At the third session in our Creative Industry Finance IdeasTap spa series, ArtCo Projects Director Mary-Alice Stack defined the key loan-related terms you need to know…
Loan = money you are borrowing. Referred to as “debt finance” because you need to repay it.
Lender = usually a bank or building society. Non-bank lending is often within the social-enterprise sector.
Principal = the sum of money borrowed.
Interest = a fee charged by the lender to the borrower for the use of the money borrowed. This is usually described in terms of APR [annual percentage rate].
Risk = an assessment of factors that might cause the business to fail and leave the debt unpaid. This is taken into account in determining the interest rate.
Secured lending = lenders reduce risk by requiring the loan to be secured by some or all of the business’s assets (or personal assets). They can make a claim on those assets if the business fails and you can’t pay the loan back.
Unsecured lending = with an unsecured loan the lender has no claim on assets, they can only hold you to account for the money you’ve borrowed. This is much higher risk to them.
Collateral = personal or business assets that can be use to pay back money.
Capital = the tangible assets used to run business and generate profit, e.g. your cameras if you’re a video-production company.
Credit history = record of individual or company repayment behaviour. Bad credit history can affect your ability to borrow money in the future.
Click to read part one of Creative Industry Finance: the lowdown on loans.
Creative Industry Finance is an Arts Council England programme run by ArtCo Projects offering loans of £5,000 to £25,000 for creative businesses.
If you can’t get a loan from the bank but you have a viable business idea, the East London Small Business Centre might be able to help with mentoring and loans.
Miss any of the Spa events in this series? Download the...
Down to Business: When does a creative idea become a business and how?
Intro to Grant Funding for Creative Businesses
Powerpoint (ArtCo Projects)
Powerpoint (Arts Council England)
Handout on Grant Funding Opportunities
Ins & Outs of Loans for Creative Businesses
Podcast and Powerpoint
A Slice of the Pie: Equity Investment for Creative Businesses
Podcast and Powerpoint
More articles from the Creative Industry Finance series:
The next Creative Industry Finance Spa is on loan finance and takes place on 27 November 2012. Order your ticket here.
Image: Day two hundred and forty seven by Insulide on a CC BY-SA 2.0
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