UK SME finance glossary
The vocabulary lenders use when they quote, underwrite or decline a UK SME application. Plain-English definitions, UK context, and short worked examples where the numbers help. Educational only — not financial advice and not a guarantee of approval.
30 terms covering pricing mechanics, security, credit signals and product structures across UK business finance.
A
All-asset charge
An all-asset charge is a lender's security covering every asset a UK company owns or later acquires — book debts, stock, plant, vehicles, intellectual property and real property. It is normally created via a debenture combining fixed and floating charges, and is registered at Companies House.
Read full definitionAPR (Annual Percentage Rate)
APR is the annualised total cost of borrowing — interest plus mandatory fees — expressed as a percentage of the amount borrowed. It is designed to make different finance products comparable on a like-for-like basis. UK business-loan APRs typically range from around 6 per cent for prime borrowers to 25 per cent or more for higher-risk profiles.
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B
Balloon payment
A balloon payment is a single large repayment due at the end of a finance agreement, after a series of smaller regular instalments. UK asset finance and hire purchase deals often use balloons to reduce monthly outflows during the term, with the balloon payable at maturity or refinanced into a new facility.
Read full definitionBounce Back Loan
The Bounce Back Loan Scheme (BBLS) was a UK government-backed SME lending programme that ran from May 2020 to March 2021 in response to Covid-19. Eligible businesses could borrow between £2,000 and £50,000, capped at 25 per cent of 2019 turnover, at 2.5 per cent fixed interest. The scheme is now closed to new applications.
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C
CBILS (Coronavirus Business Interruption Loan Scheme)
CBILS was a UK government-backed SME lending scheme that ran from March 2020 to March 2021. It offered loans, overdrafts, invoice finance and asset finance from £50,001 up to £5 million, with the Government guaranteeing 80 per cent of the facility to the lender. The scheme is closed to new applications.
Read full definitionCCJ (County Court Judgment)
A County Court Judgment is a court order requiring a person or business to pay a debt. Active CCJs against a UK company materially reduce its chances of being approved for SME finance. Most mainstream lenders decline applications with unsatisfied CCJs over a few hundred pounds in the last six to twelve months.
Read full definitionConfidential invoice discounting
Confidential invoice discounting (CID) is a UK invoice finance facility where the business borrows against its unpaid invoices but keeps full control of credit collection. The lender's involvement is invisible to customers — invoices are paid into a trust account in the business's own name, then settled with the lender behind the scenes.
Read full definitionCredit utilisation
Credit utilisation is the share of a business's available revolving credit — overdrafts, credit cards, invoice finance facilities — that is currently drawn. UK business-credit scoring systems treat sustained high utilisation as a stress signal. Many lenders prefer to see average utilisation below 70 to 80 per cent.
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D
Debenture
A debenture is a legal document that gives a lender security over a UK company's assets. It is registered at Companies House and typically combines a fixed charge over specific assets with a floating charge over everything else the business owns. Debentures are common on larger or secured SME facilities.
Read full definitionDiscount fee (invoice finance)
The discount fee on a UK invoice finance facility is the interest-style charge applied to the funds drawn against unpaid invoices. It is usually quoted as a margin over the Bank of England base rate or SONIA and accrues daily on the outstanding balance, separate from the service fee.
Read full definitionDSCR (Debt Service Coverage Ratio)
Debt Service Coverage Ratio measures how comfortably a business's cash flow can meet its debt repayments. It is calculated as net operating income divided by total debt service (principal plus interest). UK SME lenders generally want DSCR of at least 1.25x; commercial mortgage lenders often look for 1.35x or higher.
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E
F
Factor rate
A factor rate is a fixed multiplier — not an interest rate — that sets the total cost of a merchant cash advance or short-term revenue-linked facility. You multiply the amount advanced by the factor rate to get the total amount you repay. Factor rates in the UK MCA market typically sit between 1.10 and 1.50.
Read full definitionFinance lease
A finance lease is a UK asset finance product where the lender retains legal ownership of the asset and the business pays rentals over a primary term. At the end of the term, the business does not automatically own the asset but can usually continue to use it under a peppercorn secondary rental or sell it on the lender's behalf.
Read full definitionFirst charge
A first charge is the most senior form of property or asset security in UK lending. The first-charge holder has the right to be repaid before any other secured creditor from the proceeds of a sale or enforcement. Most UK commercial mortgages and prime bridging facilities are written on a first-charge basis.
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H
Hard search
A hard search is a credit check that is recorded on the credit file and visible to other lenders. UK SME finance providers usually run a hard search at the underwriting stage once an indicative offer has been accepted. Multiple hard searches in a short period can lower the credit score and signal stress to other lenders.
Read full definitionHire purchase
Hire purchase is a UK asset finance product where the business pays fixed monthly instalments to use an asset and takes legal title at the end of the term, usually for a small option-to-purchase fee. It is the standard way to finance vehicles, plant and equipment that the business intends to keep long-term.
Read full definitionHoldback (merchant cash advance)
The holdback is the percentage of daily card or platform sales a merchant cash advance provider automatically deducts to repay an advance. Typical UK MCA holdbacks range from about 6 to 20 per cent of daily card receipts, deducted at source until the agreed total repayment is met.
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I
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P
R
Recourse vs non-recourse
In UK invoice finance, recourse means the business carries the bad-debt risk: if a customer doesn't pay, the funded invoice has to be repurchased. Non-recourse means the lender carries that risk on approved debtors, usually via bundled credit insurance. Non-recourse is more expensive but protects against debtor insolvency.
Read full definitionRevenue-based finance
Revenue-based finance (RBF) is a UK SME funding model where the lender advances cash and is repaid as a fixed percentage of monthly revenue until a total agreed amount is collected. It is most common with e-commerce, SaaS and marketplace sellers, and overlaps with merchant cash advances but is usually priced and structured differently.
Read full definitionRLS (Recovery Loan Scheme)
The Recovery Loan Scheme is the UK Government's successor to CBILS, providing partial guarantees to lenders offering finance to viable UK SMEs. Facilities range from £25,001 to £2 million per business under the current iteration, with the Government guaranteeing 70 per cent of the lender's exposure. RLS is open to new applications via accredited lenders.
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S
Second charge
A second charge is property or asset security that ranks behind a first charge in priority. A second-charge lender is repaid only after the first-charge lender has been settled in full from any sale or enforcement proceeds. UK second-charge facilities are typically more expensive than equivalent first-charge loans.
Read full definitionSelective invoice finance
Selective invoice finance — sometimes called spot factoring or single invoice finance — lets a UK business raise cash against individual invoices on demand, rather than committing its whole ledger to a finance facility. It is normally more expensive per invoice but avoids long-term contracts and whole-turnover commitments.
Read full definitionService fee (invoice finance)
The service fee on a UK invoice finance facility is the administration charge for running the ledger — credit control, statement production, collections support and bad-debt monitoring. It is usually expressed as a percentage of invoiced turnover (commonly 0.2 to 3 per cent) and is separate from the discount fee on drawn funds.
Read full definitionSoft search
A soft search is a credit check that is visible only to the business or individual being checked — it leaves no footprint on the credit file for other lenders to see. UK SME finance providers commonly run soft searches at the quote or eligibility stage so applicants can compare options without affecting their credit score.
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U
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