The Pandemic and The Impact on Small Businesses
As if things are not challenging enough for small businesses trying to stay competitive, but the arrival of a global pandemic was not something they could have planned for. As businesses closed and people were told to stay at home, businesses almost lost their income overnight through no fault of their own. It was unfair, challenging and unfortunately, many businesses had to close but fortunately, The UK government provided a substantial amount of support for businesses and employees.
From the Furlough Scheme to the Recovery Loan Scheme, businesses had access to finance that made it possible for them to remain trading but this support was not something that would remain in place indefinitely, even during a time when things started to get back to some form of normality. So, as we are coming out of the other side of the pandemic, businesses still have to work hard to continue trading and so, they might want to consider what other finance options are available to them.
The Recovery Loan Scheme
This is due to end on the 30th June 2022 but it has proved to be exceptionally helpful for businesses but its end could leave businesses worried about what they can do next.
The Recovery Loan Scheme was available to businesses of any size and the government was offering up to £10 million per business although the amount available was based on the discretion of those lending. The government would guarantee 80% of the finance with the borrower being liable for 100% of the debt but now that this is coming to an end, what options do businesses have?
Unsecured Term Loans
This is a relatively straightforward type of loan that businesses will borrow from a bank or lender. An agreement will be put in place whereby businesses will arrange to make payments on a regular basis until the loan is repaid fully and that includes any interest that is owed
These loans are unsecured which means that they are not secured against a fixed asset and so, this does mean that the interest rate could be higher. However, it always makes sense to explore expert advice to ensure you choose the right product.
Merchant Cash Advances
This is a form of finance that is often popular with small businesses that accept debit and credit card payments.
This means that it is possible for a business owner to access cash once it has been approved by a merchant cash advance company. The repayments are structured in two ways and this can be as a percentage of card sales or as fixed withdrawals from a bank account. The percentage of card sales is the traditional option and a merchant cash advance provider will take a daily or weekly percentage of around 10% from card sales until it is repaid.
This kind of finance is flexible as the loan is only paid once customer card payments are made. It is also unsecured and approval can be quick.
If you are a company that is involved in international trading then this form of financing will help to reduce the risks involved with this. An exporter will require an importer to pay for goods that are shipped in advance. So, the importer will want to ensure that the goods have been shipped and so, proof of shipping is required from the explorer. The bank of the importer will assist by providing a letter of credit to the exporter providing for payment once certain documents have been presented which can include the bill of lading. As a result, the exporter’s bank will then provide a loan to the exporter on the basis of the contract that is in place.
So, there are finance options available for businesses to access with the Recovery Loan Scheme coming to an end. However, it always makes sense to obtain professional advice to ensure that you make the right decision.