A to Z of Business Financing Terms

A

Accounts Payable – a record of all short-term (less than 12 months) invoices, bills and other liabilities yet to be paid. Examples of accounts payable include invoices for goods or services, bills for utilities and tax payments due.

Accounts Receivable – a record of all short-term (less than 12 months) expected payments, from customers that have already received the goods/services but are yet to pay. These types of customers are called debtors and are generally invoiced by a business.

Accounts Receivable Finance – see Factoring.

Accrual Accounting – an accounting system that records transactions at the time they occur, whether the payment is made now or in the future.

Adverse Credit – this is the expression used to describe a poor/ bad credit history. For example it may be used to describe someone with a history of late payments, CCJs or bankruptcy.

AIP – an Agreement in Principle is confirmation that a lender is prepared to advance a loan to a potential borrower subject to being satisfied with the security offered – i.e. a positive Decision in Principle.

ALIE (assets liabilities income expenditure) – this typically shoes the total household income and expenditure and what the total asset values are liabilities that are held.

Amortisation – the process of expensing for intangible assets such as goodwill and intellectual property over a period of time. See also Depreciation.

APR – the Annual Percentage Rate provides an indication of the overall cost of a loan including all set up costs (spread over the life of the loan) and interest charged on the loan. You can compare APR rates between different loans to provide a rough indication of which is more expensive, regardless of loan term. The lender is obliged to tell you the APR before you sign a loan agreement.

Arrangement Fee – this is the amount charged by a lender to set up the mortgage for you. It is usually due when the loan application is completed and may be added to the loan.

Arrears – someone is in arrears if they have missed payments that they should have made towards their mortgage or other debt.

Assets – are things you own. These can be cash or something that can be converted into cash such as property, vehicles, equipment and inventory.

AST – an Assured Shorthold Tenancy entitles the landlord to a possession order immediately after the initial agreed period, which is usually for six months. The landlord is therefore able to evict the tenant after the initial fixed term without a legal reason.

Audit – a physical check performed by an auditor or tax official on a business’ financial records to check that everything is accounted for correctly.

Authorised Firm – a firm that has the necessary permissions from the FCA (or its successor bodies) to carry out regulated activities – e.g. arranging residential mortgages or insurance.

B

Bad Debts – money owed to you that is unlikely to be paid to you in the foreseeable future.

Balance Sheet – a snapshot of a business as of a particular date. It lists all of a business’ assets and liabilities and works out the net assets.

Balloon Payment – a final lump sum payment due on a loan agreement. Loans with a larger final ‘balloon payment’ have lower regular repayments over the term of the loan.

Bank Reconciliation – a cross-check that ensures the amounts recorded in the cashbook match the relevant bank statements.

Bankrupt – an individual is bankrupt when they cannot pay their debts and aren’t able to reach an agreement with their creditors.

Bankruptcy – a process where an individual is legally declared bankrupt and their assets and financial affairs are administered by an appointed trustee.

BBR – the Bank of England Bank Rate is reviewed every month and is the interest rate set by the Bank of England. Your mortgage interest rate may be linked to BBR depending on your mortgage type.

Benchmark – a set of conditions against which a product or business is measured.

Benchmarking – the process of comparing your business to similar businesses in your industry.

Bill of Sale – a legal document used in the purchase of property or other assets that details what was purchased, where the purchase took place, and for how much.

Bookkeeping – the process of recording the financial transactions of a business.

Bootstrapping – where a business funds growth purely through personal finances and revenue from the business.

Bottom Line – see Net profit.

Break-even Point – the exact point when a business’ income equals a business’ expenses.

Broker Fee – this is the fee charged by a mortgage broker for sourcing and processing the most appropriate mortgage for you. This may be due either up front or on completion.

Budget – a listing of planned revenue and expenditure for a given period.

Business Bridge Loan is a blend of a business loan and business overdraft, typically taken out for a period of 2 weeks to 2 years pending the arrangement of larger or longer-term financing., and is also referred to as a “caveat loan,”.

