As COVID-19 has continued to disrupt businesses across the UK – and indeed the world – many businesses have found themselves faced with financial challenges in recent times.
While some have been able to successfully adapt their business model to continue in some semblance of “normal” throughout the past year or so, this certainly wasn’t the case for everyone. In many cases, business owners had little choice but to sit tight, get used to less income and/or make use of cash reserves, and wait for their sector to open up again.
Now, as restrictions in the UK are starting to lift, some trading has returned, which has come as a welcome relief to many. But this can also mean a lot of additional cost, all coming in at once, even before receiving any significant revenue. It’s no surprise to anyone that staying on top of these financial demands can lead to cashflow challenges.
As any business owner knows, cashflow is vital to a healthy business. Large expenditure, stock investment and supplier overheads are just some of the challenges that can affect a business’s cashflow – especially when the bills keep coming in too. There are a range of options that can help a business facing this situation, but one that you may not have considered is a short-term VAT loan.
The challenge of meeting a VAT bill, on top of everything else
Many businesses find that VAT loans, usually done as three monthly instalments made during the following quarter, are a great solution to the pressures of a VAT bill that would be a challenge for a business to pay in full straight away.
Breaking the payments down into more manageable pieces, spread over a period of time, can be a great way to take the sting out of the bill, smooth cashflow peaks and troughs, and allow businesses to keep a firmer grip on the cashflow tap.
A VAT loan is done with a short-term loan (usually 3 months) which can be obtained by independent brokers, like d&t, from a number of lenders who offer the service.
Am I eligible?
Yes – as long as you’re a UK based business, and have a trading history of ideally at least 36 months. A business must be VAT registered and have a turnover above the £85K VAT threshold. The minimum loan value is £10,000.
Of course, the key here is that your underlying business is sound and that you have the clear ability to pay the instalments from your future revenues. Applications are subject to approval by the providers.
Let’s look at an example:
Business A receives a £22,000 VAT bill. They get in touch, and an arrangement is made with a lender to cover their VAT liability in 3 equal monthly payments of £7,605.05, starting 1 month after pay out. This takes the pressure off Business A’s already-depleted cash reserves, and retains working capital for other business areas. Business A pays a document fee of £150, which is payable with the first instalment, leading to a total amount payable of £22,965.15 (APR 29.7%). In doing so, Business A has avoided a cashflow drought, and granted themselves the peace of mind in these changeable times.
It’s important to note that this example is based on an existing business with 3 years trading. Businesses trading less than 3 years may still be able to access these facilities, but the cost of the facility will be higher.
How do I get started?
You’ll need to calculate your VAT bill at the end of the quarter in the usual way (or, if you use our VAT returns service, we will do this for you!), and get in touch with an independent broker (like d&t), who can work with you to find a tailored funding and repayments plan that works for you and your business’s needs.
The best bit is that VAT loans are relatively quick and easy to set up – the process takes just a few days. With appropriate lead times, the lenders can even pay HMRC directly on your behalf. d&t will make the application for you and, once the facility is approved, issue finance documents for you to complete.
While not for everyone, VAT loans are a simple, fast and popular way to keep funds in your business to use elsewhere, while still manageably meeting your liabilities. If you think this could be a solution for your business, then please contact us and we can assist you.
