Some things to think about when considering a business loan.
I have to say, I think this is an incredible initiative by the government that genuinely picks up everyone that has been missed out by previous schemes.
If you have been living in a cave a for a few days then here are the high level deets:
- ANY business can apply, whether sole-trader or Ltd company.
- The amount available to borrow, depending on turnover is any sum between £2000 and £50000.
- You can borrow a maximum of 25% of your turnover (yes, turnover, not profit) for last year.
- The government is completely backing every loan, so no credit checks (this is the reason they are so quick and easy to get as the bank risk is neglible compared to CBILs).
- There are no fees or payments for 12 months.
- The government is paying the interest for the first 12 months.
- You can pay back any or all of the amount you borrowed at any time with no penalties.
- After 12 months you start paying back the loan over 6 years at 2.5% interest
As amazing as I think it is, it also rings little alarm bells for me as a business coach.
Firstly, you should know I am a girl against debt (other than a mortgage and, even then I have to confess I’m all for early payment!). I have experienced first-hand being in serious debt with limited resources and it was one of the worst periods of my life (at one point £56,000 give or take).
So when my clients talk to me about taking on finance, I am all about the risk management!
That said, we are living in different times and so here are my 5 things to think about before you take out a bounce back loan.
Firstly, was your business moving in the right direction before this crisis?
If the answer is yes, then you know that once we are in recovery there is a good chance, if you use the money, you will be able to pay it back. Obviously, no-one has a crystal ball, but you don’t want to be in debt with no means to pay… it is more stressful than you can possibly imagine. The government might be backing the loans, but only as a last resort.
With that out of the way, take out the loan!
Yep, get one and put it in a completely separate bank account. We don’t know what lies ahead and the bounce back loan could be a vital link in the chain when you *are* bouncing back. At the end of the day, if you don’t use it you can pay it all back and it hasn’t cost you a penny.
Only use the money for its intended purpose
It’s a bounce back loan, not a ‘live on it in the hope you survive and things get better’ loan. Use the money for things that will genuinely help you to bounce back and recover.
Be sure to have a recovery plan with a budget
Create a plan to get back on your feet and budget what you will really need. If that is more than your cashflow forecast is saying you have, then you could use some of the BBL to fill in the gap.
Know your flow
Your cashflow that is! The point of a bounce back loan is because we are expecting a bounce back and rapid growth often puts more companies out of business than slow growth, because they run out of cash.
This is something that all business owners, solopreneurs through to multi-million pound companies should be doing, so if you haven’t been, get this is place. Get help if you aren’t sure how!
Like anything, in times of uncertain you can’t be absolutely certain. What you can do is manage the risk of any borrowing and use it wisely.
Finally, plan for better times, they ARE coming and then work like made to make them happen for you.
Karen Murray is a business coach to solopreneurs and micro-business owners. She has a podcast for solopreneurs, focused on helping you work smarter, not harder, using her own SMART framework, called The Smart Business Podcast, available on iTunes and Spotify.