Business Loan – is debt that the company is obligated to repay according to the loan’s terms which can typically range between 1 to 10 years.

Buy to Let Mortgage – it is a form of residential investment in which you buy a property, typically with a mortgage, with the view of renting it out to a tenant(s). When you buy a property with a ‘buy to let ‘mortgage, you become a landlord

 

C

Capital – wealth in the form of money or property owned by a business.

Capital and Interest Mortgage – also known as a Repayment Mortgage, monthly payments on this type of mortgage will cover the interest on the mortgage, plus a specific amount of the actual mortgage loan, thus reducing the loan amount each month.

Capital Cost – a one-off substantial purchase of physical items such as plant, equipment, building or land.

Capital Gain – is the amount gained when an asset is sold above its original purchase price.

Capital Growth – an increase in the value of an asset.

Capped Rate Mortgage – this type of mortgage can go up and down with interest rate, however, it will have fixed maximum interest rate (capped rate) that it will not exceed.

Cash – includes all money that is available on demand including bank notes and coins, petty cash, certain cheques, and money in savings or debit accounts.

Cash Accounting – an accounting system that records transactions at the time money is actually received or paid.

Cashback – this is a lump sum cash amount you may receive when you complete a mortgage. It only applies to certain mortgages and may be a fixed amount or a percentage of the mortgage.

Cash Book – a daily record of all cash, credit or cheque transactions received or paid out by a business.

Cash Flow – the measure of actual cash flowing in and out of a business.

Cash Incoming – money that is flowing into the business.

Cash Outgoing – money that is flowing out of the business.

CCJs – a County Court Judgement (CCJ) is an order from the County Court instructing you to repay a debt. A lender can apply to the County Court if you don’t repay your debt.

Chart of Accounts – an index of the accounts a business will use to classify transactions. Each account represents a type of transaction such as Asset, Liability, Owner’s equity, Income, and Expense.

Chattel Mortgage – is similar to a hire-purchase agreement although the business owns the asset from the start. Chattel mortgages require regular ongoing payments and typically provide the option of reducing the payments through the use of a final ‘balloon’ payment.

Collateral – see Security.

Commercial Bill – (also known as a bill of exchange) is a form of commercial loan that can be offered on an interest only basis, or reducing basis. Commercial bills typically require some sort of security and suit short-term funding needs such as inventory.

Contingent Liability – a liability that only needs to be paid if a particular event or circumstance occurs.

Commercial Mortgage is a mortgage loan secured by commercial property, such as an office building, shopping center, industrial warehouse, or apartment complex

Commercial Investment – refers to buildings or land intended to generate a profit, either from capital gain or rental income.

Completion – this is the expression used to describe the final stage of purchasing a property or of remortgaging a loan on a property.

Conveyancing – this is the legal process involved when buying/ selling a property.

Consolidation Loan – is the combining of several debts into a single, new loan that is more favourable. Debt/Loan consolidation involves taking out a new loan to pay off a number of other debts. The new loan may result in a lower/higher interest rate, lower monthly payment or both.

Convertible Loan Notes (CLNs) – are evidence of a loan which is convertible into equity at a later date, at specific rates or in response to particular events. They will generally be redeemable as well as convertible. They can be secured, although often are not. If they are unsecured then they will rank alongside all unsecured creditors in the event of a liquidation

Cost of Goods Sold – the total direct costs of producing a good or delivering a service.

Credit – a lending term used when a customer purchases a good or service with an agreement to pay at a later date (e.g. an account with a supplier, a store credit card or a bank credit card).

Credit Check – this is the check that is undertaken into your financial history when you apply for a mortgage. It will show your credit behaviour, borrowing and any adverse credit.

Creditor – a person or business that allows you to purchase a good or service with an agreement to pay at a later date. A creditor is also anyone who you owe money to, such as a lender or supplier.

Credit Limit – a dollar amount that cannot be exceeded on a credit card or the maximum lending amount offered for a loan.

Credit Rating – a ranking applied to a person or business based on their credit history that represents their ability to repay a debt

Credit History – a report detailing an individual’s or business’ past credit arrangements. A credit history is often sought by a lender when assessing a loan application.

