Definitions

Glossary

A

AER - annual equivalent rate
APR - annual percentage rate - rate devised to give consumers a “level playing field” when comparing products. Rate includes fees and 'all costs of borrowing'.
Advance - loan amount
Adverse credit - see credit impaired
Arrears - missed mortgage payments

B

BACS - Bankers Automated Clearing Services Ltd. Used for automatic debiting and crediting of accounts

BBR - Bank of England Base Rate. See Base rate

BTL - buy-to-let mortgage. Loan used to purchase a residential property, specifically for the purpose of renting it out to tenants.

Balloon rental – payment made at a specified time as part of a leasing agreement which is significantly larger than the other payments.

Bank of England Base Rate - see Base rate

Base rate - usually applies to rate set by the Bank of England on a monthly basis and used by banks as a basis for setting loan rates. Can also be applied to an interest rate used by a lender as a starting rate to which a margin is applied according to the perceived risk. See also LIBOR and FHBR

Business Angel - An individual acting alone or as part of a group who invests in businesses in order to make a profit. Business angels will also often act in an advisory capacity for that business. Possible source of funding for SMEs
Bridging finance - Short term loan which can be arranged quickly. The loan can be used for many purposes; for example to allow a business to purchase a new commercial property before the original one has been sold, or to allow a buy-to-let investor to purchase at auction. Bridging loans are often expensive and therefore a repayments and an exit from this form of finance needs to considered as a priority.

C

CCJ - County Court Judgement. Appears on a borrower’s credit record for an unpaid debt for which the borrower has been taken to court to recover the monies.

Capped rate - during specified period of cap, rate of interest charged on loan may not rise above a specific level

Collared rate - during specified period of collar, rate of interest charged on loan may not drop below a specific level

Commission - fee payable to introducers for business introduced to lender

Contract hire – a leasing arrangement whereby an asset is leased for a set term, rather than for the life of the asset. Usually used for cars

Credit impaired – a damaged credit rating due to CCJs, arrears, IVA or bankruptcy
Current Account - account with a cheque book offering more flexible facilities than a deposit account. Often also allows payments to be made by standing order or direct debit.

D

DD - direct debit. Method of direct payment where the receiver of the money controls the payment. See also standing order

Deeds fee - fee charged by a lender to release the title deeds of a property on the redemption of a mortgage. Can be charged in addition to any redemption penalties.

Deposit account - account used to set aside spare funds. Usually pay higher interest than a current account and have restricted access, e.g. a notice period
Discounted rate - variable interest rate mortgage with a lower introductory rate

E

ELI – employers’ liability insurance. The only insurance a small business employer is legally obliged to have

F

FHBR - Finance House Base Rate. An alternative base rate to the Bank of England Base Rate used by lenders as a basis for setting lending rates

FPO - flexible payment option. Borrowers are able to make overpayments, underpayments or even make additional draw downs during the course of the mortgage. Degree of flexibility varies across lenders and products.

FTB - first time buyers. Borrowers without an existing or previous residential mortgage.

Factoring – a lender (factor) provides funding to a business against outstanding debtors along with a sales ledger management service. This includes the credit control function including the collection of overdue debts). A factoring facility is usually disclosed to the debtor. See also invoice discounting, recourse and non-recourse

Finance lease – a leasing arrangement whereby all the risks and rewards of ownership of an asset are ascribed to the lessee. The lessor expects to recover the costs and profit for the asset in the initial term of the lease.

Fixed rate - Interest rate on a mortgage or savings product guaranteed to stay the same for a specific period of time, regardless of movements in the market or any given base rates
Firm - sole trader or partnership. Unincorporated (not Limited Companies) businesses.

H

HICA - High Interest Cheque Account - a current account, but pays a higher rate of credit interest and less flexible than a standard current account

Hire purchase – (also known as lease purchase) a leasing arrangement whereby the lessee pays the lessor a regular amount every month to lease an asset and takes ownership of said asset at the end of the term.
HMO - House of Multiple Occupancy. Property purchased to let which houses more than one tenant. Each tenant is subject to individual tenancy agreements. A shared house

I

IVA - Individual Voluntary Arrangement. Agreement arranged by courts and individual to pay back all debts in order to avoid bankruptcy

Intermediaries - Professional financial advisers
Introductory offers - Specifically applied to business current accounts, introductory offers are periods of free banking offered to new business customers, especially start-ups to attract new business
Invoice discounting - Invoice discounting offers businesses cash against unpaid invoices. However, an invoice discounting arrangement is normally undisclosed to the debtor. In addition, the client retains control of the sales ledger management. This product is suitable for larger, more established businesses with good sales management and credit control functions. See also factoring

L

Lease purchase – (also known as hire purchase) a leasing arrangement whereby the lessee pays the lessor a regular amount every month to lease an asset and takes ownership of said asset at the end of the term.

