Property & Business Finance Glossary | Platinum Property Finance

A

Advance rate (prepayment): The advance rate is the percentage of an approved invoice's value that an invoice finance provider pays you up front, with the balance, less fees, released when your customer pays. The provider sets it after reviewing your customers, your sector and your invoicing history, and it determines how much cash the facility actually releases. How invoice factoring works
Adverse credit (bad credit, impaired credit): Adverse credit is a record of past credit problems on your credit file, such as missed payments, defaults, court judgments or insolvency. It does not automatically rule out borrowing, particularly where property is offered as security, but it narrows the choice of lenders and usually increases the cost. Lenders look at how recent and how serious the problems were.
Annual percentage rate (APR): The annual percentage rate is a standard measure of the yearly cost of borrowing, combining the interest with compulsory fees and charges so that loans can be compared on the same basis. Short-term products such as bridging loans are usually quoted with a monthly rate instead, so compare the total amount you will repay as well. What a bridging loan costs
Anti-money-laundering checks (AML, KYC, know your customer): Anti-money-laundering checks are the identity and source-of-funds checks that lenders, solicitors and other firms covered by the money laundering regulations must carry out before they act for you. You will be asked for proof of identity and address and for evidence of where your money comes from. Having these ready at the start avoids delay later.
Arrangement fee (facility fee, lender fee): An arrangement fee is a fee the lender charges for setting up a loan, usually calculated as a percentage of the amount borrowed. It is often added to the loan or deducted from the funds released, so it affects both the total cost and the net amount you receive. The level is set by the lender. What a bridging loan costs
Arrears: Arrears are payments on a loan or mortgage that have fallen due and have not been paid. They can be recorded on your credit file and trigger extra charges or default interest, and if they continue the lender can take action to recover the debt. If you expect to miss a payment, contact the lender early, while more options are open.
Article 4 direction: An Article 4 direction is an order, usually made by a local planning authority, that removes specified permitted development rights in a defined area, so that planning permission is needed for changes that would not otherwise require it. Councils often use these orders to control the conversion of family homes into small HMOs, so check with the council before you buy a property to convert. How HMO mortgages work
Asset finance: Asset finance is funding used to acquire equipment, vehicles or machinery through hire purchase or a lease, so that the cost is spread over time instead of being paid up front. It preserves your cash, but the funder normally owns the asset during the agreement and can take it back if payments are missed.
Auction finance (auction bridging loan): Auction finance is short-term funding, usually a bridging loan, used to complete the purchase of a property bought at auction within the deadline set by the auction contract. Missing that deadline can cost you your deposit, so it helps to have funding agreed in principle before you bid and a clear plan for repaying the loan. How auction bridging loans work

B

Bad debt protection (credit protection): Bad debt protection is cover, often built into an invoice finance facility, under which the provider bears some or all of the loss on an approved invoice if the customer cannot pay, typically because of insolvency. It limits the damage a major customer's failure could do to your business, but it adds to the cost, applies within agreed limits and usually excludes disputed invoices. How bad debt protection works
Bank Rate (base rate): Bank Rate is the interest rate set by the Bank of England's Monetary Policy Committee, which influences the rates that lenders charge borrowers and pay savers. Many variable-rate loans are priced at a margin above it, so when it changes, the cost of your borrowing on those loans normally changes with it.
Bridge-to-let: Bridge-to-let is a bridging loan arranged with a planned move onto a buy-to-let mortgage once the property is ready to let, sometimes with the same lender providing both. It suits property that you cannot yet mortgage or let, but the later mortgage still depends on the valuation, the rent and the lender's criteria at that point. How bridge-to-let works
Bridging loan (bridging finance, bridge): A bridging loan is short-term finance secured on property or land, used to cover a gap between needing funds now and a planned repayment event such as a sale or refinance. It can be arranged faster than a mortgage but usually costs more, and the lender will want a realistic plan for how you will repay it. How bridging loans work
Broker (finance broker, intermediary): A broker is an intermediary who helps a borrower find and arrange finance from a lender and does not lend money itself. A broker can explain the options, present your case and manage the application, but the lender makes the lending decision. Before you proceed, ask how the broker is paid and which lenders it can approach. What a finance broker does
Broker fee: A broker fee is a charge made by a broker for arranging finance, separate from the fees charged by the lender. A broker may also receive commission from the lender. Ask for both to be confirmed in writing before you proceed, including when the fee becomes payable, so that you can see the full cost of the arrangement. What a bridging loan costs
Build costs (construction costs): Build costs are the costs of carrying out the construction work on a development, such as labour, materials, plant and the contractor's charges, as distinct from the price of the site and the cost of finance. Lenders test your figures against their own surveyor's view, and underestimating them is a common reason schemes run short of money. Try the development finance calculator
Business loan: A business loan is money borrowed by a business for a commercial purpose, such as buying equipment, funding growth or covering a gap in cash flow, and repaid with interest over an agreed term. It can be secured or unsecured. Lenders look at your trading history, accounts and affordability, and often ask directors for a personal guarantee. How business loans work
Buy-to-let mortgage (BTL mortgage): A buy-to-let mortgage is a mortgage on a residential property that you let to tenants instead of living in it yourself. Lenders assess it mainly on the expected rent and not only on your income. Many are arranged on an interest-only basis, which means the amount borrowed still has to be repaid at the end of the term. How buy-to-let mortgages work