Credit Score – this is a scoring method used by some lenders to grade the quality of your credit history as a result of carrying out a credit check.

Crowd Funding – Is a way of financing your business idea through donations of money from the public. This is usually done online, through a crowd funding website.

Current Asset – an asset in cash or that can be converted into cash within the next 12 months.

Current Liability – a liability that is due for payment in the next 12 months.

 

D

Debenture – when borrowing through a limited company, lenders sometimes require a debenture. This places a charge on property/ assets owned by the company as collateral for the mortgage being arranged.

Debit – in double-entry bookkeeping a debit is an entry made on the left hand side of a journal or ledger representing an asset or expense.

Debt – any amount that is owed including bills, loan repayments and income tax.

Debt Consolidation – the process of combining several loans or other debts into one for the purposes of obtaining a lower interest rate or reducing fees.

Debt Finance – money provided by an external lender, such as a bank or building society.

Debtor – a person or business that owes you money.

Debtors finance – See Factoring.

Decision in Principle – the decision as to whether or not a lender is prepared to advance a loan to a potential borrower subject to being satisfied with the security offered.

Default – a failure to pay a loan or other debt obligation.

Depreciation – the process of expensing an asset over a period of time. An asset is depreciated to spread the cost of the asset over its useful life.

Development Finance – Is a loan granted for the development or refurbishment of residential, commercial or mixed use properties.

Disbursements – money that is paid out by a business.

Discount – a reduction applied to a full priced good or service. See also Markdown.

Discounted Rate Mortgage – this is a guaranteed reduction in the rate of your mortgage against BBR, SVR or LIBOR. This discount usually lasts for a fixed period, typically two, three or five years.

Double-entry Bookkeeping – is a bookkeeping method that records each transaction in two accounts, both as a debit and a credit.

Drawings – personal expenses paid for from a business account.

Drip Pricing – Is when one price is presented at the beginning of an online shopping experience and gradually, incremental fees and charges are added (or ‘dripped’) as you progress, for example, when buying a plane ticket. Drip pricing can result in the customer paying a higher price for a service or product than they first thought. As a business owner, you are required to show fees and charges at the beginning of an online shopping process and not gradually add them in.

E

EBITDA – earnings before interest, taxes, depreciation, and amortization (used as an indicator of the overall profitability of a business)

EFG – the Enterprise Finance Guarantee (EFG) is a UK government-guaranteed lending scheme intended to help smaller viable businesses who may be struggling to secure finance, by facilitating bank loans of between £1,000 and £1 million.

Encumbered – an encumbered asset is one that is currently being used as security or collateral for a loan.

Equity – the value of ownership interest in the business, calculated by deducting liabilities from assets. See also owner’s equity.

Equity Finance – is money provided to a business in exchange for part ownership of the business. This can be money invested by the business owners, friends, family, or investors like business angels and venture capitalists.

ERC – the Early Repayment Charge (also known as Early Redemption Charge) is a charge that may be implemented under the terms of your mortgage if you repay early or before a set date. The charge usually ceases once the mortgage is out of its fixed or discounted rate term.

 

F

Facility – a predetermined arrangement such as an account offered by a financial institution to a business (e.g. a bank account, a short-term loan or overdraft).

Factoring – (also known as debtors finance and accounts receivable finance) — is when a factor company buys a business’ outstanding invoices at a discount. The factor company then chases up the debtors. Factoring is a way to get quick access to cash, but can be quite expensive compared to traditional financing options.

FCA – the Financial Conduct Authority is one of the regulatory bodies with authority over the UK financial services industry. The FCA seeks to promote competition, ensure market integrity and protect consumers. All residential mortgages are regulated by the FCA, as are certain buy to let mortgages where it is felt necessary that the consumer be given similar levels of protection e.g. “let to buy”, whereby a home-mover remortgages and lets out their existing home instead of selling it.

Fee Free Remortgage – this means that the lender will pay for the valuation and legal fees on your behalf when you remortgage.

