Glossary
The terms that show up in every facility, in plain English.
Specialist asset finance has its own vocabulary. This glossary defines the terms used across our site, our facilities, and our funder reporting. Hover any underlined term elsewhere on the site to see the short definition.
All glossary terms, alphabetical
A
- advance rate #
- The advance rate is the percentage of the eligible value of an asset or invoice that a funder is prepared to lend against. On invoice finance, advance rates are typically 70 to 90 per cent of approved invoices. On asset finance, advance rates depend on the asset type, age and condition. A higher advance rate releases more cash but increases the funder's exposure, so it is usually offset by tighter covenants, security or pricing.
- asset-backed lending #
- Asset-backed lending (ABL) is finance secured against identified business assets, typically a mix of plant, machinery, vehicles, stock and receivables. The amount available is set by formulas applied to each asset class, such as advance rates against eligible debtors. ABL suits asset-rich, sometimes lumpy businesses that struggle to fit a clean cashflow lending box. It is distinct from straight asset finance, which usually funds a single new or used asset.
B
- balloon payment #
- A balloon payment is a single larger amount due at the end of a hire purchase or lease agreement. Setting a balloon defers part of the capital, reducing monthly payments during the term. At the end the customer can settle the balloon in cash, refinance it onto a new agreement, or sometimes hand the asset back. Balloons should reflect a realistic forecast of the asset's market value at maturity.
- Bank of England base rate #
- The Bank of England base rate, formally Bank Rate, is the official UK interest rate set by the Monetary Policy Committee at its scheduled meetings. It influences the rate at which commercial banks borrow from each other and from the Bank, and feeds through into the cost of credit across the economy. Many business loans, overdrafts and some asset finance facilities reference Bank Rate plus a margin. The current rate is published at bankofengland.co.uk.
C
- Capacity Market #
- The Capacity Market is the Great Britain mechanism that pays generators, storage assets and demand-side response to be available when the system needs them most. It is administered by NESO and the EMR Delivery Body, with auctions held one year ahead (T-1) and four years ahead (T-4) of delivery. Cleared participants receive an annual capacity payment for the agreed obligation, and face penalties if they fail to deliver during stress events. See nationalenergyso.com and gov.uk.
- capital expenditure #
- Capital expenditure (capex) is spending on long-term productive assets such as plant, equipment, vehicles, buildings and major upgrades. It is capitalised on the balance sheet and depreciated over its useful life, rather than expensed immediately. Asset finance is the most common way to fund capex without using working capital. UK businesses can also use capital allowances to set qualifying capex against taxable profits, including the Annual Investment Allowance set by HMRC.
- CfD #
- Contracts for Difference (CfD) is the main UK support mechanism for low-carbon electricity generation, including offshore wind, solar and tidal. Generators bid a strike price in periodic allocation rounds run by the Low Carbon Contracts Company. If the wholesale market price is below the strike price, generators receive the difference; if above, they pay it back. CfDs provide long-term revenue certainty that supports project finance gearing. See gov.uk and lowcarboncontracts.uk.
- Clean Air Zone #
- A Clean Air Zone (CAZ) is a defined area where vehicles that do not meet emissions standards (typically Euro 6 diesel and Euro 4 petrol) pay a daily charge to drive. CAZs are operated by individual local authorities under the framework set by the Department for Environment, Food and Rural Affairs. Birmingham, Bristol, Bath, Sheffield, Bradford, Portsmouth, Tyneside and others operate CAZs. London uses a separate ULEZ. See gov.uk for the national framework.
- COD #
- Commercial operation date (COD) is the date a project, typically a renewable energy project, formally begins full commercial operation under its main contracts. It triggers the start of revenue, the conversion of construction debt to operational debt, and the start of long-term performance covenants. In UK renewables, COD is often defined against grid connection and metering milestones agreed with the network operator and reflected in the project's contract suite.
- concentration limit #
- A concentration limit is a contractual cap on how much of a facility can be exposed to a single counterparty, asset class or sector. On invoice finance, a typical concentration limit is 20 to 30 per cent of the funded ledger to any one debtor. On asset facilities, the limit might apply to a single make, model, vintage or end-customer. The aim is to protect the funder from a single point of failure inside an otherwise diversified book.
- Consumer Duty #
- The Consumer Duty is an FCA standard that requires authorised firms to act to deliver good outcomes for retail customers, across products and services, price and value, consumer understanding and consumer support. It has applied to new and existing open products and services since 31 July 2023, and to closed products since 31 July 2024. It is more demanding than the previous Treating Customers Fairly principle. See fca.org.uk under Consumer Duty for current guidance.