C

Capital raising (capital raise): Capital raising is borrowing against property you already own in order to release cash, usually by taking a new or larger mortgage or by adding a second charge. Lenders will ask what the money is for and whether the property and your income support the higher borrowing. The property remains at risk if the larger loan is not repaid. Releasing equity from a rental property
Capital repayment (repayment basis, capital and interest): Capital repayment is a way of repaying a loan in which each payment covers the interest due and also pays off part of the amount borrowed, so the debt is cleared by the end of the term if every payment is made. Your payments are higher than on an interest-only loan, but there is no balance left to repay at the end. Compare repayment and interest-only payments
Capital stack: The capital stack is the combination of funding layers used to pay for a project, typically senior debt, any mezzanine finance and the developer's own equity, ranked by the order in which each is repaid. The lower a layer ranks, the more risk it carries and the more it costs, so the mix decides both your cash contribution and your profit. How mezzanine development finance works
Chain break finance (chain break bridging loan): Chain break finance is a bridging loan that lets you complete the purchase of your next property before the sale of your current property has gone through. It can save a purchase when a chain collapses, but you pay for the loan until your sale completes, so the plan depends on a realistic sale price and timescale. How chain break finance works
Closed bridging loan (closed bridge): A closed bridging loan is a bridging loan with a set repayment date, usually because the exit is already firmly in place, such as a sale where contracts have been exchanged or a confirmed mortgage offer. Lenders like that certainty, but you need to be confident the date will hold, because extra charges can apply if it slips. Exit strategies for open and closed bridging loans
Commercial investment mortgage: A commercial investment mortgage is a loan secured on commercial property that you let to tenants instead of occupying yourself. Lenders focus on the rent, the length and terms of the leases and the financial strength of the tenants, because that income is what pays the loan. A vacant property, or a property let on a short lease, is harder to finance. Finance for let commercial property
Commercial loan: A commercial loan is finance arranged for business use, often secured on commercial or mixed-use property or other business assets, and used to raise capital, refinance debt or fund expansion. Lenders assess both the borrower and the security, and expect you to have a clear plan for repayment. Property used as security can be repossessed if the loan is not repaid. How commercial loans work
Commercial mortgage: A commercial mortgage is a long-term loan secured on property used for business, such as offices, shops or warehouses, taken out either by the business that occupies the premises or by an investor who lets them. Lenders assess the property together with the trading accounts or rental income behind it, so the terms you are offered can vary widely between lenders. How commercial mortgages work
Commercial remortgage: A commercial remortgage is the replacement of an existing loan on a commercial property with a new loan, usually from a different lender, to change the rate or terms or to release equity. The new lender will reassess the property, the income and the leases, and you should include any early repayment charge on the current loan in the cost. How commercial remortgaging works
Community Infrastructure Levy (CIL): The Community Infrastructure Levy is a charge that local authorities in England and Wales can choose to apply to new development to help pay for local infrastructure such as roads and schools. Where it applies, the amount depends on the council's own charging schedule and the size and type of the scheme, so include it in your costs before you agree a price for a site.
Completion: Completion is the point at which a property transaction or loan is finalised: the funds are released, the purchase money or old loan is paid, and ownership or the lender's charge takes effect. Interest normally runs from this date. On a purchase, failing to complete on the agreed date can cost you money under the contract.
Concentration limit (concentration): A concentration limit is a cap on how much of an invoice finance facility can be funded against any single customer, set by the provider as a proportion of your sales ledger. If a large share of your sales goes to a few customers, invoices above the limit may not be funded, which reduces the cash available to you. How invoice factoring works
Confidential invoice discounting (CID): Confidential invoice discounting is invoice discounting arranged so that your customers are not told a finance provider is involved and continue to deal with you as normal. It protects your existing customer relationships, but providers generally reserve it for businesses with strong credit control and a sound trading record. How invoice discounting works
Consumer buy-to-let (CBTL): Consumer buy-to-let is a buy-to-let mortgage taken out by someone who is not acting mainly for business purposes, for example a person letting a home they inherited or used to live in. Unlike most buy-to-let lending, it is overseen by the Financial Conduct Authority, so if this describes you, check that any firm you use is registered for it.
Contingency: A contingency is an allowance added to a development budget to cover unforeseen costs, such as price rises, delays or problems found once work has started. Lenders expect to see it in your cost plan, and each lender has its own view of how large it should be. Without it, any overrun has to come from your own funds. How development finance works
Credit control: Credit control is the process a business uses to decide which customers to give credit to and on what terms, and to chase invoices so that they are paid on time. Good credit control reduces late payment and bad debts. With factoring the provider takes over collections, while with invoice discounting they stay with you. How invoice discounting works
Credit search (credit check): A credit search is a check a lender makes on your credit file, held by a credit reference agency, to see your borrowing history and how you have managed repayments. A soft search is not visible to other lenders, while a hard search leaves a record that they can see, and several hard searches in a short period can count against you.