Finance – money used to fund a business or high value purchase.

Financial Year – a twelve month period typically from 1 April to 31 March.

Financial Statement – a summary of a business’ financial position for a given period. Financial statements can include a profit & loss, balance sheet and cash flow
statement.

First Charge – the first (or main) mortgage on a property.

Fixed Asset – a physical asset used in the running of a business.

Fixed Cost – a cost that cannot be directly attributed to the production of a good or service.

Fixed Interest Rate – when the interest rate of a loan remains the same for the term of the loan or an agreed time frame.

Fixed Rate Mortgage – this is a common mortgage type, and is when the lender fixes the rate that you will pay for a set period. For example, the lender may set the rate at 5.75% for the first three years. After this fixed rate period the rate you pay will change to a rate linked to BBR, LIBOR or SVR.

Float – is when a private company offers shares in the company to the public for the
first time. See Initial public offering.

Forecast – a prediction of future financial transactions. Forecasts are often used to help plan a more accurate budget.

Fully Drawn Advance – is a long term loan with the option to fix the interest rate for a period. These loans are usually secured and can be used to fund a new business or equipment.

Freehold – a situation where the owner owns both the property and the land that it is on.

G

Goodwill – an intangible asset that represents the value of a business’ reputation.

Gross Income – the total money earned by a business before expenses are
deducted.

Gross Development Value (GDV) – is an important valuation metric that all investors and property developers need to be familiar with when building their project and financial appraisals. The gross development value of a property investment project can be calculated to give a near accurate figure of what that property or real estate development project may be worth on the open market once all development works have been completed.

Gross Profit – (also known as net sales) the difference between sales and the direct
cost of making the sales.

Guarantor – a person who promises to pay a loan in the event the borrower cannot meet the repayments. The guarantor is legally responsible for the debt.

H

Hire-purchase – a type of finance contract where a good is purchased through an initial deposit and then rented while the good is paid off in instalments plus interest charges. Once the good is fully paid the ownership of the good transfers to the purchaser. See also Rent to buy.

Houses in multiple occupation (HMOs) – HMO property is one where unrelated tenants have exclusive access to their rooms and share common living areas, such as the kitchen or bathroom. Examples include student shared housing or bedsit style housing.

I

ICR – the Income Cover Ratio is part of the basic affordability calculation that is typically applied to buy to let mortgage applications. The ICR is the minimum ratio between the expected rental income of the property and a notional interest rate (“Stress Test”).

Initial Public Offering (IPO) – when a company first offers shares on the stock market to sell them to the general public. Also known as floating on the stock market.

Insolvent – a business or company is insolvent when they cannot pay their debts as and when they fall due.

Intangible Assets – non-physical assets with no fixed value, such as goodwill and intellectual property rights.

Interest – the cost of borrowing money on a loan or earned on an interest-bearing account.

Interest Only Mortgage – with an interest only mortgage your monthly payments are simply the interest on the mortgage loan. This means that your monthly payments do not reduce the actual loan amount.

Interest rate – a percentage used to calculate the cost of borrowing money or the amount you will earn. Rates vary from product to product and generally the higher the risk of the loan, the higher the interest rate. Rates may be fixed or variable.

Inventory – an itemised list of goods or materials a business is holding for sale.

Investment – an asset purchased for the purpose of earning money such as sharesor property.

Invoice – a document provided to a customer to request payment for a good/service received.

Invoice finance – is finance offered based on the strength of a business’ accounts receivable. This form of financing is similar to factoring, except that the invoices or accounts receivables remain with the business. See also Factoring.

 

L

Leasehold – this is common with flats in the UK. It is the expression used when you own/ purchase the property but not the land it is built on. After a set number of years the lease will need to be re-purchased/ extended otherwise the property will eventually revert to the freeholder.

Lender – this is the entity that is lending the money for the mortgage, for example, a bank or building society.

Legal Fees – these fees covers the aspects associated with the conveyance of your mortgage. The amount can vary greatly depending on the complexity of the application.

