Get fluent in funding terminology

Funding options often come with a long list of terms and conditions, which is why it’s important to understand the ones that matter. These terms directly impact your ability to reach fair and transparent agreements with lenders.

Knowing the ins and outs of fees, interest rates, repayment terms and more ensures you’re getting the best deal, especially with the wide range of funding options available. In September 2024, the Financial Times Adviser reported that 51% of UK adults have failed a financial literacy test¹, suggesting that half of the British public lack the financial knowledge required to make critical financial decisions. If you’re looking to get funding for your business, it’s important to understand the basics.

Let’s break down the terms and conditions that often come up during the application process, so you’ll be better equipped to navigate your financing options with ease and secure the funding you need to reach your goals.

What terms do I need to know?

Fees

Fees are an additional cost on top of the amount you borrow, which allows finance providers to make money. Examples include origination fees to cover administration costs, fixed fees and potential late payment fees. Some funding options only use one-time fees rather than accruing interest over time.

Interest

Interest is a charge lenders collect based on a percentage of the amount you borrow. Even if the interest rate looks like a small percentage, it adds up over time, so it’s worth keeping an eye on how much you'll repay in total. Not all financing types use interest.

Interest rates can either be fixed, where the percentage you pay stays the same, or variable, where it fluctuates based on market conditions. Different lenders offer different rates based on their own needs, the conditions of the loan and the market. Some products, such as cash advances, have no interest rates, but have a fixed cost instead.

One particular important rate is called the bank lending rate. Bank rates are the interest rates banks use for loans, credit cards and lines of credit, determined by the Bank of England. The more creditworthy you are, the closer your interest rate can be to the bank rate, meaning the loan costs you less overall.

Term

The term of a loan is the length of time allotted to repay your financing. It also includes the frequency of payments (e.g., monthly, quarterly) and how the amount is determined. Sometimes, you may incur early repayment penalties for paying off your loan before the agreed-upon term ends.

Once you’re familiar with these terms, you can choose the solution that’s the most advantageous for your business, depending on the current state of your finances.

How do the terms apply to conventional funding methods?

Now that you know the key financing terms, let’s see how they apply to common funding options.

Traditional bank term loan

Arrangement fees typically range from 1% to 2% of the loan amount. Legal fees are also variable but can be significant, especially for larger and secured loans.
Average interest rates can range from 3% to 8% per annum, depending on the Bank of England base rate, the business’s creditworthiness and the loan's security. Secured loans typically have a lower interest rate than unsecured ones.
In terms of repayment, fixed monthly instalments are set over a period. These can range from a few years to longer durations, depending on the purpose of the loan. Early repayment penalties may apply, especially for fixed-rate loans.

Lines of credit

Lines of credit include arrangement fees, which are upfront costs for setting up the credit line.
Interest rates are typically variable, meaning they fluctuate with the Bank of England’s base rate. The actual rate offered depends on the borrower's creditworthiness, business financial health and the amount borrowed. Interest is only paid on the amount of credit that is used, however, it’s important to check the individual lender's terms as interest rates can vary greatly.
Repayment terms are often flexible, with minimum monthly payments required.
Generally, lines of credit tend not to have early repayment penalties, as the flexibility of the product is one of its key features, but it’s always best to confirm with the individual lender.

Government-backed financing schemes

A Growth Guarantee Scheme (GGS) offers a guarantee premium, which is typically a percentage of the amount that varies based on the lender and guarantee period.
Interest rates are determined by the lender, but the guarantee can enable businesses to secure more favourable rates.
Repayment terms and early repayment penalties vary based on the lender.
Your business (together with your business group, if applicable) must generate more than 50% of its turnover from trading activity in the UK (i.e., the sale of goods or services).

Start-up loans

Start-up loans have no upfront fees, and the interest rate is typically fixed (around 6% per annum).
There are no early repayment penalties, and fixed monthly repayments vary from one to five years. These can be advantageous as they have lower interest rates than many other options, however, there are very strict eligibility criteria, and it often involves a slow, offline process.
It’s important to note that these are personal loans, not business loans.
Amount is capped at £25,000 per applicant, and if multiple business partners are each applying for a loan for the same business, a maximum of £100,000 may be lent to that business in its lifetime.

Understanding which type of funding suits you best starts with knowing what fees come with it, which can also help you avoid potential risks, disputes and even legal troubles.

What can I expect from eBay Seller Capital funding options?

If you’re an online seller, you may benefit from the eBay Seller Capital programme, which can be easier to navigate thanks to its transparent, streamlined application process. eBay Seller Capital connects you with trusted lenders best equipped to meet the needs of eBay sellers.

If you take out a Business Cash Advance, financed by YouLend, you won’t be charged for origination, late or early payment fees. There is only a one-off, pre-agreed fee based on the financing amount. The terms of financing, including applicable fees, are set by YouLend, and the details are outlined in your agreement. We recommend reviewing the terms and conditions of your financing agreement before agreeing. There are no interest rates—you will only be charged a single fixed fee, so you know exactly what you will pay up front. Payment terms are pre-agreed on a percentage of daily gross sales. This is determined during the application process and typically ranges from 10-30%.

There are never any late fees—if your repayment performance is below expectation, YouLend will arrange alternative payment options that are better suited to your business.

Make smarter funding decisions to help you grow

Whether you’re replenishing inventory, expanding your small business or simply trying to secure extra cash, knowing the details will help you choose the right financing methods with confidence. The more informed you are, the better your chances of making business decisions that strengthen your long-term growth.

The right funding option can help you take your business to new heights. Learn more about eBay Seller Capital products and find out what type you may qualify for.

Learn more about your eBay Seller Capital funding options.