- credit committee #
- A credit committee is a formal forum that reviews and approves lending decisions above a defined size or risk threshold, separately from front-line origination. It typically includes credit, risk, finance and senior management. The committee documents the rationale, the proposed terms, and any conditions precedent. Smaller deals are usually approved under a delegated authority matrix that specifies the size and risk profile each named approver can sign off without committee.
- curtailment #
- Curtailment is a scheduled partial repayment of the advance against a unit that has been on a floorplan facility beyond a defined milestone, for example 90 days. It limits the funder's exposure to stock that is aging on the dealer's lot. Typical curtailment schedules step down the advance by a percentage at fixed intervals, for instance 10 per cent at 90 days and another 10 per cent at 120 days. Persistent curtailment can signal stocking issues.
D
- dealer aging #
- Dealer aging is the practice of tracking how long each financed unit has been on a dealer's premises. It is a core control on floorplan and stocking facilities. Funders use aging buckets (for example 0-60, 61-90, 91-120, 121+ days) to flag stock that is at risk of becoming stale, to trigger curtailment, and to focus audits. Persistent aging issues can drive a review of the facility size or structure.
- debenture #
- A debenture is a document under which a company grants security over its assets to a lender. It can include a fixed charge (over identified assets such as property or specific equipment) and a floating charge (over fluctuating assets such as stock and book debts). It is registered at Companies House. In asset finance, a debenture is often used in addition to the security on the financed asset itself, typically on larger or higher-risk facilities.
- debt service coverage ratio #
- The debt service coverage ratio (DSCR) measures how comfortably a project's cashflows cover its debt service. It is calculated as cashflow available for debt service divided by scheduled principal and interest in the same period. Senior lenders typically want a minimum DSCR of around 1.20 to 1.40 in renewables, depending on technology and contract structure. Falling below an agreed threshold can trigger lock-up of distributions or, in serious cases, default.
- deferred payment #
- Deferred payment is a structure that delays the start of payments under an agreement, typically by one to three months, sometimes longer. It is useful when an asset takes time to bed in (a new clinic device that needs commissioning, a solar array waiting for connection) or when seasonal cashflow argues for a later start. The funder usually accrues interest during the deferral, so the total cost is higher than starting payments immediately.
- Direct Vision Standard #
- The Direct Vision Standard (DVS) is a Transport for London scheme that rates heavy goods vehicles over 12 tonnes by how much the driver can see directly through the cab windows. Vehicles are rated zero to five stars; a Progressive Safe System fit is required for lower-rated vehicles to operate in Greater London. From October 2024 the minimum rating rises and additional safety equipment is required. See tfl.gov.uk for the current rules and timetable.
- drawdown #
- Drawdown is the point at which funds are released under a facility, paid either to the supplier of an asset or to the customer on a refinance. On a single-asset deal, drawdown happens once, at the start. On a revolving facility, drawdowns can happen many times across the facility life, each subject to conditions precedent and any utilisation tests. Drawdown is the trigger for the first interest accrual or rental period.
E
- equity #
- Equity is the risk capital invested by the project sponsors. It is repaid only after all debt obligations have been met, so it carries the highest risk and, in successful projects, the highest return. In renewables and infrastructure deals, equity sponsors typically contribute between 10 and 35 per cent of project cost, depending on the cashflow profile, the regulatory regime, and lender requirements such as debt service coverage and lock-up tests.
F
- FCA Dispute Resolution rules #
- The FCA's Dispute Resolution rules (DISP), set out in the FCA Handbook, govern how authorised firms must handle complaints from eligible complainants. They set acknowledgement timeframes, final response timing (typically eight weeks), and signposting to the Financial Ombudsman Service. Eligible complainants broadly include consumers, micro-enterprises, small charities and small trustees, with thresholds defined in DISP 2. See handbook.fca.org.uk for the current text.
- finance lease #
- A finance lease is an agreement where the funder (lessor) keeps legal title to the asset throughout, and the customer (lessee) pays rentals across a primary period that recovers most of the asset's cost. After the primary period the lessee can usually continue use for a peppercorn rent or sell the asset as agent for the lessor. VAT is charged on each rental rather than on the original asset price, which can help cashflow.
- floorplan finance #
- Floorplan finance is a revolving credit facility used by dealers and resellers to fund stock that is held for sale. The funder advances money against each unit, typically a percentage of invoice value, and is repaid when the unit sells. Common in motorcycle, leisure, agriculture and automotive dealers. It supports a wider showroom range without tying up the dealer's own cash, and is usually operated alongside dealer aging, curtailment and audit checks.
H
- hire purchase #
- Hire purchase (HP) is a finance agreement where the customer pays an initial deposit and fixed instalments over an agreed term, and takes legal title to the asset on payment of an option-to-purchase fee at the end. The asset appears on the customer's balance sheet from day one, capital allowances are typically available to the customer, and VAT is paid on the asset price up front, not on each rental.
