Financial Terms Glossary

Key financial terms explained

ABL (Asset-Based Lending)

A form of finance that gives businesses access to vital funds by using their existing assets as collateral, from invoices and stock to property and machinery.

Asset-based loans are typically taken out to inject more working capital into a business and help fund business growth, combining Asset Finance, Invoice Finance and Property-Backed Loans

Accountant

A person who delivers accounting or accountancy services to help businesses with their finances. Their responsibilities typically include preparing financial reports, carrying out analysis, checking the accuracy of financial documents, and advising on finances.

Accounts Receivable

The funds a business is owed for goods or services that have been delivered but not yet paid for by customers.

The total value of all accounts receivable is listed on the balance sheet as a current asset and includes any amount of money owed by the customer for purchases made on credit.

Alt-Fi

An abbreviation of “alternative finance”. It refers to modern types of business funding that don’t come from traditional or mainstream lenders (such as a high street bank).

Invoice Finance and Asset Finance are both popular examples of alt-fi solutions.

Asset Finance

A finance solution that allows businesses to acquire the assets they need by spreading the cost over an agreed time period. This can help to protect cash flow and enable businesses to grow at their own pace.

The assets available through this type of funding can include hard assets such as machinery, equipment, and vehicles, as well as soft assets such as office furniture, shop fit-outs, and software.

Balance Sheet

A financial statement that reports what a business owns and owes, as well as the amount that is invested by shareholders at a particular point in time. It helps to illustrate a business’s net worth.

Balance sheets are used by businesses alongside other important financial statements to conduct essential business evaluations and calculate financial ratios.

Bank Statement

A document that details and summarises all of the transactions made by a business or individual, which is prepared and sent to the account holder by their bank at the end of every month.

Bank statements help the account holder to recognise spending habits and track finances, as well as identify any potential errors or discrepancies in their account.

Borrower

A person or business that borrows money from a lender with the agreement to pay it back over a specified period of time.

The borrower may have to provide collateral (such as their home or other property) that the lender can access should the loan not be repaid in accordance with the repayment terms and conditions set out in the loan agreement.

Broker

A trusted finance partner who arranges finance directly with a lender on behalf of their client (the borrower). Their job is to find the right finance solution for their clients and they often have working relationships with banks or other types of lenders such as alt-fi and specialist lenders.

Business Model

A company’s plan to ensure that the business operates smoothly and remains profitable. Business models vary across companies and industries, but will usually include many of the same elements such as information about the products and services the business intends to sell, target markets, anticipated expenses, and more.

Cash Flow

The total amount of money that flows in and out of a business over a specific period of time.

Cash flow is an excellent indication of a business’s immediate financial health – businesses that have more cash coming into the business than going out have “positive cash flow”, while those that have more going out than coming in have “negative cash flow”.

Collateral

An asset that acts as security for a loan or facility in order to protect the lender. If the borrower fails to meet the repayment terms, the lender can use the asset to recoup some or all of the losses.

Debenture

A written agreement between a lender and borrower that provides the lender with security over the borrower’s assets. A debenture can only be used within a limited company or limited liability partnership .

Debtor

A company or individual who owes money to another business.

Default

The failure to make on-time payments for an amount owed. Default typically applies to loans taken from a bank or alternative finance provider and can lead to loss of assets (collateral) or, in extreme cases, a declaration of bankruptcy.

Depreciation

The estimated reduction in value of an asset over a specific period of time. Keeping track of depreciation is important for businesses because it helps them keep track of how much their assets are worth as they get older and used.

Eligibility

The decision as to whether a business or individual qualifies for the loan or finance facility that they are applying for. In order to get approved, they will need to meet the lender’s eligibility criteria.

The lender will typically assess the credit score, business bank accounts and turnover of the prospective borrower to help them make their decision.

Equity

The amount of money that would be returned to a company’s shareholders if all of the assets were liquidated. It is essentially the value of ownership in a company, as represented by shares or stocks.

FCA

An abbreviation of “Financial Conduct Authority”. The FCA regulates the financial services industry in the UK to protect consumers, keep the industry stable, and promote healthy competition between financial service providers.

By law, any company or individual that carries out regulated financial activities or offers credit to consumers must be authorised by the FCA.

Financial Statement

A document that summarises the financial position of a business, including assets, liabilities, and net worth. It is used to assess the financial health of the business or individual.

