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 […]
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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.
6. Government help
Make sure that you are up to speed with government guidance including the COVID-19: guidance for employers and businesses factsheet.
- Refund for businesses and employers required to access Statutory Sick Pay
- A 100% Business Rates retail discount for one year
- 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.
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
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 […]