Liability – a financial obligation or amount owed.

LIBOR – the London InterBank Offered Rate is the interest rate at which lenders borrow and lend money to each other. Each bank sets its own LIBOR dependent on its own cost of borrowing. This rate may be the rate on which your mortgage is based (instead of the BBR or SVR).

Limited Company Buy to Let Mortgage – this is a mortgage application that has been made by a limited company instead of in a personal name (or names). The company could be either an SPV or Trading Limited Company, but SPVs are usually preferred. Lenders typically require Personal Guarantees from the company directors and major shareholders when arranging this type of mortgage.

Line of Credit – an agreement allowing a borrower the ability to withdraw money from an account up to an approved limit.

Liquidate – to quickly sell all the assets of a company quickly and convert them into cash.

Liquidation – the process of winding up an insolvent company. An appointed administrator will do this by ceasing business operations, selling assets, and paying creditors and shareholders.

Liquidity – how quickly assets can be converted into cash.

Loan – a finance agreement where a business borrows money from a lender and pays it back in instalments (plus interest) within a specified period of time.

Loan to Value Ratio (LVR) –
 your loan amount shown as a percentage of the market value of the property or asset that will be purchased. The ratio helps a lender work out if the loan amount can be recouped in the event a loan goes into default.

Loan to Income Ratio (LTI) – also know as debt-to-income ratio (DTI) is one way lenders (including mortgage lenders) measure an individual’s ability to manage monthly payment and repay debts. LTI/DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.

Loan-to-Value (LTV) ratio – is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased. The term is commonly used by banks and building societies to represent the ratio of the first mortgage lien as a percentage of the total appraised value of real property.

M

Margin – the difference between the selling price of a good or service and the profit. Margin is generally worked out as a gross margin percentage which shows the proportion of profit for each sales dollar. See also Mark up.

Margin Call – when the value of a property or asset falls below a certain LVR. For higher risk loans such as margin loans, the lender will request further payment to bring the LVR back to the agreed percentage. See also Loan to value ratio (LVR).

Mark Down – a discount applied to a product during a promotion/sale for the purposes of attracting sales or for shifting surplus/discontinued products. See also Discount.

Mark Up – the amount added to the cost price of goods, to help determine a selling price. Essentially it is the difference between the cost of the good/service and the selling price, but it does not take into account what proportion of the amount is profit. See also Margin.

Maturity Date – when a loan’s term ends and all outstanding principal and interest payments are due.

Mezzanine Financing – is the part of a company’s capital that exists between senior debt and common equity as either subordinated debt, preferred equity or a combination of the two.

Mixed Use Property – also called semi-commercial property, mixed use properties have both a residential and a commercial component e.g. a shop with a flat above, owned on the same freehold, or a guest house with separate owner accommodation.

Mortgage – this is a loan used to buy a property. The property is used as the security against you paying back the loan. Therefore if you default on the loan your property may be repossessed. Mortgages can be taken out on a variety of properties including flats, houses, shops, offices, and hotels.

Mortgage Broker – this is a company or individual that sources and brokers mortgages. They are experienced professionals and work for you, not the lender. The advantage of using a mortgage broker is that they can save you time and money because of their extensive market knowledge, experience and relationships with lenders.

Multi-lets and Student-lets – are similar to HMOs. They are often referred to as non licensable HMOs because they have many charecteristics of an HMO but the local authority deems that they do not require an HMO license. However, they may require planning permission from the local authority so do check on both requirements.

Multi-unit freehold blocks (MUFBs) – is a single building with multiple, separate, independent residential units owned under a single freehold title, meaning no unit is subject to a lease.

 

N

Net Assets – (also known as net worth, owner’s equity or shareholder’s equity) is the total assets minus total liabilities.

Negative Equity – this occurs when the value of the property is worth less than the outstanding value of the mortgage.

Net Income – the total money earned by a business after tax and other deductions are taken out.

Net Profit – (also known as your bottom line) is the total gross profit minus all business expenses.

Net Worth – See Net assets.