D

Debenture: A debenture is a document that gives a lender security over a company's assets, typically through a combination of fixed and floating charges, and is registered at Companies House. It gives the lender wide powers if the company defaults, and an existing debenture can stop your business borrowing elsewhere without that lender's consent.
Debt service cover ratio (DSCR): The debt service cover ratio is a measure of how many times the net income of a business or property covers its total loan payments, counting both interest and capital. Lenders set a minimum they want to see, so it often limits how much you can borrow, even where the value of the property would support a larger loan. Check your income cover
Debtor: A debtor is a person or business that owes money, and in invoice finance it means a customer who has been invoiced but has not yet paid. Providers assess the creditworthiness and payment record of your debtors as closely as they assess your own business, because those payments are what repay the funds advanced.
Decision in principle (DIP, agreement in principle, AIP): A decision in principle is a lender's early indication that it is likely to lend a stated amount, based on outline information and often a credit search. It is not a binding offer, because the lender can still decline or change its terms after valuation, underwriting and legal checks. It helps show a seller that you are a credible buyer.
Default interest (default rate): Default interest is a higher rate of interest that a lender can charge if you breach the loan agreement, most often by failing to repay on time. It can make an overdue loan expensive very quickly, so read the default terms in your offer and speak to the lender early if your exit is running late. What a bridging loan costs
Deposit: A deposit is the part of a property's purchase price that you pay from your own resources instead of borrowing. A larger deposit lowers the loan to value, which usually widens the choice of lenders and can improve the rate. Lenders will want to see where the money came from, so keep the paperwork that shows it.
Desktop valuation: A desktop valuation is a valuation carried out without a physical inspection, using records, comparable sales and other data about the property. It is quicker and costs less than a full inspection, but lenders generally accept it only for more straightforward cases, and whether it can be used on your loan is the lender's decision.
Development appraisal: A development appraisal is a financial summary of a proposed scheme that sets the expected value of the finished development against every cost of delivering it, including the site, the build, fees and finance, to show the projected profit. Lenders base their decision on your appraisal, so support each figure with evidence such as quotes and comparable sales. Appraise a scheme with the development finance calculator
Development exit finance (development exit loan): Development exit finance is a short-term loan that repays a development facility once the build is finished or nearly finished, giving you more time to sell or refinance the completed units. It can cost less than letting the development loan run on and may release some equity, but it is still short-term borrowing that needs its own exit. How development exit finance works
Development finance (development loan): Development finance is short-term lending that funds the building, conversion or major refurbishment of property, usually covering part of the site cost and releasing build funds in stages as work progresses. Lenders assess the whole project, including planning, costs, your experience and the exit, and the loan is normally repaid from sales or a refinance. How development finance works
Diminishing Musharaka (declining partnership): Diminishing Musharaka is a co-ownership arrangement, designed to follow Shariah principles, in which you and the provider buy a property together and you gradually buy the provider's share while paying rent on the part you do not yet own. The provider's return arises from that rent. As your share grows the rent reduces, until you own the whole property. How Islamic finance structures work
Discount fee (discount charge): A discount fee is the charge an invoice finance provider makes for the money it advances to you, and it works in a similar way to interest on the funds you have drawn. Because it builds up for as long as an invoice remains unpaid, customers who pay late increase what the facility costs you. How invoice factoring works and what it costs
Drawdown: Drawdown is the release of loan funds by the lender, either all at once on completion or in stages over the life of the facility. Interest is normally charged from the date the funds are drawn, and each release happens only once you have met the lender's conditions for it.

E

Early repayment charge (ERC): An early repayment charge is a fee a lender can charge if you repay all or part of a loan, or move it to another lender, before an agreed period has ended. It is commonly a percentage of the amount repaid and can be substantial, so check when it applies before you plan a sale or refinance. How commercial remortgaging works
EBITDA (earnings before interest, tax, depreciation and amortisation): EBITDA is a business's earnings before interest, tax, depreciation and amortisation are deducted, used as a rough measure of the cash profit its trading produces. Lenders compare it with the proposed loan payments to judge whether a business loan or owner-occupied commercial mortgage is affordable, so accurate, up-to-date accounts strengthen your application. Mortgages for your own business premises
Energy Performance Certificate (EPC): An Energy Performance Certificate is a document that rates the energy efficiency of a building on a banded scale and recommends improvements. A valid certificate is needed when a property is sold or let, and in England and Wales regulations set a minimum rating for most let property. Lenders check it, and a poor rating can restrict your borrowing until works are done.
Equity: Equity is the part of a property's value that you own outright: its current value minus all the borrowing secured against it. It is your stake and the lender's safety margin, so more equity generally means a wider choice of lenders and better terms. Because it moves with property values, equity can fall as well as rise.
Exchange of contracts: Exchange of contracts is the point in a property purchase in England, Wales or Northern Ireland at which the buyer and seller become legally bound to complete, with the buyer normally paying a deposit. At auction it usually happens when the hammer falls. After exchange, failing to complete on time can mean losing that deposit, so have your finance ready beforehand.
Exit fee: An exit fee is a charge that some lenders make when a loan is repaid, on top of the interest and other fees. Not every lender charges it and the way it is calculated varies, so check the offer before you commit and include it when you compare the total cost of different loans. What a bridging loan costs
Exit strategy (exit, exit route): An exit strategy is your plan for repaying a short-term loan in full, most often by selling the property or refinancing onto longer-term finance. Lenders treat it as central to any bridging or development application. If your exit is delayed or fails, the costs rise and the property used as security can be put at risk. Bridging loan exit strategies explained

