The Commercial Finance category has its own set of rules and terminology that any borrower should become familiar with before agreeing to any handover of proprietary information or transactions.

Previously, we wrote a blog on Demystifying Common Finance Buzzwords, and now we’ve highlighted the most common vocabulary used around commercial loans for business growth and acquisition.

Share Charge

A charge over a company’s shares may be put in place as collateral against a loan. This security option ensures the lender has an efficient route to asset recovery should a debt fail to be paid against the agreed terms. The share charge can be taken from the company borrowing the funds or another company owned by the proprietor should the company requesting the funds not have enough equity.

Due Diligence

Due diligence speaks for itself and is the process that the lender will take to ensure all legal, financial, and commercial information relating to the agreement is correct. This process will establish if further information or documents are required before committing to the business transaction.

Commercial Owner-Occupied

The commercial owner-occupied mortgage can be taken out by a business or owner of the business and is used to purchase a premises which the business plans to operate out of. It is a long-term loan that is typically much higher in value than residential mortgages, as premises tend to be larger for business operations.

Commercial owner-occupied mortgages can also be applied for as a refinancing option for existing owned properties if terms are more favourable or as equity release.

Commercial Investment Mortgage

If a commercial entity wishes to buy premises that it will not be operating from as a business but wants to let to business tenants, it will opt for a Commercial Investment Mortgage. Like the aforementioned, this loan is typically long-term and has higher interest rates compared to residential or buy-to-let mortgages.

Capital Expenditure

Capital expenditure, also known as CapEx, is generally a one-time investment to acquire or upgrade fixed assets used to maintain a company’s long-term operations. This can be anything from buildings, equipment, computer hardware, or vehicles. Other synonyms include capital expense and capital allowances.

Working Capital

Unlike capital expenditure, working capital focuses on the short-term health of the business. This still considers the future needs of the business in terms of cash flow but uses cash for short-term obligations such as unpaid taxes and debt that can hinder the long-term goals.

Growth Capital

As the name indicates, growth capital is about cash to help a business grow. This type of commercial funding will look at acquisition opportunities, capital to access new markets, and any other transactional options to develop the business.

Short-Term Cash Flow

Models can be used to predict short-term cash flow, which is typically a forecast for a period of around twelve months. Cash flow planning allows a business to predict the expenditure it can make for operations and growth while ensuring the business can remain profitable.

Personal Guarantee

Commercial loan providers will typically ask for personal guarantees from the major shareholders and directors involved with the business. A personal guarantee is a legal promise to repay credit issued to a business.

Corporate Guarantee

If you’re lucky enough to have another successful business, lenders may occasionally ask for a cross-corporate guarantee for a commercial loan.

Onyx Property Finance are experts in providing financial solutions for property developers. We are dedicated to keeping on top of market trends and ensuring our customers are kept informed of any changes that might affect their borrowing, projects, and investments – see our blog for all the latest insights.

Speak to an expert today and get up to 100% of your purchase and build costs with fixed interest rates for the lifetime of your loan: info@onyxmoney.co.uk.