Applications for CBILS have now closed, and the UK government has launched the recovery loan scheme. These alternatives don’t require assets as security.
The COVID-19 pandemic has been hugely disruptive for businesses across the UK, and many have been forced to seek out financial support. A significant number of firms have found themselves applying for government-backed loan schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme – but these have now drawn to an end. Even now as the government launches its Recovery Loan Scheme, there are fresh concerns that company directors could be shouldering an unacceptable level of risk by providing personal guarantees for borrowing.
Fortunately, there are many options available and while plenty still require the personal involvement of directors, they may offer a viable alternative to the new Recovery Loan Scheme. In this article, we highlight four of the most popular forms of alternative finance for UK businesses.
1. Borrow From Family and Friends
For small businesses, overexposure to borrowing could spell trouble. The current climate makes it very hard to plan for the future, and cash flow is a concern for many firms. This means that scarcely few can afford to offer security against a loan – government-backed or not.
One viable alternative is to borrow small sums of money from family and friends. Unsecured casual borrowing could help you to stay afloat during the tough times while 0 the interest that can come attached to other forms of finance.
The major disadvantage of borrowing cash from those close to you is that you risk putting your relationship under strain. If your business were to fail at some point in the future, it may become difficult to repay what you owe – and it’s important to remember that you’re dealing with a person, not a company.
2. Take Out a Personal Loan
Personal loans also present as a feasible option for small business owners, with many direct lenders offering sums of up to £10,000 repayable over a number of months or even years. By applying via a reputable online credit broker, you could get matched with the lender that’s most likely to approve your application all without needing to make multiple applications.
Perhaps the most important advantage is that you usually won’t need any form of security to get approved for a short-term personal loan – and many lenders are even willing to accept applications for borrowers with poor credit histories.
3. Use Your Overdraft
By asking your bank for a temporary overdraft facility, you can gain access to flexible cash that could keep your business afloat.
This approach is certainly convenient, but it isn’t suitable for all business owners. For one thing, your bank may not be willing to accept your overdraft request if your business fundamentals don’t look convincing enough.
Beyond this, you’ll typically need to pay interest on any money you borrow by way of an overdraft, so it’s worth exploring all the options to ensure you’re getting a good deal.
4. Seek Out a Business Advance
Another option is to ask your merchant services provider for a cash advance. This can often total a significant amount of money, and provide you with the flexibility to operate without having to repay until your firm starts earning again.
This approach is highly effective and useful for medium-sized firms, but may not be available for smaller businesses or those where there is not a clear route to repayment. In any case, the key is to ensure that you have a business plan that sets out exactly how you will return to profitability.
Protect Your Business Interests
Regardless of how your business has been affected by the COVID-19 pandemic, there’s no doubt that the past year has been tough. The coming months will likely see many business owners reach out for financial assistance, and not all will be accepted for the government schemes.
For the firms that are rejected, it might help to know that there are many alternatives available – and knowing where to get help is the first step towards a healthier financial future.