F

Financial Conduct Authority (FCA): The Financial Conduct Authority is the UK regulator responsible for the conduct of financial services firms and financial markets. A firm must be authorised by it, or be exempt, to carry on a regulated activity such as arranging a mortgage on your own home, while much business and investment lending falls outside its rules. You can check a firm's status on the FCA Register.
First charge (first legal charge): A first charge is the legal charge that ranks ahead of all others against a property, so its holder is repaid before any other secured lender if the property is sold or repossessed. Because the lender with priority takes less risk, first charge borrowing is usually simpler for you to arrange and often costs less than borrowing behind an existing mortgage. First and second charge bridging explained
Fixed charge: A fixed charge is security over a specific, identifiable asset, such as a property or a piece of machinery, which the borrower cannot sell or otherwise deal with unless the lender agrees. If you default, the lender can take and sell that asset and is paid from the proceeds ahead of most other creditors.
Fixed rate: A fixed rate is an interest rate that stays the same for an agreed period, whatever happens to rates in the wider market. Your payments are predictable during that period, but you will not benefit if rates fall, and repaying or switching before it ends usually triggers an early repayment charge.
Floating charge: A floating charge is security over a class of company assets that changes from day to day, such as stock or cash, which the company stays free to use and sell in the ordinary course of business. It attaches to specific assets only when it crystallises, typically on default or insolvency. If your company gives a debenture, it will usually include a floating charge.

G

Gross development value (GDV): Gross development value is the estimated market value of a development once it is finished, usually the total expected sale price of all the units. Lenders cap the loan against it and your profit depends on it, so an optimistic figure can leave a scheme short of funds. Expect the lender's valuer to test it against comparable sales. Try the development finance calculator
Gross loan (gross facility): The gross loan is the total amount a lender agrees to lend, including any fees and interest that are added to the loan or deducted before the funds are released. Interest and loan to value are normally worked out on this figure, and it is the starting point for what you repay, so it will be higher than the cash you actually receive. Try the bridging loan calculator
Guarantor: A guarantor is a person or company that agrees to repay a debt if the borrower does not. Lenders often ask for a guarantor where the borrower is a company or has a limited track record. A guarantor takes on real liability and can be pursued for the debt, so if you are asked to act as a guarantor, take independent legal advice. Personal guarantees explained

H

Heavy refurbishment: Heavy refurbishment is work that changes the structure, layout or use of a property, such as an extension, a loft conversion, a conversion into flats or anything that needs planning permission. Lenders see more risk in it, so expect closer scrutiny of your experience, costs and contractors, and the funds for the works may be released in stages. Finance for light and heavy refurbishment
HMO licence: An HMO licence is a licence from the local council that allows a landlord to let a property as a house in multiple occupation. Whether you need a licence depends on the property, the number of occupiers and where it is, because councils can run their own schemes. Lenders check the licensing position, and letting without a required licence can lead to prosecution or fines. How HMO mortgages work
Home purchase plan (HPP): A home purchase plan is the regulatory name for an arrangement, typically designed to follow Shariah principles, in which a provider buys a home or a share of it and you commit to buying it from the provider over an agreed period while living there. Home purchase plans are regulated by the Financial Conduct Authority, so check that any firm you deal with appears on the FCA Register.
House in multiple occupation (HMO): A house in multiple occupation is a property let to several people who do not all belong to the same household and who share facilities such as a kitchen or bathroom. The exact legal definition is set by housing legislation. Lenders treat these properties as specialist, so you will find that fewer lenders consider them and their criteria are stricter. How HMO mortgages work

I

Ijara (Ijarah, lease): Ijara is a lease arrangement, designed to follow Shariah principles, in which the provider owns an asset, or a share of it, and you pay rent for the right to use it. The provider's return comes from the rent. In property finance it is often combined with an arrangement for you to buy the asset from the provider gradually or at the end of the term. How Islamic finance structures work
Indicative terms (heads of terms, term sheet): Indicative terms are a lender's outline of the loan it is prepared to consider, covering the amount, rate, fees, term and main conditions, issued before full underwriting. They are subject to valuation and due diligence and are not a binding offer, so treat the figures as a basis for comparing your options and not as a promise.
Interest cover ratio (ICR, interest coverage ratio): The interest cover ratio is a measure of how far the rent from a property exceeds the interest due on the loan secured against it. Lenders set a minimum, often tested at an assumed interest rate that is higher than the rate you will actually pay, and it frequently caps the size of a buy-to-let or commercial investment loan. Check your rental cover
Interest-only: Interest-only is a way of structuring a loan in which your regular payments cover the interest alone, so the full amount borrowed is still owed at the end of the term. Payments are lower than on a capital repayment loan, but you need a credible way to repay the capital, such as selling or refinancing the property. Compare repayment and interest-only payments
Invoice discounting: Invoice discounting is a form of invoice finance in which the provider advances funds against your unpaid invoices while you keep running your own sales ledger and collecting payment from customers. It is often confidential, but providers expect an established business with reliable credit control, because they depend on your processes to get the invoices paid. How invoice discounting works
Invoice factoring (factoring): Invoice factoring is a form of invoice finance in which the provider advances funds against your unpaid invoices and also takes over collecting payment from your customers. It frees up cash and reduces your credit control workload, but your customers will normally know that a factor is involved, so consider how that fits your customer relationships. How invoice factoring works
Invoice finance (receivables finance): Invoice finance is funding that releases cash tied up in a business's unpaid customer invoices, with a provider advancing a large part of each invoice's value before the customer pays. Its main forms are factoring and invoice discounting. The funding available grows with your sales, but what it costs depends on how quickly your customers pay. How invoice finance works

J

Joint venture (JV): A joint venture is an arrangement in which a funder or partner puts money into a development in return for a share of the profit, instead of simply lending at interest. It can reduce or remove the cash you need to contribute, but you give up part of your profit and usually some control over decisions.

