Why are businesses struggling to get Coronavirus Business Interruption Loans Scheme? Our research at Cloud Accounting LLP has found the potential for some businesses to be left with a choice of only three lenders under CBILS. For example:There are 32 active lenders, of which 12 restrict CBILS to existing customers only. If the business is […]
What to check before applying for a loan
Before you apply for a loan, there are some things you need to consider.
1. Is a personal loan the right option?
A business loan isn’t the only choice available. Are you able to delay the spending and take time to save the money? Even if you’re not able to save the whole amount, saving a portion of it will put you in a better position.
If the amount you need is relatively small and you’re confident you can pay it back quickly, a credit card with an interest-free period on purchases is another option that could suit.
2. What will the repayments be?
Use our calculator to look at how much your repayments could be and how that may impact your budget.
If you’re looking at a personal loan with a variable interest rate keep in mind that the rate of interest could go up or down. If it was to go up, could you still afford the repayments? If not, you may want to consider reducing the loan amount or extending the loan term.
3. Is the loan secured or unsecured?
A secured loan is one where you provide an asset (such as a car or property) as security for a reduced interest rate. Keep in mind that the asset is at risk if you can’t pay the loan back. With an unsecured loan, you don’t provide security, but the amount you can borrow is typically smaller. HSBC offers both secured loans – in the form of mortgages - and unsecured loans.
4. What's the term of the loan?
This impacts the amount of interest you’ll pay, and ultimately the overall cost of the loan. The longer the loan term is the less your regular repayments will be. But you'll likely end up paying more interest over the course of the loan. Again you can use our calculator to look at how changing the loan term may change the overall amount of interest you pay.
5. What exactly are the fees and charges?
Loans are advertised with a ‘representative APR’ which is an annual percentage rate. This allows you to quickly compare the available offers from different banks. However, the final interest rate you're offered will be determined by:
- your financial history
- your personal circumstances
- how much you want to borrow
- how long you want to borrow for
Lookout for any additional charges associated with taking out the loan. For example, some lenders may charge an arrangement fee. These, together with the interest rate, can make a big difference to the overall cost of the loan.
6. Is there a penalty for early repayment?
Some lenders will charge you a fee for paying off your personal loan early. If you feel this is something you may want to do, then avoiding this fee could be a key requirement.
7. How's your credit report looking?
Your past borrowing and financial history can determine whether you are approved for a loan, as well as the amount of money and interest rate you’re offered. Credit reports detailing your financial history are held by the credit agencies You can see the credit scores and credit ratings that thee agencies have for you for free or for a small fee.
It can be a good idea to check, if only to make sure there are no mistakes on your file. Keep in mind that your credit report isn’t the only thing that a bank will look at when making a decision. So it won’t tell you whether or not you will be approved.
8. Are you ready to apply for a loan?
Getting a quote for a loan won’t usually appear on your credit report, but making an application often will. Too many applications can have a negative impact on your credit report, so it’s wise to be sure that a particular loan is right for you before you apply.
As accountants, we are best placed to consider the financial impact that the Covid-19 outbreak will have on small businesses. Each small business is different and there is not a one size fits all approach.
Below are some of the things you, as a small business owner should consider:
1.
Keep in touch
Here at Cloud Accounting, we can act as a guide. We
will be sending emails. Keep in touch. The sooner that we are made aware of any
problem, the easier it might be to solve especially with reference to HMRC
payments.
If it gets to the point that you believe you have
to put the business up for sale, do nothing until you speak to us. You won't
get a good price in this market. The number of clients who take notice of their
friends and take action without consulting with their accountant first is
surprising. The answer will not always be to go bankrupt or close the
company.
2.
Consider your cashflow
Work
out your monthly cashflow for the next 3 months – sales and costs, including
those deferred.
Aim
to remove discretionary cost. Seriously consider removing marketing costs.
Add the
income from government support packages
Try
to spread the costs as much as possible.
Try
to plug any gaps with bank finance.
3.
Check out those in potential problems with HMRC
Check whether each client has paid their last tax
bill. If not, tell them about HMRC's
Time to Pay Service. All businesses in financial distress and with
outstanding tax liabilities may be eligible to receive support. Consider those
who might have difficulty with the July payment and advise accordingly.
4.
Investment in capital items
Investment advisers say that you should have a cash
pile of at least two months to weather any financial storm.
Businesses that do and might have been considering
making a large purchase such as a van could find that that the deals
are more favourable now than previously.
5.
Check insurance policies
Check out any insurance policies you may have – are
you, or your staff, covered in any sickness claim? This is the value of having
keyman insurance.
Funding
support for those small businesses that pay little or no Business Rates
because of Small Business Rate Relief
The
Coronavirus Business Interruption Loan Scheme
The
CoronaVirus Job Retention Scheme
7.