 

O

Overdraft Facility – a finance arrangement where a lender allows a business to withdraw more than the balance of an account.

Overdrawn Account – a credit account that has exceeded its credit limit or a bank account that has had more than the remaining balance withdrawn.

Overheads – the fixed costs associated with operating a business such as rent, marketing, utilities and administrative costs. See also Fixed costs.

Owner’s Equity – See Net assets.

P

Personal Guarantees – a personal guarantee is an undertaking by an individual, usually a director or shareholder of a company, to accept liability for a debt should the company become unable to keep up repayments. Most buy to let lenders insist upon personal guarantees when lending to corporate vehicles (SPVs, trading limited companies, LLPs, etc.)

Personal Property – covers any property someone can own, except for land, buildings and fixtures. Examples include goods, plant and equipment, cars, boats, planes, livestock and more.

Personal/ Residential Mortgage – this is a mortgage taken out on a property that you will be living in, for example when you buy your own home. This is also known as a Home-owner Mortgage or a Home-buyer Mortgage and is the most common type of mortgage.

Petty Cash – cash for the purposes of small miscellaneous purchases such as postage.

Plant and Equipment – a group of fixed assets used in the operation of a business such as furniture, machinery, fit-out, vehicles, computers and tools.

Portable – this is a mortgage that will allow you to transfer your mortgage to a different property without any penalty, even if there are repayment charges.

PRA – the PRA (Prudential Regulation Authority) is one of the regulatory bodies with authority over the financial services industry in the UK. PRA guidelines on mortgage lending are intended to protect the UK economy by ensuring mortgage lending is conducted responsibly.

Principal – the original amount borrowed on a loan or the remainder of the original borrowed amount that is still owing (excluding the interest portion of the amount).

Profit – the total revenue a business earns minus the total expenses. See also Revenue.

Profit and Loss Statement – (also known as an income statement) is a financial statement listing sales and expenses and is used to work out the gross and net profit of a business.

Profit Margin – see Margin.

Projection – see Forecast.

R

R&D – Stands for ‘research and development’. Businesses conduct research and development to innovate, create new products and find better ways of doing things.

Receipt – a document provided to a customer to confirm payment and to confirm a good/service has been received.

Record Keeping – the process of keeping or recording information that explain certain business transactions. Record keeping is a requirement under tax law.

Refinance – when a new loan is taken out to pay off an existing one. Refinancing is often done to extend the original loan over a longer period of time, reduce fees or interest rates, switch banks, or move from a fixed to variable loan.

Remortgage – this is a common process for mortgage holders and occurs when a new mortgage is taken out without selling the property. Remortgaging happens for a variety of reasons including; to release equity from a property, to consolidate debts, or to take advantage of a more favourable mortgage rate.

Rent to Buy – is a type of finance arrangement where a good is purchased through an initial deposit and then ‘leased’ while the good is paid off. Once the good is fully paid the purchaser has the option (but no obligation) to buy the good or continue leasing. See also Hire purchase.

Repayment Mortgage – a mortgage that requires you to pay off the loan and the interest at the same time throughout the term of the mortgage.

Repossess – the process of a bank or other lender taking ownership of property/assets for the purpose of paying off a loan in default.

Retention of Title – a type of clause that can be included in contracts where a buyer may physically receive property, but doesn’t take legal ownership from the seller until the full purchase price is paid.

Return on Investment (ROI) – a calculation that works out how efficient a business is at generating profit from the original equity provided by the owners/shareholders. It’s a way of thinking about the benefit (return) of the money you’ve invested into the business. To calculate ROI, divide the gain (net profit) of the investment by the cost of the investment – the ROI is expressed as a percentage or a ratio.

RTI – the Rent to Interest cover is the ratio of rent receivable on the property to interest cost of the related loan. This is used by lenders to assess the ability of the borrower to be able to afford the proposed loan. The interest cost applied in this calculation may have a pre-determined rate of interest so that the cover is not unduly affected by current rates of interest.