- hypothecation #
- Hypothecation is the practice of pledging a specific asset as security for a loan or finance agreement, while the borrower keeps possession and use of the asset. In asset finance the asset itself acts as the primary security; if the customer defaults, the funder can recover and sell the asset to clear the debt. Hypothecation differs from a general charge over all assets, which would be created by a debenture.
I
- invoice finance #
- Invoice finance is a working capital product that advances cash against the value of unpaid sales invoices. The funder typically advances a percentage of each invoice (the advance rate, often 70 to 90 per cent), with the balance released when the customer pays. It can be structured as factoring (where the funder collects payments) or invoice discounting (where the business retains collection). It is distinct from asset finance, which funds specific physical assets.
L
- lifecycle #
- Asset lifecycle covers the full life of an asset from acquisition, through use and maintenance, to end-of-life disposal or replacement. Good lifecycle planning sets the right finance term, residual value, balloon and refresh timetable. It also factors in maintenance, telematics, compliance (such as Direct Vision Standard or Clean Air Zone obligations) and remarketing routes. Lifecycle thinking helps operators avoid running tired assets and helps funders model risk over the full term.
- lock-up tests #
- Lock-up tests are covenants in project finance documents that prevent the SPV from distributing cash to equity holders unless certain financial tests are met, typically a minimum DSCR or loan life coverage ratio. They protect senior lenders by retaining cash inside the project when performance is weak. Lock-up does not by itself trigger default; it just delays distributions until the next test date when performance is back above threshold.
M
- mezzanine #
- Mezzanine finance sits between senior debt and equity in the capital stack. It is paid after senior debt obligations but before any return to equity, and it typically carries a higher coupon plus an equity-linked kicker such as warrants or PIK interest. In renewables and infrastructure project finance, mezzanine fills the gap between conservative senior gearing and the equity sponsor's preferred contribution, supporting overall project economics.
N
- novation #
- Novation is the legal transfer of a contract from one party to another, with all parties' consent, so that the new party steps into the original obligations. In asset finance, novation is used when an asset moves from one operating company to another (for example, on a corporate restructure), or when a fleet is sold as a going concern. The funder will reassess credit and may amend pricing or security as part of the novation.
O
- operating lease #
- An operating lease is a rental agreement where the funder retains the residual value risk on the asset. Rentals are usually lower than HP or finance lease over the same term because not all of the asset cost is recovered through the rentals. The asset typically returns to the funder at the end of the term, making operating lease useful for fleet operators on refresh cycles or for technology assets that depreciate quickly.
P
- pay-as-sold #
- Pay-as-sold is the standard repayment mechanism on most floorplan and stocking facilities. As each financed unit leaves the showroom or warehouse, the dealer notifies the funder and pays down the advance for that specific unit, often with VIN-level reconciliation. It keeps the facility revolving and matches funder exposure to actual stock on hand. Sale-out-of-trust (SOT), where a unit is sold but proceeds are not paid through, is a serious breach.
- peppercorn rent #
- A peppercorn rent is a nominal payment, often a small fixed sum each year, that allows a finance lease customer to continue using an asset in the secondary period after the primary lease term ends. It reflects the fact that the rentals during the primary period have already recovered the funder's cost. Peppercorn rents are common on finance leases, where the lessee never takes title but retains long-term use.
- personal guarantee #
- A personal guarantee (PG) is a contractual promise from an individual, usually a company director or shareholder, to pay sums owed by the company if it cannot. PGs are common on SME asset finance because they align the operator's interests with the funder's. Liability can be capped at a limit, and it is good practice for directors to take independent legal advice before signing. PGs survive the company; they bind the individual personally.
R
- recourse vs non-recourse #
- Recourse and non-recourse describe who carries the credit risk on funded receivables. Under a recourse facility, if a customer fails to pay, the funder claws the advance back from the seller. Under a non-recourse facility, the funder absorbs the bad debt, usually backed by credit insurance and tighter underwriting. Non-recourse pricing is higher because the risk is greater for the funder, and it is typically only available on stronger debtor books.
- refinance #
- Refinance is the process of replacing an existing finance agreement with a new one, typically to release cash, lower the monthly cost, change the term, or consolidate facilities. In asset finance, refinance is often used on assets that have been owned outright for some time, where unlocking the embedded value funds growth or working capital. Settlement figures from any existing lender are paid first, and any equity is then advanced to the customer.
- residual value #
- Residual value is the predicted market value of an asset at the end of the finance term, after the depreciation expected over the agreement. It drives the size of any balloon and the rentals on operating leases. Residuals are set using sector data, comparable sales, and judgement on technology cycles and condition. Setting a residual too high lowers monthly cost but risks a shortfall when the asset returns or is sold.
