Business Loan Jargon

Fixed Charge

A fixed charge is the business equivalent of a mortgage. The Lender has lent the borrower money, used a specific asset as security, then registered a charge over that asset.

Under a first charge, the Lender has the right to be repaid in full out of the disposal proceeds of that asset before any other party.

Floating Charge

As above but over a fluctuating group of assets. e.g. stock.

Allows the Lender to take control of your business. The trigger would likely be a covenant breach or loan default.

If the Lender needs to liquidate assets under their fixed or floating charge it’s likely to cause severe disruption to your operations. But, you may be able to survive, and you will still have control and ownership of what remains of your business.

A share charge does not give you that option as control and ownership are at risk of being lost.

Facility Agreement

This document will detail your terms and conditions.

Term

The length of time, typically expressed in months or years that the facility is for.

Term can also be in reference to terms & conditions (Ts &Cs). BorrowingWell recommends that you refer to Ts&Cs as the facility agreement.

Repayment Types

Interest Only

Interest is paid monthly or, quarterly and loan capital is paid at the end of the loan term.

Ammortising

Interest and capital are paid monthly or quarterly, with the last payment zeroing the loan.

Facility

Is the classification of a loan service e.g.

Overdraft/Line of credit
Invoice discounting
Invoice Factoring
Fixed Term loan
Letter of credit
Export finance

All loans are debt facilities. The term facility classifies what characteristics the loan has, e.g. A five-year loan with monthly repayments is a fixed-term loan.

Security

As far as BorrowingWell is aware, there is no legal definition of this word concerning business lending. Due to this, the identification and measurement of security can be subjective- giving way to a high number of lending services.

There are obvious assets that can be identified and used for security, such as accounts receivable, buildings, and land. But there are also other non-traditional ways of identifying security that may not have a recorded underlying asset.

Never conflate the words security and charge as they are different. Differentiating those two words is a factor in understanding the business lending market.

Personal Guarantee (PG)

Giving a PG removes the veil of incorporation that almost all business owners enjoy and leaves you personally liable for the debt. You should consider this and consider the impact associated with this risk.

Limited Personal Guarantee (PG)

As above but the individual's liability is limited. The limit will likely be a percent of the loan value but could also be a percentage of your net assets.

Personal Loan

Typically this is an unsecured loan to the benefit of you as an individual rather than your business. Please do consider the impact recovery of this loan could have on both your business and personal life.

Unsecured Loan

There is subjectivity around the words secured and unsecured in relation to business lending. Typically unsecured is used if a charge isn't recorded at Companies House.

Secured loan

There is subjectivity around the words secured and unsecured. Typically secured is used when a charge is registered at Companies House.

Loan to Value (LTV)

LTV expresses the value of debt to the value of the asset. So a £100 property with £70 debt borrowed to acquire said property would have an LTV of 70% (£70/£100= 70%).