Reference
The vocabulary of a UK business loan
Every term a borrower meets in a term sheet or a facility agreement, defined with the numbers that apply at £3-15m rather than the numbers that apply to a syndicated loan.
58 entries, grouped by where they sit in a deal. Each carries the levels, ranges and conventions a lender will quote, and links through to the long-form guide behind it.
Start from where you are
Six sequences through the same material, each ordered for a situation rather than a category. The full list follows below.
A term sheet has landed
What the document commits you to, what the numbers in it mean, and which terms are still open. Read in this order, the sheet stops being a price and becomes a structure.
Working out what you can borrow
Capacity is set twice, on a multiple and on affordability, and the lower answer governs. These are the measures that decide both, and the diligence that tests them.
You are in documentation
The commercial negotiation is over and the long form is being drafted. This is where terms drift, and these are the provisions that move while nobody is watching.
Living with the facility
The years between drawdown and repayment, when the covenants are tested quarterly and the cash is controlled. What binds, what it costs, and what happens when a test is missed.
Buying, selling or taking cash out
Debt raised for a transaction is read differently from debt raised to grow. The structures, and what each one asks of the business afterwards.
A maturity is coming
What it costs to leave, what the market you are refinancing into looks like, and why the conversation starts a year earlier than it feels like it should.
Pricing
What the money costs — margin, fees, and the components a borrower meets in a term sheet.
- PIK (payment in kind)
PIK interest is not paid in cash. It is added to the principal and repaid at the end, which protects cash flow today and enlarges the debt you have to refinance later.
- Original issue discount (OID)
Original issue discount means the lender advances less than the face amount of the loan. You receive 98 or 99 pence in the pound and repay the whole pound, so the discount is interest collected at the front.
- Arrangement fee
The arrangement fee is what a lender charges for putting the facility in place. It is taken at drawdown, so it never reaches your account, and it varies by lender type more than by deal size.
- Non-utilisation fee
A non-utilisation fee is what you pay for money you have not borrowed. It is charged on the undrawn portion of a facility, and it turns headroom from something free into something priced.
- Margin ratchet
A margin ratchet moves your interest margin with performance, usually leverage. It is the one part of the pricing that can improve after signing, and the conditions attached to it decide whether it ever does.
- SONIA
SONIA is the sterling reference rate almost every floating UK business loan is priced over. Your margin is fixed at signing; SONIA is not, and it moves your interest bill without anyone renegotiating anything.
- Exit fee
An exit fee is charged when the facility is repaid, including at maturity. Unlike call protection it is not avoided by waiting, which is why it is easy to miss when comparing offers.
Structure
How the facility is built — instruments, tranches, and ranking.
- Unitranche
Unitranche is a single blended facility from one fund, replacing the senior and junior layers a bank structure would use. It buys leverage, speed and a bullet repayment, and it charges for all three.
- Super senior RCF
A super senior RCF is the working capital line that sits alongside a unitranche facility and ranks ahead of it on enforcement. It is usually provided by a bank, and it is priced far tighter than the debt it outranks.
- Agreement among lenders (AAL)
The agreement among lenders is the private contract ranking your lenders against each other. You are barely a party to it, and it determines how easily you will get a waiver when you need one.
- Senior stretch
A senior stretch is a single senior facility pushed above conventional bank leverage without adding a junior layer. It buys borrowing capacity that a bank structure would not reach, and it prices and covenants accordingly.
- HoldCo vs OpCo debt
OpCo debt sits at the company that owns the assets and earns the cash. HoldCo debt sits one level above it, behind every creditor of the trading business, and is repaid only from what the trading company is permitted to pay up.
- Asset-based lending (ABL)
Asset-based lending sizes a facility off the assets rather than off a multiple of earnings. Availability flexes with the collateral, which suits a business whose balance sheet is bigger than its profit suggests.
- Mezzanine
Mezzanine is a loan sitting behind the senior facility, secured and dated, usually part cash-pay and part PIK. It buys quantum the senior lender will not stretch to, and it adds a creditor, a maturity and an intercreditor.
