Glossary: UK specialty finance terms

How to use this glossary

Each term is grouped by category. Skim the category headings to find the area you need, then the bold term within. Definitions are 30 to 60 words and assume you are looking at a quote, contract or HMRC letter and need a fast, accurate read. Where a term is covered in depth on a FundBiz product or guide page, the term name links straight to it. Cross-references to sister sites (MarketInvoice for invoice finance, TakeCardPayments for card terminal pricing) are flagged inline. Where a term maps to a named UK regulator, statute or government scheme, a source link to the primary authority (legislation.gov.uk, the FCA, the British Business Bank, Companies House or gov.uk) sits under the definition.

Pricing structures

How specialty lenders quote cost. Factor rates, holdbacks, per-month rates and discount margins all sound similar and behave very differently. Read these before comparing two quotes side by side.

Factor rate

A multiplier (typically 1.10 to 1.50) used by Merchant Cash Advance providers to express total cost. A £20,000 advance at a 1.30 factor means you repay £26,000 in total. Factor rates are not APRs and are not directly comparable to interest rates.

Holdback

The fixed percentage of daily card takings (typically 8% to 20%) that an MCA provider retains until the advance is repaid. Higher holdback shortens the term but tightens daily cashflow. Sometimes called the retrieval rate or split.

APR vs effective APR

APR is the annualised cost of credit including interest and standard fees, calculated to a regulator-prescribed formula. Effective APR includes the impact of compounding within the year. UK consumer credit must quote APR; commercial finance often does not, which is why MCA factor rates can hide three-figure effective APRs.

Per-month rate

A simple monthly cost expressed as a percentage of the principal, common in short-term commercial loans and VAT loans (typically 1% to 3.5% per month). It is not the same as monthly compound interest; always confirm whether the rate is on the original or reducing balance.

Flat fee

A one-off charge expressed as a percentage of the loan amount, paid up front or rolled into the balance. Flat fees can mask the true cost: a 6% flat fee on a 6-month loan is roughly equivalent to 12% APR once you account for the reducing balance.

Discount margin (invoice finance)

The interest-style charge an invoice finance provider applies to the funded balance, typically expressed as Bank of England base rate plus 2% to 4%. Charged daily on the cash advanced, not on the invoice face value.

Service fee (invoice finance)

A separate charge for managing the sales ledger, credit control and collections, expressed as a percentage of turnover (typically 0.2% to 3%). Higher for full factoring with collections, lower for confidential invoice discounting where you keep control.

Interchange-plus vs blended pricing

Two ways card terminal providers price transactions. Interchange-plus shows the wholesale card-scheme cost plus a transparent acquirer markup. Blended hides everything inside one headline rate. Interchange-plus is usually cheaper for businesses doing more than ~£10,000 a month in card volume.

Asset finance

Hire purchase, leases, residuals and balloons. The product names look interchangeable; the accounting treatment, ownership outcome and end-of-term liability are not.

Hire purchase (HP)

An asset finance product where you pay a deposit, then fixed monthly instalments, and own the asset outright after the final payment. The asset sits on your balance sheet from day one and you claim capital allowances. Common for vehicles, plant and equipment.

Finance lease

You rent the asset for substantially all of its useful life, with the option to continue at a peppercorn rent or sell it on the lender's behalf and keep most of the proceeds. The asset and matching liability sit on your balance sheet under FRS 102 and IFRS 16.

Operating lease

A shorter-term rental where the lender carries the residual-value risk and takes the asset back at the end. Historically off balance sheet, but FRS 102 (effective 1 January 2026) and IFRS 16 now require most operating leases to be capitalised by the lessee.

Balloon payment

A large lump-sum payment at the end of an HP or lease agreement, used to keep monthly instalments low. Common on vehicle finance: a £40,000 van might have a £10,000 balloon, leaving £30,000 to amortise across the term. You must refinance, settle or hand back at term end.

Residual value (RV)

The lender's estimate of what the asset will be worth at the end of the lease or HP term. RV drives the monthly cost: a higher RV means lower monthly payments, but more risk if the asset depreciates faster than expected. The party carrying RV risk depends on the product type.

Voluntary termination (VT)

Your statutory right under the Consumer Credit Act 1974 to hand back a regulated HP agreement once you have paid 50% of the total amount payable, capping your liability. VT applies to consumer agreements; commercial HP usually does not have an equivalent statutory right. Source: legislation.gov.uk

Invoice finance

Funding against B2B receivables. Factoring, CID and ABL sit on a spectrum from disclosed and high-touch to confidential and self-managed. Recourse and selectivity options sit on top.

