When starting or growing your business, you’re bound to be on a constant learning curve – and for someone without a background in finance, some of the jargon used can make things confusing
Finance affects every business decision – from the number of employees hired, to your annual budget and long-term goals. Understanding finance is a skill that can help you personally, and have a big impact on the future of your business. Learning how to make sense of the most commonly used finance terminology can make the whole process easier when applying for finance, as well as help business owners feel more confident when discussing their needs.
We’ve put together a handy list of some of the most frequently used terms that you might come across in your search for business finance, to help you feel confident when deciding what type of finance is right for you and preparing your application.
A business bridging loan is a type of commercial loan that allows you to borrow money over a shorter period of time than a typical bank loan, though often at a higher rate of interest. You might use this to purchase an asset before you have all the funds available. e.g. you are waiting for the sale proceeds of another asset to be realised.
Business loans are very common and one of the first options for businesses looking to raise finance. The lender provides money that you, as the borrower, pay back, with interest, over an agreed period.
The capital of a business is the money it has available to pay for its day-to-day operations and to fund its future growth. The four major types of capital include working capital, debt, equity, and trading capital.
Cash flow describes the relationship between cash entering and leaving a business. Positive cash flow means more cash entering a business than leaving it. Cash flow problems arise when you spend more than you make or when you don’t have sufficient cash available to pay your short-term debts. Poor cash flow management can kill even profitable businesses.
Cash flow forecast
Cash flow forecasting estimates the amount and timing of cash that will be coming in and going out of the business to predict future cash balances. Typically, this is broken down into monthly, quarterly, and annually periods although some businesses may do this more frequently. e.g. weekly for some businesses.
An accounting term used to describe a person or business to whom your business owes money. Common examples of trade creditors would be your suppliers, rent, or a finance provider. Creditors can be classed as current or long term. Current creditors generally refer to items payable within the next 12 months, e.g. stock, wages; whilst long term creditors refer to amounts due to be paid after a year e.g., bank loan or mortgage.
Credit broking agreements
This can also be called ‘broker’, ‘affiliate’ or ‘commission’ agreements’, and is an agreement that sets out the terms between a credit broker, who links a company or an individual looking for finance with a company or individual willing to provide it, for a fee, normally known as a a commission payment.
Government backed loans
Also called a Government backed guarantee. Government-backed business loans work very much like commercial business loans offered by banks and other lenders, with the exception that they are funded or guaranteed by the UK Government. This type of finance makes essential funding available to new and existing businesses owners where a commercial loan might not otherwise be available.
The opposite of assets, liabilities are what you owe other parties, such as bank debt, wages, and money due to suppliers, also known as accounts payable.
Open Banking refers to the process of banks and other financial institutions opening up data for regulated providers to access, use and share.
Profit & Loss Statement
Profit and loss (P&L) statement refers to a financial statement that summarises the revenues, costs, and expenses incurred to show the profit or loss made or forecast during a specified period.
The Recovery Loan Scheme (RLS) is a government scheme that supports access to finance for small and medium sized UK businesses, so they can grow and invest. It provides a government backed guarantee to a finance provider so they might be able to provide finance to customers who may not meet ordinary lending conditions.
Start Up Loans
Start Up Loans are personal loans that are used to start a new business. A Start Up Loan is a government-backed personal loan available to individuals looking to start or grow an existing business that has been trading for less than 36 months in the UK. All owners or partners in a business can individually apply for up to £25,000 each, with a maximum of £100,000 available per business.
The terms above are just a short list of the terms you might come across in your search for business finance. If you need support with a new or ongoing application, or want to chat to an expert to look at your options, get in touch with the team at Let’s Do Business Finance today.