Guarantor

A third party who agrees to pay the borrower’s debt if the borrower defaults on a loan obligation. The guarantor will typically guarantee a loan by pledging their own assets as collateral.

Hire Purchase

When a borrower agrees to buy an asset over a period of time using regular payment instalments, this is known as a hire purchase agreement.

During this time, the asset is hired, as opposed to the business owning it.

The borrower will typically have to make a final payment to secure the asset at the end of the contract.

Insolvency

A situation that occurs when a business is no longer able to pay their financial obligations. Insolvency can happen due to a number of reasons, such as loss of cash flow from poor sales, an increase in costs from production or materials, or poor financial management.

Insolvency doesn’t always lead to bankruptcy, as there is often a period of informal arrangements with creditors to try and find a way for the debts to be paid without the business folding.

Invoice Finance

A finance solution that enables businesses to access the value of outstanding customer invoices before they are due, which helps to relieve some of the pressure from mounting overheads by keeping the flow of cash moving continuously.

Instead of waiting 60, 90 or even 120 days for customers to pay their invoices, Invoice Finance bridges the gap by allowing businesses to access the value of their unpaid invoices within 24 hours of the invoice being raised.

Lease

This is a contractual agreement between two parties, where a user pays the owner of an asset for its use.

These assets may include vehicles, industrial and business equipment.

The two parties involved in this agreement are usually referred to as a lessor and lessee.

Leaseback

An arrangement in which the company that sells an asset can lease that same asset back from the purchaser. In a sale-leaseback transaction, the seller of the asset becomes the lessee and the purchaser becomes the lessor.

Lender

A financial institution that provides money to a business or individual under the condition that they will pay it back with interest over an agreed period of time.

The funds can come in the form of a loan, invoice finance facility, overdraft, or other type of alt-fi option.

Management Accounts

Financial reports that usually comprise a business’s profit and loss account, as well as its balance sheet and cash flow statement. Businesses can compile their own management accounts, but most will hire an accountant to do it for them.

Management Buy-In (MBI)

A corporate action in which a new management team assumes control of a company after acquiring its shares or assets. An MBI may occur when a company is undervalued, poorly managed, or requires succession.

Management Buy-Out (MBO)

A financial transaction in which a company’s management team purchases the assets and operations of the business they manage. MBOs usually occur to take companies private in an effort to streamline operations and make the company more profitable.

Mergers & Acquisitions

A general term that describes the consolidation of companies or assets through various types of financial transactions. These include mergers, acquisitions, consolidations, tender offers, purchase of assets, and management acquisitions.

The term mergers & acquisitions is also used to describe the financial departments that deal with such activity.

Profit & Loss Statement

A financial statement that reports on the costs, expenses, and revenues accrued over a selected time frame. It can act as a helpful indicator of a business’s financial health, enabling strategy teams to plan for the future.

Refinance

Refinancing is an efficient way of accessing the value of a business’s assets, such as existing machinery or equipment. This allows the business to release working capital, and then use this value elsewhere within the business.

Secured Business Loan

A type of loan that is secured against collateral (usually property). If the borrower fails to pay the loan back within the agreed period, the lender can sell the secured asset to recoup their losses.

Because the lender has the asset as a form of guarantee, secured business loans typically offer better repayment terms than unsecured loans.

SME

An abbreviation of “small-to-medium enterprise”. It refers to any UK business that has less than 250 employees and an annual turnover of less than £50 million.

Underwriting

The process carried out by financial lenders when assessing whether or not a business or individual meets their criteria for lending. The process is administered by an underwriter, who looks at the prospective borrower’s application and credit file to determine the level of risk to the lender.

Vendor

A company that sells goods to another company. Retail outliers will usually purchase goods from vendors at wholesale prices before selling them on at retail prices to customers.

Working Capital

The amount of money a business has available to cover its everyday operations, as well as invest in future growth. It can be calculated by dividing the value of a company’s current assets by its current liabilities.

To find out more about how Time Finance’s funding solutions can help support business growth, get in touch today.

Time Loan Finance Limited is authorised and regulated by the Financial Conduct Authority, under firm reference number 710117, for mortgage broking activities. Registered office: Second Floor, St James House, The Square, Lower Bristol Road, Bath BA2 3BH. Registered in England with Company No. 7117511. Commercial Mortgages, Property Development, Buy-To-Let Mortgages and Lending to limited companies is not regulated by the Financial Conduct Authority.