Understand the amount covered, when the guarantee can be called, and how it ends.
  • Consider independent legal advice before signing, particularly where several people give guarantees.
Prepare the questions for a loan offer

Related terms Unsecured loanSecuritySecured loan

Sources and further reading

Q

Costs and agreements↗

Quotation

A quotation sets out a provider’s proposed price or terms for a particular facility. It may be an illustration, an indicative proposal or a formal offer; the document should say which. Assumptions, conditions, expiry dates and later checks can affect what is ultimately available.

Why it matters

A headline rate or monthly figure can leave out fees, security, guarantees or conditions. Compare the written terms and check whether the quote is conditional before treating it as a commitment.

An illustrative example

Two providers quote a monthly repayment for equipment finance. One figure assumes a deposit and final payment, while the other includes neither, so the monthly amounts alone are not comparable.

What to check

  • Confirm whether the document is indicative, conditional or a formal offer and how long it is valid.
  • Compare deposit, fees, repayment dates, final payment, security and total amount repayable.
Compare funding costs

Related terms APRTotal amount repayableBalloon payment

Sources and further reading

R

Funding options↗

Revolving credit

An arrangement that lets a business borrow within an agreed limit, repay and use the available credit again, subject to the facility's rules. The credit limit is a ceiling, not a target or a promise that it will remain available indefinitely.

Why it matters

Repeated short gaps may call for a different arrangement from a one-off purchase. Flexible access still comes with repayment duties, fees and review or end dates.

An illustrative example

A company draws part of its facility for a supplier bill, repays after receiving customer money and may draw again later.

What to check

  • Check interest on drawn funds and any facility, usage or renewal fees.
  • Confirm repayment requirements, review rights, guarantees and what happens at expiry.
Explore the funding categories Understand business credit cards

Related terms Business credit cardCash flowPersonal guarantee

Sources and further reading

S

Funding options↗

Secured loan

A loan supported by an agreed security interest over assets, such as property or equipment. If the borrower defaults, the lender may be able to enforce that security to recover the debt under the agreement and applicable law.

Why it matters

Offering security changes the lender's protection and the business's exposure. Losing an essential asset could affect trading as well as the outstanding debt.

An illustrative example

A company considering a loan against its premises checks how enforcement would affect its ability to keep operating.

What to check

  • Identify exactly which assets are covered and whether other finance already has security over them.
  • Check for separate guarantees, valuation costs and restrictions on further borrowing.
Understand business loans

Related terms SecurityPersonal guaranteeUnsecured loanLoan-to-value

Sources and further reading
Checks and security↗

Security

Assets or legal rights a finance provider can rely on to help recover money if obligations are not met. For example, a lender may take a charge over property or equipment. The precise rights depend on the documents signed.

Why it matters

The asset named in a discussion may not describe the full reach of the legal agreement. The business needs to know what is at risk and whether existing security affects a new proposal.

An illustrative example

A director is told that a loan is supported by company assets and asks for the proposed security documents before deciding.

What to check

  • Ask which assets and obligations the security covers and how it is released.
  • Have unfamiliar legal terms and any personal commitments explained before signing.
Prepare for a funding discussion

Related terms Secured loanPersonal guaranteeAsset refinance

Sources and further reading

T

Costs and agreements↗

Total amount repayable

The total of the repayments and included charges expected under an agreement's stated assumptions. Compare this with the net funding provided, including any amount paid directly to a supplier, and identify costs payable separately or only if particular events occur.

Why it matters

An attractive payment figure or rate can leave out upfront deductions, a final payment or additional services. The total helps put the whole cash commitment in view.

An illustrative example

A company is offered £20,000 of finance but receives less after an upfront deduction. It compares all payments with the cash actually available for the plan.

What to check

  • Ask for the net advance and a complete repayment schedule in writing.
  • Identify separate broker, legal, valuation, late-payment and early-settlement charges where applicable.
Compare the complete funding cost Why the cheapest headline can mislead

Related terms APRFactor rateBalloon paymentEarly settlement

Sources and further reading
Business cash↗

Turnover

The value of a business's sales over a stated period. Turnover is different from profit and from cash already received: costs still need to be paid, and some sales may remain in unpaid invoices.

Why it matters

A monthly sales figure can help describe the scale of a company, but cannot on its own show how much repayment it can afford.

An illustrative example

A company records a strong month of invoiced sales, yet its bank balance remains tight because customers will pay later.

What to check

  • State the period and whether the figure is actual or forecast, including how VAT is treated when requested.
  • Review costs, margins and customer payment dates alongside sales.
Turnover is not cash in the bank

Related terms Cash flowWorking capitalCash-flow forecast

Sources and further reading

U

Funding options↗

Unsecured loan

A loan arranged without the borrower granting security over its business assets. The company still owes the debt, and the lender may require a personal guarantee from an owner or director.