Factoring

You sell your invoices to a finance provider who advances 70% to 90% up front, then collects directly from your customers and pays you the balance (less fees) when they settle. Disclosed to your customers; suits businesses willing to outsource credit control.

Confidential invoice discounting (CID)

Same up-front advance against invoices, but you keep control of credit control and collections, and your customers do not know a finance provider is involved. Usually requires stronger management accounts and a minimum turnover (often £500k+).

Asset-based lending (ABL)

A composite facility that funds against multiple asset classes simultaneously: invoices, stock, plant and machinery, and sometimes property. Used by larger SMEs (typically £5m+ turnover) and in management buyouts. More flexible than single-product invoice finance but more complex to set up.

Whole-turnover vs selective

Whole-turnover invoice finance covers every sales invoice you raise; selective (or spot) factoring lets you choose which invoices to fund. Whole-turnover is cheaper per invoice but commits you to the facility; selective is flexible but pricier per transaction.

Recourse vs non-recourse

Under recourse invoice finance, if your customer does not pay, you must buy the invoice back from the lender. Under non-recourse, the lender carries the bad-debt risk (subject to credit limits and exclusions). Non-recourse usually carries a higher service fee or a credit-protection premium.

Credit and security

What lenders look at, and what they take. Personal guarantees, charges, credit searches and affordability ratios decide whether the deal flies and what happens if it does not.

Personal guarantee (PG)

A director's written promise to repay the company's debt personally if the company defaults. Limited PGs cap the amount; unlimited PGs do not. Joint and several means the lender can pursue any one director for the full amount; several only means each director is liable for a defined share. PG insurance is available but rarely cheap.

Debenture

A document granting a lender security over the company's assets, registered at Companies House. A typical SME loan debenture creates a fixed charge over named assets (e.g. specific machinery) plus a floating charge over everything else (stock, debtors, cash). Sits ahead of unsecured creditors in insolvency. Source: Companies House

Fixed charge vs floating charge

A fixed charge attaches to a specific identified asset and prevents you selling or charging it without lender consent. A floating charge hovers over a class of assets (such as stock or receivables) that change over time, and crystallises into a fixed charge on default or insolvency. Fixed-charge holders rank ahead of floating-charge holders.

Soft search vs hard search

A soft search is visible only to you and does not affect your credit score; lenders use it for eligibility checks and quotes. A hard search is recorded on your file and is visible to other lenders for 12 months. Multiple hard searches in a short window can dent your score; reputable brokers use soft search first.

CCJ

County Court Judgment, recorded against a company or director when a creditor sues for an unpaid debt and wins. Stays on the public register for 6 years unless paid within 30 days (which removes it). Most UK SMB lenders will decline applicants with unsatisfied CCJs over £1,000 in the last 12 to 24 months.

Affordability ratio (DSCR)

Debt Service Coverage Ratio, the ratio of free cashflow available to service debt versus the debt repayments themselves. UK SMB lenders typically want DSCR of 1.25x or higher (i.e. you generate £1.25 of free cash for every £1 of loan repayment). Below 1.0x means the loan is unaffordable on current trading.

Regulatory

The rules and standards that frame UK commercial lending in 2026. Knowing the difference between FCA-authorised and FCA-regulated, and what FRS 102 changes in January, prevents nasty surprises at audit.

Consumer Credit Act 1974

The UK statute regulating credit agreements with individuals and (under historical limits) sole traders and small partnerships. Commercial lending to limited companies is exempt. The CCA gives borrowers rights including the 14-day cooling-off period, voluntary termination on HP, and prescribed APR disclosure. Source: legislation.gov.uk

FCA-authorised vs FCA-regulated

FCA-authorised means a firm holds Part 4A permission to carry out specified regulated activities (the firm itself is on the FCA register). FCA-regulated is a looser term that includes both authorised firms and exempt persons (such as appointed representatives) operating under another firm's permission. Always check the FRN on the FCA register. Source: FCA Register

ECCTA director identity verification

Under the Economic Crime and Corporate Transparency Act 2023, all UK company directors must verify their identity with Companies House (directly or via an Authorised Corporate Service Provider). The verification requirement became compulsory for new directors in late 2025 and applies to existing directors on a phased basis through 2026. Source: legislation.gov.uk

