Business owners are finding ways to move steadily forward through this economic downturn.
Recently, the Office of National Statistics reported findings from a Business Impact of Coronavirus Survey conducted for a 2-week, March lockdown period in the UK. Forty-seven percent of business respondents saw a lower than normal turnover in UK sectors of the economy to include manufacturing, wholesale and retail trades, accommodation and food services, and administrative and support services. While 40% of business owners felt confident about their finances during the slowdown, 44% simply didn’t know.
So, what’s a viable solution to this dilemma in the UK and around the world? A small business loan can keep your business solvent and operational. Keep reading to discover how funding your business can reduce financial strain.
How small business loans work
Let’s say, for example, during the first two months of the pandemic your business stayed operational by withdrawing £2,000 to £4,000 from a business savings account. Now, you’d rather cover any monthly shortfall with borrowed funds.
A short-term small business loan offers flexible terms and rates so a business owner can cover expenses such as overhead, payroll, or expand their business to meet new consumer demands.
Once you meet with a lender, they tell you how much your business qualifies for and the loan specifics. Consider the following pros and cons before taking out a small business loan.
Advantages and disadvantages of small business loans during a slow economy
Advantages
- Loans rates for disaster relief are usually lower. You’ll pay less interest to pay off the loan and may be able to increase the loan amount which can range from £1,000 to £300,000 or more.
- Favorable repayment terms offered during the COVID-19 pandemic is why many entrepreneurs borrow money.
- Should you not qualify for a small business loan, lenders offer alternative funding options such as invoice financing, merchant cash advances, and peer-to-peer business loans.
Disadvantages
- Loans may have stricter requirements such as being in business for at least 2 years or having a higher personal and business credit score.
- With so many businesses seeking funding, the approval process may take longer than expected which could adversely affect a business’s cash flow.
Small business loan options
Here are types of loans and grants offered in the UK:
- Coronavirus Business Interruption Loan Scheme: Designed for small and large-sized businesses with a turnover of less or more than £45 million. Depending on your business size, interest and lender fees are covered for the first 12 months or payback periods offered for up to 3 years.
- Bounce Back Loan Scheme: Businesses can borrow between £2,000 to £50,000 and repay the loan in six years. No repayments are required for the first 12 months.
- Self-Employment Income Support Scheme: Individuals and partners can receive a grant for up to 80% of their average trading profits for tax years 2016-2019 with a maximum amount of £2,500 per month (up to 3 months).
- Other options: Government cash grants in the amounts of £10,000 and £25,000 are available from local authorities. Also, the Bank of England will buy short-term debt from large companies to increase liquidity
Giving your business a bright future
Without a doubt, this sudden economic transition caught people by surprise. You could compare it to a water spigot that turned on overnight and flooded the world with uncertainty. Even so, you have options to give your business a cash boost exactly when it needs one.
Considering the pros and cons of getting a small business loan before you make the financial commitment is a wise decision. Likewise, it’s important to match the right loan option available in the UK with what your business needs to survive.
Additional funding may be just what your business needs to stay afloat. And remember, talking to a lender as soon as possible doesn’t cost anything. You’ll feel more at ease to decide what business steps to take next.