Why it matters

Unsecured describes the security arrangement; it does not mean the borrowing has no consequences if payments are missed or that an individual's finances can never be affected.

An illustrative example

A director compares two unsecured offers and discovers that each has different personal guarantee requirements and early repayment terms.

What to check

  • Read the company agreement and any separate personal guarantee together.
  • Compare the full cost, repayment schedule and default terms rather than relying on the unsecured label.
Understand business loan commitments Prepare the questions to ask

Related terms Personal guaranteeSecured loanBusiness loan

Sources and further reading

V

Costs and agreements↗

Variable interest rate

A variable interest rate can change during the agreement. The agreement explains whether changes follow a reference rate, a provider’s published rate or another stated method. A rate change can affect interest charges and, depending on the facility, repayments or the time needed to clear the balance.

Why it matters

An initial repayment figure may not stay the same for the full term. Check how a rate change would affect cash flow and whether the company could manage a higher payment.

An illustrative example

A company compares two facilities. One has a fixed rate for the agreed period; the other can change under its terms. The owner asks for an illustration of how a stated increase would affect repayments.

What to check

  • Read the rate-change trigger, notice period, any floor or cap and how the provider recalculates payments.
  • Ask for the total cost under the current rate and a reasonable higher-rate illustration.
Compare funding costs

Related terms APRLoan termTotal amount repayable

Sources and further reading

W

Business cash↗

Working capital

In accounting, current assets minus current liabilities. In day-to-day funding discussions, working capital describes the resources supporting normal trading, such as buying stock and paying staff before customer money arrives. It is not simply the bank balance.

Why it matters

Growth can consume cash before it generates receipts. More orders may mean more materials, wages and unpaid invoices, so a profitable expansion can still create a funding gap.

An illustrative example

A wholesaler wins a larger order but must pay the supplier before its customer pays the invoice.

What to check

  • Estimate the cash gap using payment dates, not just the value of the new order.
  • Compare funding arrangements with the period and source of expected repayment.
Plan your cash flow Choose a starting point for funding

Related terms Cash flowCash-flow forecastInvoice financeBusiness loan

Sources and further reading

X

Costs and agreements↗

XIRR

XIRR is a spreadsheet function that calculates an annualised internal rate of return for cash flows occurring on irregular dates. It uses the amount and date of each cash flow; the result depends on the cash flows included and the calculation assumptions.

Why it matters

It can help compare dated cash-flow patterns, but it is not the same as a provider’s APR, factor rate or total amount repayable. A result is only as useful as the cash flows and timing entered.

An illustrative example

A business analyst models a facility with an initial amount received, monthly repayments and a fee paid on a different date. XIRR can express the modelled cash flows as an annualised return, but the written offer remains the source for contractual charges.

What to check

  • List the actual dates and amounts, including fees and any final payment, before using the function.
  • Compare the result with the agreement’s stated rate and total repayment figures; explain differences in method.
Compare funding costs

Related terms APRFactor rateTotal amount repayable

Sources and further reading

Y

Costs and agreements↗

Yield

Yield describes income or return from an investment compared with the amount invested, expressed using a stated time period or calculation. The term appears in investment and debt markets; it is not a standard substitute for the cost measures on a business borrowing proposal.

Why it matters

A business owner comparing borrowing should focus on the facility’s own rate method, fees, payment schedule and total amount repayable. An investor’s yield measures a different side of a financing arrangement.

An illustrative example

A company considers issuing a debt instrument to investors. Investors may discuss its yield, while the company still needs to model its repayments, fees, maturity date and other obligations.

What to check

  • Ask whose return the figure represents and what period and cash flows it uses.
  • Do not compare a yield directly with APR, a factor rate or a monthly repayment without reconciling their methods.
Compare funding costs

Related terms APRXIRRTotal amount repayable

Sources and further reading

Z

Business cash↗

Zero-based budgeting

Zero-based budgeting is a way to prepare a budget by justifying planned activities and costs for each new period instead of simply carrying forward last period’s figures. It starts from a zero base; it does not mean the business will have no spending.

Why it matters

Rebuilding the plan can show which costs are essential, which can be delayed and how much cash a project needs. The process takes time and relies on realistic assumptions.

An illustrative example

Before refurbishing a workspace, a company lists the safety work, equipment, labour and lost trading time it expects, then checks each amount instead of copying last year’s maintenance budget.

What to check

  • Separate committed costs from estimates and explain the purpose and timing of each planned spend.
  • Use the budget alongside a cash-flow forecast to see when money is needed and when receipts are expected.
Build a cash-flow forecast

Related terms Cash-flow forecastWorking capitalGross loan amount

Sources and further reading

Put the meaning to work

Read the detail.
Ask a better question.

Use the linked guides to compare the complete commitment. Start with the amount the company needs, when repayments fall due and what would happen if trading changes.

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Sources reviewed 28 October 2026. This glossary provides general information, not a personal recommendation or an offer. Source links do not imply a partnership. How we prepare our content