Taking out a government-backed loan: what you need to know
Whether you’re launching a new start-up, expanding your business or facing cashflow issues, it’s important to source the right type of financing. An injection of cash will enable you to overcome temporary trading difficulties and achieve commercial success. However, it’s vital that you choose financing options that offer swift help, low interest rates and flexible payment terms.
For businesses, government-backed loans are often seen as an ideal form of funding. When the government launches initiatives to help companies, for example, it can be relatively easy to secure funding, providing you fit the criteria.
The impact of the COVID-19 pandemic has led to the government introducing an increasing number of schemes to help individuals and businesses. Despite this, many company directors and business owners are still struggling to keep their enterprises afloat. When you’re deciding how to move forward in the current climate, remember these important details about government-backed loans:
1. They have strict application processes
Applying for a government-backed loan is rarely a simple or straightforward process. In fact, trying to submit an application can take days, weeks or even months, particularly if a scheme is in high demand.
When you apply for this type of loan, you will usually need to submit documentation to support your claim and confirm your eligibility. Depending on the paperwork that’s required, you may need to request documentation from third parties, such as your bank or HMRC. As these documents can take weeks to arrive, your application can be delayed until the appropriate paperwork becomes available.
Furthermore, any slight error or inconsistency on your application is likely to result in it being rejected. As these applications are processed electronically with very little human involvement, this can result in arbitrary and seemingly unfair rejections.
2. The eligibility criteria Is confusing
Take a look at the government-backed loans that are available, and you’ll see an endless list of acronyms and abbreviations. Unfortunately, they do very little to actually tell you who the scheme is aimed at and who qualifies to apply for a loan. In some cases, your eligibility for a particular type of funding will depend on your turnover, how many employees you have, what sector you operate in, how old your business is or a combination of these, and other, factors.
With so many restrictions regarding who is eligible to apply for what type of funding, it’s increasingly difficult to determine whether or not you will qualify for a loan. Of course, if you inadvertently apply for the wrong type of loan, your application will be dismissed.
In contrast, obtaining a loan from direct payday lenders couldn’t be easier. With sites like payday.co.uk, for example, you can submit an application within seconds, without dealing with any complex eligibility concerns. With fast approval times, you could even secure a loan within minutes and access your funds within the hour. When you need fast financial support for your business, the speed and ease offered by payday loans is hard to beat.
3. You can wait months to receive your money
If you do manage to determine whether you’re eligible to apply for a government-backed loan and you take the time to gather the appropriate documentation to submit your application, you’re still in for a long wait.
Due to the number of companies applying for government-backed loans and pressure on the system, it can take weeks to find out if your application has been approved or not. Then, you could wait weeks or months for the cash to actually be transferred into your business account.
Often, this delay means that businesses are already in serious financial trouble by the time they’re able to access their funds. If waiting for a government-backed loan is going to cause financial harm to your business, it may not be the right solution for you. With plenty of other funding options available, finding a faster route to financial freedom could be a more effective way to sustain your business through growth periods or difficult times.
Finding the right funding solution
All businesses require financial investment at some point or another. You might have high start-up costs, expensive growth plans or a drop in income that’s out of your control. Whatever the reason, you’ll want to find the right type funding for your firm.
Before you begin applying for loans, take the time to research all of the options that are available. While government-backed loans may not be the right choice for you, government grants could be a viable way for you to secure funding that you don’t need to pay back.
Alternatively, take a look at the commercial loans that are available. With swift turnaround times and variable rates of interest, you’ll be surprised at how competitive they are. By taking the time to find the best financial solution for your business, you’ll increase your long-term success and minimise the financial burden on your company.
