Throughout this blog we will explore some of the key questions that we get asked about VAT loans. Here at VAT Loans we like to make everything as clear as possible.

VAT funding is often utilised by small to medium sized businesses to keep cash flow healthy and allow them to utilise working capital in other areas of the business.

What is VAT funding for SME’s?

SME companies can take out a short-term three-month loan to pay their VAT bill.

What is the interest rate?

As the loan term is so short, the amount of interest paid is normally very low which makes this form of loan cheap.

Are there any administration or documentation fees?

No.

How can we calculate the interest?

Use our VAT loan calculator to work out exactly what the monthly repayment will be. It clearly shows what the total repayments are, so simply take off the amount you are borrowing and there you have the interest to be paid.

Is VAT funding for SME’s a new product / service offering?

VAT funding was for the reserve of professions, accountants, solicitors and architects. These companies often work in a sector where there are elements of unbilled work. Add this with clients who do not pay on time, and cash flow can become an issue.

The VAT funding market has moved on. Our VAT funders will offer loans to all other types of SME companies, subject to status.

Why do funders offer VAT funding?

Often the funders we work with like to lend over three to five years. Assuming the interest rate of a short-term three-month loan is the same as a three-year loan, the funders make more return in terms of £’s. So, the logic is why lend over such a short period of time?

Roughly 75% of companies who take out a VAT loan will use the facility again within the next twelve months. Hence, customer retention is high and the lifetime financial value of the business relationship is good. One could also argue, the risk profile is low. Paying a VAT bill on time shows you have confidence in your business. You would not pay the bill if you did not think you were going to be around in three months’ time.

Why do SME’s borrow to fund a VAT bill when they have already received the cash in?

There are many valid reasons. The most obvious is where you raise a number of sales invoices in month three which are not paid prior to the VAT payment being due. Many smaller companies collect VAT monies and use it as short term cash flow, for stock or other working capital requirements. Borrowing money to finance a HMRC VAT payment does not mean you are in any financial trouble. Quote the opposite, the more VAT you pay, typically the better you are doing.

Please give us a call for any of your business’ finance needs on 01494 956 871, and a member of our friendly team will be happy to help. Alternatively, drop an email to [email protected].

Often when a company contacts us about a VAT loan, it’s often a new product to them. This means we’re often asked ‘How does a VAT loan work?’. Our latest blog outlines in simple terms what a VAT loan is, how it works, and why companies use VAT loans.

What is a VAT loan?

A VAT loan is used by businesses to help fund the cost of the quarterly VAT tax bill. The loan is then paid back to the funder in 3 monthly payments. This helps disperse the cost of the tax into affordable amounts.

How does it work?

A VAT loan will be paid on your behalf directly to HMRC by the financier. This guarantees that all legal requirements of being VAT registered are met. Having those checks taken care of takes stress and responsibility out of your company’s hands.

Why do companies use VAT loans?

• At times when companies are struggling to pay the large lump sum of the quarterly tax bill, they turn to VAT loans. Should you have various other business expenses, a loan can provide relief. It can also allow your company to gain momentum again.
• A company might have a current project to complete that is generating increasing expenditures. Financing your VAT bill might free up enough capital to get that project finished. Subsequently, the margin created from that project will generate enough income to compensate the expenses of the loan.
• There are cases where a company’s capital is so critically low that it is crucial for a business to finance their VAT loan in order to survive and stabilise cash flow.
• Unexpected costs are also bound to arise in businesses. These include: broken equipment that needs replacing or fixing, purchasing new stock or hiring employees. These things happen and this is when a VAT loan could be necessary in supporting your business.
• Some businesses also struggle with seasonality at certain points of the year; therefore, they might require a VAT loan at tougher times when they are not receiving as much revenue as they do other periods of the year.
• A rather obvious reason as to why a company might take out a VAT loan; albeit a very important justification for a loan, would be to avoid tax penalties. Tax penalties can be extremely detrimental to a business already low in capital and can potentially put them out of business completely.

Contact Us

For more information on VAT loans or for a free no obligation quote, please give a member of the VAT Loans team a call on 01494 956 871 or email us on [email protected].