Studies have revealed that more than 90% of businesses are running on empty after the pandemic outbreak. The vaccination will soon come, and you all will enter a new normal, but it will take a much longer time to make up the leeway. According to experts, unemployment has worst hit the global economy, and it will likely take at least three years to bounce back.
Since people are in a tight spot, they are buying only essential commodities. It has led many businesses with non-essential things on the market to shut down until the economy recovers. Bigwigs have survived the blow, but small businesses are facing difficulty in riding out.
Although now is the time to think in a more strategic way to attract customers, it is strenuous for business owners because of a lack of funds. Many companies have moved the furniture as they do not have money to pay their monthly remunerations, let alone marketing strategy.
Money is fuel to your businesses. As your vehicle refuses to move even a mile when the tank is empty, you cannot imagine running your business without money. Now is the time to take stock of your finances and think about what you can do to keep them from shutting down. This blog discusses how you can raise funds to keep the ball rolling.
Bounce back loans
A business bounce-back loan scheme was introduced to help small businesses who are struggling due to Covid-19. The scheme was introduced last year under which you can borrow up to 25% of the annual turnover with no interest charged and repayments needed for the first twelve months. The scheme is valid until March 2021. Here are the key points:
- Once 12 months expires, you will start paying down monthly payments with 2.5% fixed annual interest rates.
- You can pay off the loan early without having a fear of an early repayment charge.
- The loan can last up to 10 years. Although it can whittle down the monthly payments, you will likely end up paying more. However, an early repayment option provides a lot of flexibility. Try to settle the dues within six years. The term was set previously from the further extension.
- You can also get a payment holiday for a period of up to six months.
- You do not need to put collateral as these loans are unsecured.
- Both personal and business credit ratings will not affect your borrowing power.
Although the bounce-back loan scheme is for everyone, not everyone can qualify for money under this scheme. It is crucial to check if you meet the eligibility criteria. Further, these loans are generally aimed at people who are struggling due to Covid-19. It does not cover people who are facing business failure, but the pandemic is not the cause.
Under such circumstances, you can apply for self-employed loans. Unlike bounce-back loans, these loans are not state-backed. It means you will have to apply to a lender to borrow money. Before they lend you money, they will check your credit score, current financial condition, and business status to decide if you will be able to pay back the debt on time.
Self-employed loans can be unsecured and secured depending on the amount you are borrowing and your financial condition. As long as you are borrowing a small amount, you can qualify for an unsecured business loan. However, if you are about to use that money to buy equipment, the lender can ask you to secure it against the loan.
Even though your credit history is good, the lender will likely ask you to put collateral. Since economic uncertainties are lingering in the air, lenders have shut their doors for those who are seeking unsecured loans. You may need to put collateral even if you are borrowing small money.
If you need a large amount of money to fund your business, logbook loans can be an ideal option. These loans will require you to put your car as collateral. Note that these loans can only use the car as security, not your house. Undoubtedly logbook loans come at higher interest rates, but you can get better interest rates if your credit report is impressive.
You can consider these loans like secured loans, yet they are slightly different. Unlike secured loans, where the lender gets the right to repossess it when you fail to pay off without getting it transferred in its name, you will have to sign the bill of sale that temporarily transfers the car ownership to your lender.
These loans generally aim at helping people living in Wales and England. You cannot qualify for the loan if you do not own the car against which you borrow money and do not have a V5 document.
Note that the lender will decide the lending amount based on the value of your car. Your car must have a high trade value so you can quickly get approval for the money you are borrowing. You can use both used cars and new cars to qualify for logbook loans. However, it is always recommended not to have a too old car because it is a depreciating asset. You will likely get signed off on for little money if the trade value is not much.
Coronavirus business loan scheme
This scheme is different from business bounce-back loans. It aims to help entrepreneurs who need more significant money. However, unlike business, bounce-back loans are not government-backed. If you want to qualify for the loan under this scheme, you need to be based in the UK, and you must have an annual turnover of at least £45 million.
You can turn to lenders as well as high-street banks to borrow money under this scheme. However, lenders can offer you financial assistance up to £5 million. These loans may require to have a personal guarantee if you are borrowing over £250,000.
A business overdraft allows you to keep using funds even though the balance in your current account reaches below zero. Overdraft works as a business loan or business credit card. You will have to pay back the amount along with interest. You do not need to pay interest as soon as you pay back the amount or the balance in your account goes above zero.
It is paramount to note that the overdraft cannot allow you to fund your significant business expenditure because your bank will have already set a limit. It varies from individual to individual because of the factors like your credit history, business turnover, and your relationship with your bank.
If you need a large sum, you will have to apply for a secured overdraft. It could be equipment or commercial space. It will carry lower interest rates than an unsecured. However, if you fail to pay back the money within the stipulated time, the bank will liquidate your asset to recoup the money you owe.
Small business loans
Small business loans from a lender are also an option to fund your business, whether it is affected by the pandemic. Applying for small business loans can be easier than long-term business loans. The best part of these loans is you do not have to secure your loan. It means there is no risk of losing your asset if you have a hard time paying back the debt.
However, note that these loans will likely carry higher interest rates than secured business loans. Whether you are self-employed or running a small company, you can qualify for these loans as long as you meet the eligibility criteria. Whether it looks at a personal or business credit rating, check your affordability.
If you have an existing borrower and have paid all your previous debts on time, the lender will not hesitate to be flexible.
The bottom line
Undoubtedly many businesses are struggling to cope up with the effect of the pandemic. Thanks to various funding sources, you can seek to fuel your business. The government is offering business bounce-back loans to small businesses. However, you can seek other funding sources too.
No matter which type of loan you use to fund your business, make sure that you check your affordability. Otherwise, you will likely end up in a debt cycle or lose your asset if you have secured it.