L

Land finance (land loan, land bridging loan): Land finance is funding secured on land, with or without planning permission, most often a short-term loan used to buy a site before development finance is arranged. Lenders usually offer less against land that has no planning permission, and they will want a realistic plan for how you will repay the loan, such as a sale or a development facility. How land finance works
Legal charge: A legal charge is the lender's registered legal interest in a property, recorded against the title, which secures a loan and gives the lender the right to take possession and sell if the loan is not repaid. It stays in place until the loan is redeemed, and you normally cannot sell or refinance the property without dealing with it.
Lender (funder): A lender is the bank, building society or specialist finance company that provides the money for a loan and takes the security for it. The lender, not the broker, decides whether to lend and on what terms, and its written offer is the document that sets out your rate, fees and obligations.
Let-to-buy: Let-to-buy is an arrangement in which you let out your current home, usually by moving it onto a buy-to-let mortgage, and buy a new home to live in with a separate residential mortgage. It avoids having to sell before you buy, but you take on borrowing on both properties, and each lender must be satisfied that its loan is affordable.
Light refurbishment: Light refurbishment is improvement work that does not alter the structure of a property or need planning permission, such as a new kitchen, bathroom, flooring or redecoration. Lenders see it as lower risk than structural work, so you usually have a wider choice of lenders and less monitoring of the works. Each lender draws the line in its own way. Finance for light and heavy refurbishment
Limited company buy-to-let: Limited company buy-to-let is the purchase or refinance of rental property through a company instead of in your own name. Lenders assess both the company and the directors behind it and usually ask for personal guarantees. A company is taxed differently from an individual landlord, so take advice from an accountant before choosing the structure. How limited company buy-to-let works
Loan extension (term extension): A loan extension is an agreement by the lender to let a loan run beyond its original repayment date. It is at the lender's discretion, usually carries a fee and sometimes a higher rate, and should be requested well before the term ends. It can buy time if your exit is delayed, but do not rely on it when planning. Bridging loan exit strategies explained
Loan term (term): The loan term is the agreed period over which a loan runs, by the end of which it must be repaid in full. A longer term lowers the regular payments on a repayment loan but increases the total interest you pay. On short-term finance, running past the term can trigger default interest or extension fees.
Loan to cost (LTC): Loan to cost is the total development loan expressed as a percentage of the total cost of the project, including the site, the build and professional fees. It shows how much of the scheme the lender is funding and how much you need to put in yourself. Each lender sets its own maximum. Work out your loan to cost
Loan to gross development value (LTGDV, loan to GDV): Loan to gross development value is the total development loan, usually including rolled-up interest and fees, expressed as a percentage of what the finished scheme is expected to be worth. Lenders apply it alongside loan to cost, and whichever limit gives the smaller loan normally sets the most you can borrow. Work out your loan to GDV
Loan to value (LTV): Loan to value is the size of a loan expressed as a percentage of the value of the property securing it. A lower loan to value means more of your own money or equity is in the property, which generally widens the choice of lenders and can improve the rate. Each lender sets its own maximum. Work out your loan to value

M

Merchant cash advance (MCA, business cash advance): A merchant cash advance is a lump sum provided to a business in return for an agreed share of its future card sales, collected automatically as customers pay by card until the advance and a fixed fee are repaid. Your repayments rise and fall with your takings, which helps in quiet periods, but the overall cost can be high compared with a loan. Ways to fund working capital
Mezzanine finance (mezzanine loan): Mezzanine finance is an additional layer of borrowing that sits behind the senior loan and ahead of your own equity, usually secured by a second charge. It reduces the cash you need to put into a scheme, but it costs more than senior debt because the mezzanine lender is repaid only after the senior lender. How mezzanine development finance works
Minimum interest period (minimum term): A minimum interest period is the shortest period for which a lender will charge interest on a loan, even if you repay it sooner. It is common on bridging loans and its length is set by the lender. If you expect to repay early, check it before you commit, because it can make a quick exit cost more than you planned. What a bridging loan costs
Monitoring surveyor (project monitor): A monitoring surveyor is an independent surveyor appointed by the lender to check a development against its budget and programme and to confirm the work done before each stage of funding is released. You normally pay their fees, and their reports decide when build funds arrive, so give them accurate information promptly. How development finance works
Mortgage: A mortgage is a loan secured on property by a legal charge, usually repaid over a long term in regular payments. The lender can repossess and sell the property if you do not keep up the payments, so borrow only what you can afford. A mortgage takes longer to arrange than a bridging loan but normally costs less. Bridging loan or mortgage: how they compare
Multi-unit freehold block (MUFB): A multi-unit freehold block is a building containing several self-contained residential units, such as a house converted into flats, held under a single freehold title with no separate long leases. You can often finance it with a single mortgage, but lenders treat it as specialist, and the number of units and the way they are valued affect which lenders will consider it.
Murabaha (cost-plus sale): Murabaha is a sale arrangement, designed to follow Shariah principles, in which the provider buys an asset and sells it to you at cost plus an agreed, disclosed profit, with the price paid later or in instalments. The provider's return is the profit on that sale. The price is agreed at the outset, so you know what you are committing to pay. How Islamic finance structures work
Musharaka (Musharakah, partnership): Musharaka is a partnership arrangement, designed to follow Shariah principles, in which you and the provider each contribute capital to buy an asset or fund a venture and own it jointly in proportion to what each has put in. Returns are shared as the partners agree and losses fall in proportion to each partner's share, so the provider holds a genuine stake. How Islamic finance structures work