LIBOR - London Interbank Offered Rate. The rate at which banks lend money to each other. An alternative base rate to the Bank of England Base Rate used by lenders as a basis for setting lending rates.
LTV - loan to value, the percentage of a property’s value a lender will consider advancing

M

MBI/MBO - management buy-in/buy-out

MPC - Monetary Policy Committee - Bank of England committee who meet once a month to review the Bank of England Base Rate
Margin - rate of interest charged by a lender over and above a given base rate, usually determined by risk perceived by lender

N

Non-recourse - type of factoring/invoice discounting including bad debt protection. The lender (factor) takes the risk for non-payment of the debt. If a factored invoice is unpaid by the debtor, the factor will not claim the monies back from the customer. See also recourse
Notice period - the amount of time an institution needs to be given before a withdrawal can be made from an account without additional penalty

P

Portfolio - all investment properties held by a borrower

R

Recourse - type of factoring/invoice discounting whereby the customer takes the risk for non-payment. If a factored invoice is unpaid by the debtor, the factor will reclaim the monies from their customer. See also non-recourse

Redemption - paying off a mortgage either in full or in part. Early redemption is paying off the mortgage before the end of its term. This can sometimes incur a redemption penalty. See sealing fee, deeds fee and redemption penalty

Redemption penalty - Additional charges made if a mortgage or other finance is paid off in full or in part before a given date.
Remortgages - property already owned but mortgage moved to another lender

S

SBICs - Small Business Investment Companies - firms set up to invest in small companies

SFLGS - Small Firms Loan Guarantee Scheme. A Government initiative which assists businesses who have difficulty finding finance due to a lack of security. A lender will advance the funds, and the Government acts as a guarantor for a percentage of the outstanding amount

SIPP - Self Invested Personal Pension. A company can choose to invest its pension fund in (among other things) commercial property. The tenant (usually the company itself) will then rent the property from the pension fund.

Sealing fee - Similar to a deeds fee. Sealing fee is an additional administration fee charges by a lender on the redemption on a mortgage. Can be charged in addition to any redemption penalties

Secured – lending against an asset, where the asset is assigned to the lender as security in event of default. E.g. a commercial mortgage give the lender has the legal right to seize the property if the loan made to purchase the property is unpaid.

Self-certification – a borrower certifies their own income. Usually used in cases where the borrower is self-employed and is unable to supply trading accounts. In certain cases a lender is willing to lend money if the borrower self-certifies their income. Because the associated risk with this kind of product is higher, the rates charged by the lender tend to also be higher

SME - small and medium sized enterprises
Start-up - new small businesses, usually less than 12 months old

V

VCT - Venture Capital Trust. Body set up to invest in businesses in order to make a profit. Potential source of finance for SMEs
Variable rate - interest rate that can move in line with any fluctuations in the market, e.g. adjustments in Bank of England Base Rate

Abbreviations

ABI - Association of British Insurers

AMI - Association of Mortgage Intermediaries

ACAS - Advisory, Concilliation and Arbitration Service

ARLA - Association of Residential Letting Agents

BBA - British Bankers’ Association

BCC - British Chambers of Commerce

BFA - British Franchise Association

BPPG - Better Payment Practice Group

CBI - Confederation of British Industry

CIMA - Chartered Institute of Management Accountants

CML - Council of Mortgage Lenders

DTI - Department of Trade and Industry

FDA - Factors and Discounters Association

FLA - Finance and Leasing Association

FPB - Forum of Private Business

FSA - Financial Service Authority

FSB - Federation of Small Businesses

HSE - Health and Safety Executive

IBA - Institute of Business Advisers

IC – Information Commissioner

IIB - Institute of Independent Business

LSC - Learning and Skills Council

MPC - Monetary Policy Committee

NBAN - National Business Angels Network

OFT – Office of Fair Trading

OPAS - the Pension Advisory Service

OPRA - Occupational Pensions Advisory Service

RICS - Royal Institute of Chartered Surveyors

SBS - Small Business Service

TUC - Trade Union Congress