- Preferred equity
Preferred equity is a class of shares ranking ahead of the ordinary shareholders and behind every creditor, with a fixed return that accrues to exit rather than being paid in cash. It costs more than mezzanine and forgives more.
- Sale and leaseback
A sale and leaseback sells the freehold to an investor and leases it straight back on a long term. It releases close to the full value of the property and converts an owned asset into a permanent fixed rent.
- Asset finance
Asset finance funds a specific asset over its working life, secured largely on the kit itself. On a like-for-like APR it costs about the same as a term loan, so the decision turns on ownership, security and cash-flow shape rather than rate.
- Dividend recapitalisation
A dividend recap refinances the company onto a larger facility and pays the surplus to shareholders, so owners take cash out without selling. It has to pass two independent tests: whether the cash flow carries the new leverage, and whether distributable reserves cover the dividend.
- Management buyout (MBO)
A management buyout is the team that runs a business buying it. The funding is a stack of senior debt, vendor paper and the team's own equity, and the hardest decision is taking less debt than the market will offer.
- Management buy-in (MBI)
A management buy-in is an external team buying a company they have not run. The lender is underwriting execution risk on top of ordinary credit risk, and the response is structure rather than a punitive rate: gear it below a comparable buyout.
- Acquisition finance
Acquisition finance is sized on the combined group rather than on either company alone, against scrubbed earnings and after refinancing whatever debt is already there. The new money is what is left once both of those are done.
- Debt against equity
Debt is cheaper, deductible and temporary; equity is permanent, forgiving and expensive. The choice turns on how certain the plan is and how much fixed cost the business can carry, not on which is cheaper on paper.
- Shareholder buyout
Buying out a departing shareholder is an ownership shift funded by debt. The cash leaves the business, so a lender underwrites the remaining company's existing cash generation rather than a growth plan, which keeps leverage at the conservative end.
Covenants
What the lender tests, how often, and what happens when it fails.
- Leverage covenant
A leverage covenant caps your debt as a multiple of EBITDA, tested every quarter. It is rarely one number and rarely one measure: most facilities test several, on a schedule that tightens each year.
- Covenant headroom
Headroom is the gap between where your covenant is set and where you are trading, and it is the difference between a difficult quarter and a default.
- Equity cure
An equity cure lets shareholders inject money to fix a covenant breach after it has happened. It is a limited resource, capped in number and frequency, and how the cash is applied decides how much good it does.
- Debt service cover ratio (DSCR)
DSCR measures the cash available to service debt against everything the debt costs in the period, interest plus scheduled repayment. It is the tightest of the common covenants because it is the only one that counts amortisation.
- Springing covenant
A springing covenant is tested only once the revolving facility is drawn past a threshold. Below the line there is no quarterly test to fail, which is a smaller reprieve than it sounds.
- Maintenance vs incurrence covenants
A maintenance covenant tests every quarter whether you like it or not. An incurrence covenant tests only when you try to do something. The difference decides whether a bad quarter is a default or merely a bad quarter.
- Material adverse change
A material adverse change clause lets a lender act if your position deteriorates materially, without waiting for a specific covenant to break. Its most consequential position is not the default clause but the drawing conditions.
- Interest cover
Interest cover measures earnings against the interest bill alone. It is the covenant most exposed to the cost of money rather than to trading, which is why a rate rise can move it when nothing about the business has changed.
- Permitted payments
The permitted payments schedule sets what cash may leave the business while the debt is outstanding. It reaches further than dividends, and it is settled in the long-form documents rather than in the term sheet.
- Clean-down
A clean-down requires the line to sit at or near zero for a short window each year. It is the test that proves a revolver funds swings rather than a permanent hole, and failing it changes what the facility is.
- Information undertakings
Information undertakings are the reporting obligations in a facility agreement. They are the least negotiated covenants and the ones you live with every month, and late delivery says something about a business that its numbers may not.
Mechanics
The moving parts of a live facility — drawdown, repayment, sweeps, cures.
- Cash sweep
A cash sweep is a mandatory prepayment: a defined share of the cash your business generates above what it needs goes to repaying the loan early, whether you want it to or not.