N

Net loan (net advance): The net loan is the amount actually released to you or your solicitor once the lender's fees and any retained interest have been deducted from the gross loan. This is the money available for your purchase or project, so make sure that it, and not the gross figure, covers what you need. Estimate your net advance
Non-recourse: Non-recourse is a type of invoice finance facility in which the provider, and not your business, bears the loss if an approved customer cannot pay, within agreed limits. It costs more than a recourse facility and normally covers insolvency or prolonged non-payment, not disputed invoices, so check exactly what is and is not covered. How bad debt protection works

O

Offer letter (facility letter, formal offer): An offer letter is the lender's formal written offer of finance, setting out the amount, rate, fees, term, security and the conditions that must be met before funds are released. It is issued once underwriting and valuation are complete. Read it with your solicitor before you sign, because its terms, not those of any earlier quote, are what you are agreeing to.
Open bridging loan (open bridge): An open bridging loan is a bridging loan with no fixed repayment date, although it must still be repaid by the end of the agreed term. Because the timing of your exit is less certain, lenders look closely at how realistic your repayment plan is and may charge more than for a closed bridge. Exit strategies for open and closed bridging loans
Open market value (OMV, market value): Open market value is the price a property would be expected to sell for between a willing buyer and a willing seller, after proper marketing and with neither side under pressure. Lenders normally base your loan on a surveyor's opinion of this value, and many use the purchase price instead if that is lower.
Outline planning permission: Outline planning permission is consent that establishes the principle of a development on a site while leaving some or all of the details, known as reserved matters, to be approved later. It can add value to your land, but building cannot start until those details are approved, and many lenders are more cautious about lending against it than against full permission. How land finance works
Overdraft: An overdraft is a facility on a current account that lets a business spend more than the balance in the account, up to an agreed limit, with interest charged on the amount overdrawn. It is flexible for short-term gaps in your cash flow, but it is normally repayable on demand, so the bank can reduce or withdraw it at short notice. Ways to fund working capital
Owner-occupied commercial mortgage (owner-occupier mortgage): An owner-occupied commercial mortgage is a loan that lets a business buy or refinance the premises it trades from, instead of renting them. The lender relies mainly on the profits of the business to cover the payments, so your accounts and trading history matter as much as the building. The premises can be repossessed if the loan is not repaid. Mortgages for your own business premises

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Permitted development (permitted development rights, PD): Permitted development is building work or a change of use that national planning rules allow without a full planning application, although some projects need prior approval from the council beforehand. These rights can be restricted or removed for particular areas and buildings, so get written confirmation that they apply before you rely on them for a purchase or a loan.
Personal guarantee (PG, director's guarantee): A personal guarantee is a legally binding promise by an individual, usually a director, to repay a business's debt from their own resources if the business cannot. It means your personal assets, which can include your home, are at risk even though the company borrowed the money, so take independent legal advice before you sign. Personal guarantees explained
Planning permission (full planning permission): Planning permission is formal consent from the local planning authority to carry out building work or to change how land or a building is used. Most development lenders will only fund a build once suitable permission is in place, and any conditions attached to it must be met, so check its terms and expiry date before you commit to a site. How development finance works
Portfolio landlord: A portfolio landlord is a landlord with several mortgaged buy-to-let properties, for whom the Prudential Regulation Authority expects lenders to use a specialist underwriting approach. The number of properties that triggers this is set out in the regulator's standards. Expect the lender to review your whole portfolio, including rents, borrowing and your plans, and not just the property being financed. How portfolio landlord mortgages work
Practical completion (PC): Practical completion is the stage at which building work is finished apart from minor snagging and the property can be used as intended, normally confirmed by a certificate from the architect or contract administrator. It usually triggers the final release of funds and marks the point from which your exit, by sale or refinance, has to happen. How development exit finance works
Profit on cost: Profit on cost is the expected profit from a development expressed as a percentage of its total costs, including the site, the build, fees and finance. Lenders use it to judge whether your scheme has enough margin to absorb overruns or falling values, and each lender has its own view of the minimum it wants to see. Check your profit on cost
Profit rate (rental rate): A profit rate is the rate a Shariah-compliant provider uses to work out its return under a sale, lease or partnership arrangement, taking the place that an interest rate has in a conventional loan. It lets you compare the cost of different providers, and it may be fixed or linked to a benchmark, depending on the product. How Islamic finance works
Proof of deposit (proof of funds): Proof of deposit is evidence that you have the money for your own contribution to a purchase and of where it came from, such as bank statements, a completion statement from a sale or a letter confirming a gift. Lenders and solicitors need it to meet anti-money-laundering rules, and gaps in the paper trail are a common cause of delay.

