Bouncing back with a Bounce Back loan?

The Government’s Coronavirus financial support measures have broadly involved grants and loans.

Grants to support job retention by furloughing employees, grants for business rates support and grants for the self-employed.

Loans in the form of tax deferrals, the Coronavirus Business Interruption Loan Scheme (CBILS) and the recently announced, Bounce Back Loan Scheme (BBLS).

Grants are ‘free money’. They don’t have to be paid back so the decision to take one, if needed, is a ‘no-brainer’. In accounting terms it is treated as income in the profit & loss account and is taxable. It would be good practice to spread the income over several months in the accounts over the period of need, rather than including it all in the month of receipt.

So what about loans?

Again, tax deferrals are  worth doing. They are interest-free and allow you to pay certain taxes at a later date. In these uncertain times, that provides a bit of contingency. The tax deferred should show as a liability on your balance sheet and cash flow plans should reflect the new, later payment date.

Longer term loans like CBILS or the Bounce Back loans require a bit more thought. 

The Bounce Back loans, launching on 4 May are good value. No interest or repayments are due for the first 12 months. After this the interest rates will be relatively low at 2.5%. Banks have promised a simple, on-line application and approval process.

The first instinct of most business owners will be to apply for one. Cash is tight, the future is uncertain and it provides a bit of a buffer. These are good reasons.

Good sense though would be to think ahead and plan how you will use the loan. Ideally this should be within the context of a forecast of profits and cashflows over the next year or two. A key consideration should be that the loan repayments, when they fall due, are affordable.

So grants, yes. Tax deferrals, yes. Loans, maybe, but with some caveats.

Think hard about what you will use the loan funding for, before you apply and try to make it last for your recovery period and beyond.

When its gone, its gone...so plan a few months ahead, beyond your immediate and urgent needs.

www.base52.co.uk