- Prepayment protection
Prepayment protection is what a lender charges if you repay early. It protects their expected return, and it is the provision that decides whether you can refinance into cheaper debt when the business improves.
- Amortisation
Amortisation is the schedule on which you repay principal. It decides how much cash the facility takes each year, which covenant binds you, and how large a refinancing you face at maturity.
- Event of default
An event of default is a defined failure that gives the lender the right to act. It does not compel them to, and on a business still trading and paying interest, they almost never take the most drastic option available.
Security
What is pledged, to whom, and in what order.
- Debenture
A debenture is the document that gives a lender security over substantially all of a company's assets. It reaches the public register within 21 days, and it stays there after repayment unless someone files to remove it.
- Personal guarantee
A personal guarantee makes a director personally liable for the company's debt if the company cannot pay. What it covers and how it is capped matters far more than whether one is given at all.
- Priority of charges
Priority between charges is settled by agreement far more often than by the order of registration. Granting a second charge is usually possible with the incumbent's consent, and almost never without it.
Process
How a raise runs — documents, stages, parties.
- Information memorandum (IM)
The information memorandum is the document lenders read to decide whether to lend and at what price, and it is not the same document as the one used to sell a company.
- Term sheet
A term sheet sets out the terms a lender will lend on. Most of it is not binding, a few clauses are, and your negotiating leverage peaks in the moment before you grant exclusivity.
- Conditions precedent (CPs)
Conditions precedent are the items that must be delivered before a lender will release funds. The list looks administrative and is the single most common reason a drawdown slips past the date the money was needed.
- Credit approval
Credit approval is the lender's internal decision to commit. Until it happens you hold an originator's view of what their institution should do, not a commitment about what it will.
- LMA
The Loan Market Association publishes the standard-form documents most UK loan agreements are built from. LMA-style means the shape is conventional; it does not mean the terms inside it are.
- CBILS and RLS refinancing
CBILS loans written on six-year terms mature through 2026 and into early 2027. The scheme guarantee protected the lender, never you, and the borrower protections it carried expire with the facility they were attached to.
- Refinancing wall
The refinancing wall is the concentration of UK facilities coming due together across 2026 and 2027. On our own scoring of the charge register, estimated windows stay open for between 15,519 and 16,808 companies in every quarter of that period.
- Data room
The data room is the repository a credit team underwrites from. Standing it up is the moment a raise becomes real, and its condition does more to set the timetable and the diligence bill than anything else a borrower controls.
Diligence
What lenders examine and the evidence they expect.
- Normalised EBITDA
Normalised EBITDA is your statutory earnings adjusted for things that will not recur. It is the number your facility is sized on, and every adjustment in it is tested on its own.
- Quality of earnings (QoE)
A quality of earnings report is an accounting firm's independent test of whether your reported profit is real and repeatable. It is the piece of diligence that most often moves a deal, because what it strikes out reduces what you can borrow.
- CFADS
CFADS is the cash left to pay lenders after the business has paid for everything it needs to keep running. It is the number that sets your real borrowing ceiling, and it is usually far below EBITDA.
- Customer concentration
Customer concentration is the share of revenue depending on a small number of customers. It rarely stops a facility outright; it reduces the leverage a lender will underwrite and tightens what comes with it.
- Cash conversion
Cash conversion is how much of your EBITDA arrives as cash. It decides how much of the reported figure is real for servicing debt, which is why the affordability lens can cap a facility below whatever the multiple advertises.
Parties
Who is in the room and what each one is paid to do.
- Broker vs adviser
A broker is paid commission by the lender that wins the deal. An adviser is paid by you. That single difference decides whose side each is on when the terms are being set.
- Debt adviser
A debt adviser runs a competitive process on the borrower's side of the table. The UK market is tiered by ticket size rather than by quality, and the tier that fits a £3-15m raise is not the one that fits £100m.
- Direct lender
A direct lender is a fund that lends its own capital without syndicating to banks. It is one of four categories serving UK lower-mid-market borrowers, and each lends against something different.
- Sponsor
A sponsor is the private equity firm backing the equity in a transaction. Its presence changes the debt available, because a lender is underwriting a fund that can write a second cheque as well as a business.