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Recourse: Recourse is the right of an invoice finance provider to recover money it has advanced against an invoice if your customer fails to pay. Under a recourse facility the risk of bad debts stays with your business, so an unpaid invoice may have to be repaid or replaced once an agreed period has passed. How invoice factoring works
Redemption: Redemption is the repayment of a loan in full, including all interest and fees owed, after which the lender releases its charge over the property. On a bridging loan it normally happens through your exit, so the sale or refinance has to cover the full redemption figure and not just the amount you borrowed. Bridging loan exit strategies explained
Redemption statement (redemption figure, settlement figure): A redemption statement is a document from the lender showing the exact amount needed to repay a loan in full on a given date, including interest and any fees. Your solicitor asks for it before a sale or refinance completes. The figure changes as interest accrues, so it is only valid for the date quoted.
Refurbishment loan (refurbishment bridging loan, refurbishment finance): A refurbishment loan is short-term finance used to buy or refinance a property and fund works that improve it, before you sell it or move to a longer-term mortgage. Lenders look at the planned works, the costs and the expected value afterwards, so a realistic budget and programme matter as much as the property itself. How refurbishment bridging loans work
Regulated bridging loan: A regulated bridging loan is a bridging loan that meets the definition of a regulated mortgage contract, which brings Financial Conduct Authority rules and extra consumer protection. The usual case is a loan on the home that you or a close relative live in or intend to live in. Firms that provide or arrange these loans normally need FCA authorisation, which you can check on the FCA Register. When a bridging loan is regulated
Regulated mortgage contract (RMC): A regulated mortgage contract is a loan to an individual, secured on property of which a sufficient share, set by legislation, is or will be used as a home. A loan on the home you or a close relative live in is the usual case; many business and buy-to-let loans are excluded. Arranging and advising on these loans are activities regulated by the Financial Conduct Authority. When a bridging loan is regulated
Remortgage: A remortgage is the replacement of the existing mortgage on a property you already own with a new mortgage, usually from a different lender, without moving. Borrowers remortgage to get a different rate, change the term or release equity. Check for early repayment charges on your current loan and the fees on the new loan before you decide. Remortgaging a rental property
Rental cover (rental stress test): Rental cover is the test a lender uses to check that the expected rent exceeds the mortgage interest by a set margin, calculated at an assumed interest rate that is often higher than the rate you will actually pay. Each lender sets its own margin and assumed rate, and the result often decides the maximum loan, whatever the size of your deposit. Run a rental stress test
Rental yield (gross yield, net yield): Rental yield is the annual rent from a property expressed as a percentage of its value or purchase price. Gross yield uses the full rent, while net yield is worked out after running costs are deducted. It lets you compare the income return on different properties, and a low yield can limit what you can borrow, because lenders test the rent against the loan. Work out gross rental yield
Repossession: Repossession is the process by which a lender takes possession of a property used as security because the loan has not been repaid as agreed, normally in order to sell it and recover the debt. It is a last resort, but it is a real risk of any secured borrowing, and if the sale does not clear the debt you may still owe the shortfall.
Retained interest: Retained interest is interest for an agreed period that the lender deducts from the loan at the outset, so you make no monthly payments during that period. It reduces the amount you receive at the start, so check that the net loan still covers what you need, and ask whether unused interest is refunded if you repay early. How bridging loan interest and fees work
Revolving credit facility (RCF): A revolving credit facility is an agreed borrowing limit that a business can draw on, repay and draw again as often as it needs during the life of the facility. You pay interest on the amount drawn, and there may be fees on the unused part. It suits needs that go up and down, not a single large purchase. Ways to fund working capital
Riba: Riba is an Arabic term, usually translated as interest or usury, for an increase charged on money that is lent. Islamic finance is built around avoiding it, which is why providers earn their return through sale, lease or partnership structures. Whether a product achieves this is a matter for the provider's Shariah scholars and, if you wish, your own. How Islamic finance works
Rolled-up interest (rolled interest): Rolled-up interest is interest that is added to the loan balance as it accrues and repaid in full, together with the capital, when the loan ends. You make no monthly payments, which helps cash flow during a project, but the amount you owe grows throughout the term and interest may be charged on interest already added. How bridging loan interest and fees work