Financial Help
You should investigate what help is available from your
bank, what terms and conditions there are, and whether the help is currently
needed. Most banks have pledged to offer support by mortgage repayment
holidays, temporary increases in credit card limits, waiver of fees on early
access to fixed savings accounts and late credit card, mortgage, and loan
payments.
8.
Supply chains
Contact your suppliers. Suppliers will be more
likely to contact you if they have to resort to restrictions. We advise
investigating alternative suppliers. Supply chain issues are already
threatening to derail some small businesses. Investigate the whole supply chain
– you may say 'it's OK I get my supplies from XYZ Ltd based in the UK', but do
you know where XYZ Ltd gets its supplies from?
9.
Late payments
When cash is restricted, the temptation is to make
late payments. This must be resisted, if only for reputational reasons. Late
payments are already causing problems for businesses as 74% of business owners
reported invoices due to be paid at the end of February had not been settled
and were unlikely to be cleared before the end of March (business lender
MarketFinance.com). Check your debtors! Tighten up your invoicing processes.
10.
Review business costs
Look at all costs and reduce discretionary and
non-essential expenses as far as possible. Fixed costs such as wages, rent,
utilities, financing costs and tax liabilities not affected by a decline in sales
need to be properly managed. Suggest investigating whether costs can be spread
rather than paying in one lump sum (e.g. car insurance).
11.
Review marketing strategy
No one is going to do or buy much other than the
essentials during this crisis and, although this situation might lead you or
your clients to reduce costs by rethinking the marketing strategy, this might
not be the right time – consistency is key to recovery.
12.
Review mortgage payments
Banks will be lending cheaply. Now might be a good
time to consider remortgaging both your business and personal finance.
Mortgages are based on past data, which will invariably be better for these
past three years – defer applying and that may mean lending based on reduced
profit figures making it more difficult to get a mortgage.
13.
Carry on
It is vital that the business must at least give
the impression that it is carrying on. This may be impossible if the business
is a restaurant, but is feasible for the many others who might have to self
isolate. There are such businesses as Virtual Assistants that can help.
If you have the facility to invite clients
into your accounting software, now might be a good time to place this at their
disposal. Consider plugging their books into bank data feeds, if not already
used.
And
finally, 14. look ahead
The coronavirus crisis will change the way
businesses and society works. When the urgent part of the crisis is over,
businesses should consider what this crisis changes for them, what they have
learned and plan for any future crisis.
What is it? Salary sacrifice is a financial solution offered by an employer to employees through a leasing company. With a salary sacrifice scheme, you can lease a car with no initial, upfront costs on monthly payments and no further obligations at the end of the leasing term. Many leasing companies offer turnkey solutions that can be implemented within 4-6 weeks, including comprehensive maintenance and business insurance plans.
With 0% Benefit-in-kind on zero-emissions company cars from April 6th 2020, there has never been a better time to drive an electric car for business.
What are the benefits of a salary sacrifice scheme for an employee? A salary sacrifice scheme allows employees drive a fully electric company car, by forgoing a portion of their gross salary. The amount will be deducted before tax and National Insurance contributions are applied, akin to childcare, gym membership or cycle-to-work schemes.
What are the benefits of a salary sacrifice scheme for an employer? A salary sacrifice scheme allows employers to offer employees a new car at a lower cost with a tax-efficient payment method. Additionally, the company may also benefit from reduced National Insurance contribution payments. Salary sacrifice schemes are HMRC and VAT compliant.
Who is eligible for salary sacrifice? Eligibility for salary sacrifice is dependent on company policy. If an employer offers a salary sacrifice scheme, it’s available to employees with a permanent contract. Employees can learn more about eligibility from their employer.
How do I lease an Electric Car through a salary sacrifice scheme? Your employer’s leasing company provides an employee engagement portal, which is usually an online platform with step-by-step instructions. To learn more, reach out to us or visit the HMRC website.
Key Benefits
Employer: Increased employee engagement and retention National Insurance contribution maintained and insured company cars with all in-life services managed and no daily involvement needed from the employer. Proven HMRC and VAT compliant scheme Reduced fuel costs No initial upfront costs Employee interaction and is covered by the leasing company Salary sacrifice schemes complement existing employee benefits
Employee: Access to a brand new electric car, at low monthly Contract Hire rates Significant National Insurance savings No initial upfront costs Flexible mileage and terms Fixed cost motoring without unexpected bills or service costs Access to new features and functionality with regular over-the-air software updates Convenient home or work charging, plus access to the world’s largest charging network for long distance travel
Salary sacrifice is a tax efficient way to drive an electric car, however it is only one of the financial incentives
Financial Benefits For Electric Cars Many Electric Cars have zero or low emissions and may be eligible for financial incentives that encourage clean energy use in the UK. Benefits for All Electric Drivers: • £3,500 plug-in grant• Exempt from London Congestion Charge• Access to clean air zones, including the London Ultra Low Emission Zone• Up to £35,000 interest-free loan (Scotland […]
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