S
- sale and HP back #
- Sale and HP back is a refinance structure where the customer sells an existing owned asset to the funder and then buys it back over time on hire purchase. It releases working capital while you keep using the asset day to day. The funder valuates the asset, applies a loan-to-value haircut, and sets a term against expected residual life. Any existing finance on the asset must be settled out of the proceeds.
- secured lending #
- Secured lending is finance where the lender holds a legal charge or claim over specific assets, giving them a route to recover the debt if the borrower defaults. Security can be over a specific asset (as in hire purchase or a finance lease), over a category of assets (a fixed or floating charge under a debenture), or over a wider mix under an all-monies clause. Secured lending typically prices lower than unsecured because recovery risk is reduced.
- senior debt #
- Senior debt is the most senior tranche of capital provided to a business or project. It is repaid first out of available cashflows and ranks ahead of mezzanine and equity if the borrower is wound up. Because of this priority, senior debt typically carries the lowest cost of capital, but lenders impose stricter covenants, security and reporting. In project finance, senior debt is often sized to a target debt service coverage ratio.
- SONIA #
- SONIA, the Sterling Overnight Index Average, is the UK's risk-free interest rate benchmark, administered by the Bank of England. It is calculated each business day from a broad set of overnight unsecured sterling transactions. SONIA replaced LIBOR for sterling and is the reference rate used in many floating-rate loans, derivatives and securitisations. Compounded SONIA in arrears is the most common reference for loan facilities. The Bank publishes SONIA daily at bankofengland.co.uk.
- SPV #
- A special purpose vehicle (SPV) is a company set up specifically to own and operate a defined project, such as a solar farm or battery storage site. The SPV holds the asset, the contracts and the project financing, ring-fencing the project's risks from the wider sponsor group. Lenders typically require SPV structures in project finance so that their security and cashflow are clearly identified, with the SPV's accounts ring-fenced from the parent.
- stocking line #
- A stocking line is a form of floorplan finance under which a funder pays the manufacturer for goods supplied to a dealer, on the dealer's behalf. The dealer then has a free-funding period (often 60 to 180 days, depending on the asset) to sell the unit before interest starts to accrue. Curtailments may be required if the unit is not sold by certain milestones. Stocking lines support working capital and protect manufacturer cashflow.
T
- three-tier aesthetic licensing #
- Three-tier aesthetic licensing is the regulatory framework being introduced in England for non-surgical cosmetic procedures such as botulinum toxin and dermal fillers. Procedures are assigned to one of three tiers by risk, with rising practitioner training and oversight requirements at each tier. The Department of Health and Social Care has consulted on the scheme, with implementation expected to phase in. Operators planning aesthetic device finance should follow the latest DHSC guidance at gov.uk.
- tolling agreement #
- A tolling agreement is a contract under which a counterparty pays a fixed fee in exchange for the right to use the capacity of an asset over time, often passing through input costs. In battery storage, a tolling agreement (sometimes structured as an availability payment) gives the project predictable revenue without merchant market exposure. Tolling agreements support higher debt gearing because they smooth the cashflow profile lenders use to size senior debt.
U
- ULEZ #
- The Ultra Low Emission Zone (ULEZ) is the daily charge area covering all London boroughs where vehicles that do not meet Euro 6 (diesel) or Euro 4 (petrol) standards must pay a daily fee to drive. Operated by Transport for London, it is enforced by automatic number plate recognition. The zone expanded to cover the whole of Greater London in August 2023. ULEZ is separate from the Congestion Charge and from the Direct Vision Standard. See tfl.gov.uk.
V
- VIN-level reconciliation #
- VIN-level reconciliation is the discipline of tracking each financed vehicle on a floorplan or stocking facility by its unique vehicle identification number (VIN), or equivalent serial number for non-road assets. It allows the funder, the dealer and any third-party auditor to check that what is on paper matches what is in the showroom or yard. VIN-level reconciliation is the core control behind audits, and the basis for resolving any sale-out-of-trust events.
W
- working capital #
- Working capital is the cash a business needs to fund day-to-day operations: paying staff, suppliers, rent and inventory ahead of receiving customer payments. It is calculated as current assets less current liabilities. Tight working capital is a common constraint on growth, particularly for asset-rich operators with seasonal revenue. Asset finance, refinance and invoice finance are all tools used to free working capital that would otherwise be tied up in equipment or unpaid invoices.
Z
- ZEV mandate #
- The Zero Emission Vehicle (ZEV) Mandate is a UK regulation that requires manufacturers to sell a rising share of zero-emission new cars and vans each year, on a path to 100 per cent of new sales by 2035. It came into force in January 2024. Manufacturers can trade credits, borrow forward, or pay a non-compliance fee if they fall short. The mandate shapes vehicle availability and pricing in the UK fleet market. See gov.uk for the current targets.