FRS 102 lease accounting (effective Jan 2026)

The revised UK GAAP standard requires lessees to recognise nearly all leases (over 12 months and above a low-value threshold) on the balance sheet as a right-of-use asset and a lease liability. Effective for accounting periods beginning on or after 1 January 2026. Brings UK GAAP into line with IFRS 16. Source: Financial Reporting Council

IFRS 16

The international accounting standard for leases, mandatory for UK listed groups since 1 January 2019. Removes the operating-lease vs finance-lease distinction for lessees: almost all leases go on balance sheet. Affects gearing ratios, EBITDA and loan covenants. The model FRS 102 has now adopted for UK GAAP from 2026.

Schemes and products

Government-backed schemes and specialist products UK SMEs can call on. GGS, Start Up Loans, VAT loans and R&D advances each fit a specific moment in the trading cycle.

Growth Guarantee Scheme (GGS)

The British Business Bank scheme providing accredited lenders with a 70% government guarantee on facilities up to £2m for UK SMEs (turnover up to £45m). Successor to the Recovery Loan Scheme. Originally due to end July 2026; extended in the Autumn 2025 Budget to run to March 2030. Source: British Business Bank

Start Up Loans Company (BBB)

A British Business Bank programme providing personal loans of £500 to £25,000 to individuals starting or growing a UK business under 36 months old. Fixed 6% per year, 1 to 5 year term, plus 12 months of free mentoring. Personal liability sits with the borrower, not the company. Source: British Business Bank

Recovery Loan Scheme

The Covid-era successor to CBILS, offering government-guaranteed loans to UK SMEs from April 2021 to June 2024. Replaced by the Growth Guarantee Scheme in July 2024 with broadly equivalent terms. Often referenced in older lender criteria and marketing.

VAT loan

A short-term commercial loan structured to pay an upcoming or overdue VAT bill, typically over 3 to 6 months. The lender pays HMRC directly or transfers cash to the business. Rates from FundBiz panel lenders run 1.5% to 3.5% per month. See VAT loan vs HMRC Time-to-Pay for the full comparison. Source: gov.uk

R&D advance

A loan secured against an expected HMRC R&D tax credit claim, advanced before the claim is paid (which can take 6 to 12 months). Typical advance is 70% to 80% of the expected credit, repaid when HMRC pays. Useful for cashflow but priced at commercial-loan rates, not at the cost of the credit itself. Source: gov.uk R&D relief

HMRC and cashflow

When the tax bill is the cashflow problem. TTP, statutory demands, winding-up petitions and the directors' loan account rules all sit close together; getting the sequence right matters.

Time to Pay (TTP)

A formal arrangement with HMRC to pay a tax bill (VAT, PAYE, Corporation Tax, Self Assessment) in instalments rather than in one lump sum. Interest accrues at HMRC's official rate (Bank of England base plus 4%, currently 7.75% from 9 January 2026). Granted at HMRC's discretion based on trading history. Source: gov.uk

Statutory demand

A formal written demand for payment of an undisputed debt of £750 or more (companies) or £5,000 or more (individuals). If unpaid after 21 days, the creditor can present a winding-up petition (for a company) or a bankruptcy petition (for an individual). A statutory demand is the standard precursor to insolvency proceedings.

Winding-up petition

A creditor's court application to have a company compulsorily wound up (liquidated) on grounds of insolvency. Once advertised in The Gazette, banks typically freeze the company's accounts. Usually triggered after an unpaid statutory demand or unpaid HMRC debt. Settlement or dispute is urgent; the petition itself can be lethal to ongoing trading.

Bed-and-breakfasting (S464A)

The practice of clearing a directors' loan account just before the corporation tax year-end and re-borrowing shortly after, to avoid the S455 charge. HMRC counters this under section 464A CTA 2010: re-borrowing within 30 days, or where there is intent to redraw, can trigger the S455 charge regardless of the year-end balance. Source: legislation.gov.uk

Section 455 (S455 directors loan account charge)

A 33.75% (from April 2022) corporation tax charge on overdrawn directors' loan accounts not repaid within 9 months and 1 day of the company's year-end. The charge is repaid by HMRC when the loan is eventually cleared, but interim cashflow impact can be material. Often funded by a short-term commercial loan. Source: gov.uk

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