Reversion Rate – this is the rate to which your mortgage will revert at the end of any incentive or fixed rate period. For example, you may have a three-year fixed rate mortgage of 5.75%. At the end of the three years the mortgage rate may change to 6.4%; therefore the reversion rate would be 6.4%.

S

Second Charge – a second charge is a mortgage that takes secondary priority behind the main mortgage (first charge).

Single – entry bookkeeping – a bookkeeping method used within a cash accounting system and records one side of each transaction.

Searches – these are the checks carried out by your solicitor when you are purchasing a new property. They will look out for anything that may affect your property. For example; if any planning applications have been made at that property or in the area; or if the area is prone to flooding; or if there is a history of subsidence.

Security – (also known as Collateral) is property or assets that a lender can take possession of, in the event that a loan cannot be repaid.

Self-Certification – this is also referred to as self-cert and self-certified and relate to mortgages that are available to applicants who may have difficulty providing evidence of their personal income. These mortgages are no longer generally available in the UK mortgage market.

Semi-Commercial properties – these are also known as mixed investment and part commercial properties and consist buildings made up of both a residential and a commercial element such as flats above shops or offices, or pubs and guesthouses with separate owner’s accommodation.

Shareholder’s Equity – see Net assets.

SPV – a Special Purpose Vehicle is a non-trading company that exists solely for buying, selling and letting of property. Buy to let finance for SPVs is available although rates are higher.

Stamp Duty – more properly called Stamp Duty Land Tax, this is a tax levied on property purchases. It is only payable on properties worth £125,000 and over and is calculated as a percentage of the property price.

Stock – the actual goods or materials a business currently has on hand.

Stocktaking – a regular process involving a physical count of merchandise and
supplies actually held by a business, completed to verify stock records and accounts.

Stretch loan – a loan that is greater than the lendable assets of the borrower.

Structural Survey – this is an extensive survey carried out on the actual physical structure of the property. It goes beyond the usual requirements of the lender and will entail additional costs for the borrower.

Stress Test – the stress test is part of the basic affordability calculation that is typically applied to buy to let mortgage applications.

Sub-Prime – this is the expression used to describe a poor/bad credit history. For example it may be used to describe someone with a CCJ.

SVR – many lenders set their own Standard Variable Rate as a basis level for their range of loan products. It is not linked directly to either BBR or LIBOR but it is likely to move in the same direction as changes in other interest rates.

T

Term – the maximum period of time for which the mortgage will last. Interest Only Mortgages may still have their entire loan amount outstanding at the end of the term whereas Repayment Mortgages will be fully repaid at this time (if all payments due have been made).

Title Deeds – this is the legal document that shows the details of the legal owner of the property.

Tracker Mortgage – this is a mortgage that tracks another rate. Most track BBR, however they can also track either the lender’s SVR or LIBOR.

Turnover – See Revenue.

V

Valuation – this report is prepared by a lender’s appointed valuer to ensure that a property is appropriate security for the mortgage and to find out how much the property is worth and its expected rental income.

Valuation Fee – the fee charged to cover the cost of the lender’s valuation – usually paid by the borrower.

Vanilla Buy-to-Let – Properties in this category tend to be normal 2-3 bed houses and flats, usually fitting the general lending criteria of mainstream Buy-to-Let lenders. In the trade these property types are known as vanilla Buy-to-Let properties.

Variable Interest Rate – when the interest rate of a loan changes with market conditions for the duration of the loan.

Variable Cost – a cost that changes depending on the number of goods produced or the demand for the products/service.

Variable Rate – this expression shows that the interest rate varies and is not fixed. It is the interest rate the lender charges you. It may go up or down and with that your payments will do too.

Venture Capital / Venture Capital Trust (VC/VCT) – capital invested in a start-up business that is thought to have excellent growth prospects but does not have access to capital markets because it is a private company.

Venture Debt – is a form of debt financing for emerging venture-backed companies. This type of financing has emerged as a means of financing startups and established businesses that are “in between” more traditional venture capital financing rounds.

W

Working Capital – the cash available to a business for day to day expenses.

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A to Z of Business Financing Terms January 18, 2020