If you’ve ever read through a loan offer and felt confused by the terminology — you’re not alone. Many lenders use business loan jargon that can make it hard to compare your options or feel confident in your decision.
At Funding Pool, we believe business finance should be clear, straightforward, and accessible. That’s why we’ve broken down some of the most common business loan terms you might come across — in plain English.
1. APR (Annual Percentage Rate)
What it means:
APR represents the total yearly cost of borrowing money, expressed as a percentage. It includes both the interest rate and most additional fees charged by the lender (such as arrangement fees).
Why it matters:
APR gives you a more complete picture of how much a loan will really cost over time. It’s especially useful when comparing multiple loan offers. Keep in mind that some fees, like early repayment charges, may not always be included in the APR.
2. Revolving Credit
What it means:
A revolving credit facility works like a business overdraft or credit card. You’re approved for a credit limit (e.g. £25,000) and can draw down funds as needed. As you repay, those funds become available to borrow again.
Why it matters:
Revolving credit is ideal for managing short-term working capital needs. You only pay interest on the amount you’ve actually used, not the full credit limit. This flexibility makes it useful for covering gaps in cash flow or handling unpredictable expenses.
3. Secured vs. Unsecured Loans
Secured loans:
These loans are backed by an asset — usually business property, vehicles, or other equipment. If the loan isn’t repaid, the lender can claim the asset to recover their money. Secured loans often come with lower interest rates and higher borrowing limits.
Unsecured loans:
These loans do not require any physical collateral. They are based on the strength of your business — such as revenue, credit score, and trading history. Because there’s more risk for the lender, interest rates may be slightly higher, and the loan amounts smaller than with secured options.
Which is better?
It depends on how much funding you need, how fast you need it, and whether you’re comfortable offering security. We can help you weigh up the pros and cons.
4. Fixed vs. Variable Interest Rates
Fixed interest:
Your interest rate stays the same throughout the life of the loan. This means your monthly repayments are predictable and easier to budget for.
Variable interest:
The interest rate can rise or fall during the loan term, depending on market conditions or the Bank of England base rate. As a result, your monthly repayments may change over time.
Why it matters:
Fixed-rate loans are more stable and suitable if you want certainty. Variable-rate loans may offer a lower starting rate, but carry more risk if rates increase.
5. Merchant Cash Advance (MCA)
What it means:
This is a type of funding where you receive a lump sum upfront and repay it through a percentage of your daily card sales. Repayments happen automatically and adjust based on your takings.
Why it matters:
MCAs are popular with hospitality, retail, and service-based businesses that take a lot of card payments. Since repayments are linked to your turnover, you repay more during busy periods and less during slower times — which can ease cash flow pressure.
6. Term Loan
What it means:
A term loan is a straightforward business loan where you borrow a set amount and repay it over a fixed period — usually between 12 and 60 months — with interest.
Why it matters:
This is one of the most common types of business finance. It’s suitable for investing in equipment, renovations, staff expansion, or consolidating debts. Repayments are usually made monthly and are easy to plan around.
7. Early Repayment Fees
What it means:
Some lenders charge a fee if you choose to repay your loan early — before the agreed term ends. This is also called an early settlement or exit fee.
Why it matters:
Not all lenders charge early repayment fees, so it’s worth checking before you commit. If you think you might want to pay off your loan early, we can help you find lenders who allow it without penalties.
Final Thoughts
Understanding any business loan jargon puts you in a stronger position to choose the right finance for your company. If you’re ever unsure about what something means, don’t be afraid to ask — and at Funding Pool, we’ll always explain things clearly.
We work with over 50 trusted UK lenders and are rated Excellent on Trustpilot. Whether you’re looking to grow your business, ease cash flow, or invest in the future, we’re here to make the process simple and stress-free.
Ready to explore your options?
Complete our quick online form or get in touch with our team — no pressure, just friendly advice.