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Sales ledger (debtor book): The sales ledger is a business's record of the invoices it has issued to customers, showing what has been paid and what is still owed. Invoice finance is advanced against it, so providers look at its size, the spread of customers and the age of the unpaid invoices. Keeping yours accurate and up to date makes a facility easier to obtain and run.
Second charge (second charge loan): A second charge is a legal charge that ranks behind an existing mortgage or other charge on the same property, so its holder is repaid only after the earlier lender if the property is sold. It lets you borrow against a property without replacing your current mortgage, but it usually costs more and the existing lender's consent is normally needed. First and second charge bridging explained
Section 106 agreement (S106, planning obligation): A Section 106 agreement is a legally binding agreement in England and Wales between a developer and the local planning authority, linked to a planning permission, that commits the developer to obligations such as providing affordable housing or paying towards local infrastructure. The obligations bind the land and affect the costs and value of your scheme, so lenders and valuers will want to see them.
Secured loan: A secured loan is a loan backed by an asset, most often property, that the lender can take and sell if the loan is not repaid. Security usually allows larger loans, longer terms or lower rates than unsecured borrowing, but it puts the asset at risk, so be confident that you can afford the repayments before you offer it. Business loans secured on property
Security (collateral): Security is an asset, most often property, that a borrower pledges to a lender to support a loan, giving the lender the right to take and sell it if the loan is not repaid. The type and value of your security largely determine how much you can borrow and what it costs. Property used as security can be repossessed.
Selective invoice finance (spot factoring, single invoice finance): Selective invoice finance is funding raised against individual invoices or particular customers that you choose, instead of against your whole sales ledger. It gives you flexibility, with no commitment to finance every invoice, but the cost for each invoice is usually higher than under a facility covering the whole ledger.
Semi-commercial property (mixed-use property): Semi-commercial property is a building that combines commercial and residential use, such as a shop with a flat above it. Lenders treat it differently from purely residential or purely commercial property. The balance between the uses, and whether you or a close relative will live in the residential part, affects which lenders will consider it and whether the loan is regulated. Finance for mixed-use property
Senior debt (senior loan): Senior debt is the main loan on a project, secured by a first charge and repaid before any other borrowing and before the developer's own equity. Because the senior lender ranks ahead of everyone else, this is usually the least expensive layer of funding, and its terms shape what any mezzanine lender will be prepared to offer you. How development finance works
Service fee (service charge): A service fee is the charge an invoice finance provider makes for running the facility, covering administration and, in factoring, managing the sales ledger and collections. It is usually calculated as a percentage of the invoices you finance or of your turnover. Look at it together with the discount fee and any minimum charges to see the full cost. How invoice factoring works and what it costs
Serviced interest (monthly interest): Serviced interest is interest that you pay each month as it falls due, instead of having it added to the loan or deducted from it at the start. It stops the balance growing and can leave you with a larger net loan, but the lender will want evidence that you can afford the monthly payments. How bridging loan interest and fees work
Shariah supervisory board (SSB, Shariah board): A Shariah supervisory board is a panel of Islamic scholars, appointed by a finance provider, that reviews its products, contracts and operations and confirms whether they follow Shariah principles. Its approval is the main assurance a provider offers, but standards differ between providers, so you may wish to read the board's certificate and consult your own scholar. How Islamic finance works
Shariah-compliant finance (Islamic finance): Shariah-compliant finance is finance designed to follow Shariah principles, in which the provider earns its return through trade, leasing or partnership in a real asset instead of charging interest on money lent. Each product is reviewed by the provider's Shariah scholars. You should satisfy yourself that a structure meets your requirements, with your own scholar if you wish. How Islamic finance works
Special purpose vehicle (SPV): A special purpose vehicle is a limited company set up for a specific purpose, which in property usually means buying and holding rental or development property and nothing else. Many lenders prefer or require it for limited company buy-to-let, because its finances are simple to assess. As a director, you will normally be asked to give a personal guarantee. Buying rental property through a company
Staged drawdown (stage payments, tranches): Staged drawdown is the release of a development loan in instalments as the build reaches agreed stages, instead of as a lump sum at the start. You normally pay interest only on the funds drawn so far, but each release depends on a monitoring surveyor confirming the work, so plan your cash flow around inspections. How development finance works
Stamp Duty Land Tax (SDLT, stamp duty): Stamp Duty Land Tax is a tax paid to HM Revenue and Customs when you buy property or land in England or Northern Ireland above a threshold price, with separate equivalent taxes in Scotland and Wales. The amount depends on the price, the type of property and whether you already own another, so check the current rules on GOV.UK or with your solicitor before you budget.
Structural warranty (new-build warranty, building warranty): A structural warranty is an insurance-backed policy on a newly built or converted property that covers the cost of putting right specified structural defects for a set period after completion. Most mortgage lenders will not lend on a new home without an accepted warranty or equivalent certificate, so arrange it before work starts or your sales and refinance options may be limited. Residential development finance explained

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Tenant covenant (covenant strength): Tenant covenant is the financial strength and reliability of a commercial tenant, and so a measure of how likely it is to keep paying the rent for the whole of its lease. If your property is let to a well-established tenant on a long lease, it is easier to finance, and often valued more highly, than the same building let to a new or weaker business. Finance for let commercial property
Term loan: A term loan is a loan of a set amount repaid in regular instalments over an agreed period, with interest at a fixed or variable rate. It suits a defined purpose such as buying an asset or funding expansion, and the payments are predictable, but you pay interest on the outstanding balance whether or not you are using all the money. Work out business loan repayments

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Underwriting: Underwriting is the lender's detailed assessment of a loan application, in which it checks the borrower, the property, the figures and the exit against its lending criteria before deciding whether to make a formal offer. Clear and complete information at the start shortens the process, because many delays come from underwriters waiting for documents or answers from you.
Unregulated bridging loan: An unregulated bridging loan is a bridging loan that falls outside the definition of a regulated mortgage contract, typically because the borrower is a company or the loan is for business or buy-to-let purposes on property that neither you nor a close relative will live in. It can be quicker and more flexible to arrange, but you do not get the same consumer protections. How unregulated bridging loans work
Unsecured loan: An unsecured loan is a loan that is not backed by a charge over property or other specific assets, so the lender relies on the borrower's creditworthiness and cash flow. It is usually quicker to arrange than secured borrowing, but amounts tend to be smaller and rates higher, and if you are a director you may still be asked for a personal guarantee. How unsecured business loans work

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Vacant possession value (VP value): Vacant possession value is the estimated value of a property on the assumption that it is empty, with no tenant or occupier in place. For commercial property it can be well below the value with a strong tenant on a long lease, and some lenders base your loan on it to allow for the risk of the tenant leaving. How commercial mortgages work
Valuation: A valuation is a surveyor's professional assessment of what a property is worth, carried out for the lender to confirm that it is suitable security for the loan. You normally pay for it, but it is prepared for the lender's purposes and is not a survey of the property's condition. A lower figure than expected can reduce the loan offered.
Variable rate (tracker rate, floating rate): A variable rate is an interest rate that can go up or down during the loan, either because it tracks a published rate such as Bank Rate or because the lender changes its own rate. Your payments can rise as well as fall, so check that you could still afford them if rates increased.

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Working capital: Working capital is the money a business has available to fund its day-to-day trading: broadly, its cash, stock and money owed by customers, less what it owes in the short term. Even if your business is profitable, it can run short of working capital while waiting to be paid, and that gap is what working capital finance is designed to cover. How working capital finance works

Property and business finance glossary

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