Most scaffolding companies we speak to about leasing for their kit, are not aware that we can also offer VAT loans. It’s not a new product / our loan service, but it is a product that seems to be growing in interest. Read on for more information on how we can organise a VAT loan for your scaffolding company.
Why would a scaffolding company need a VAT loan?
Your scaffolding business has raised invoices over the last quarter. Some of your customers would have paid, but almost certainly, there will be a few that are still outstanding.
Add into this the winning a few new contracts coupled with buying or hiring more scaffolding kit, before you know it, there is not the money there to pay the VAT bill. It’s not that you’re struggling, it’s more often the complete opposite!
It’s often scaffolding companies that are doing well that need a VAT loan!
If you are not raising any invoices there will not be a VAT liability, hence no need for a VAT loan. We speak to loads of scaffolding companies that are talking to us about a VAT loan. They are often very successful and large companies. One scaffolding company we were speaking to recently was looking for an £800,000 loan facility to cover their quarterly VAT liability.
How does a VAT loan work for a scaffolding company?
The process is the same as for other limited companies: confirm the bill, estimate the repayments, provide the information the lender asks for, review the offer and agree how HMRC will be paid. Read how a VAT loan works for each step. Start with the VAT amount due and your latest accounts; the lender may also ask for management figures and bank statements.
How much should you borrow?
Borrow the funding gap, not automatically the whole bill. The example below uses invented figures to show the method.
Hypothetical example — not a quotation or a real customer. A scaffolding company has a £24,000 VAT bill due. It expects £26,000 in the bank on the due date. Before the next customer receipts, it must pay £9,000 in wages, £4,000 in kit hire and £3,000 to suppliers, a total of £16,000. It wants to keep a £2,000 buffer.
- Cash it can safely use for VAT: £26,000 − £16,000 − £2,000 = £8,000
- Funding gap: £24,000 − £8,000 = £16,000
Will the repayments fit?
Add the quoted repayment to your forecast for each month of the loan. In this hypothetical case, assume a quotation of three monthly repayments of £5,600.
| Month | Expected receipts | Wages, hire and suppliers | Loan repayment | Left over |
|---|---|---|---|---|
| 1 | £38,000 | £30,000 | £5,600 | £2,400 |
| 2 | £34,000 | £30,000 | £5,600 | −£1,600 |
| 3 | £40,000 | £31,000 | £5,600 | £3,400 |
Month 2 shows a shortfall. Before applying, the company would need to change something, such as borrowing less, asking for a different repayment schedule or chasing overdue invoices. Remember that the next VAT bill will also be building up during these months.
What if a customer pays late?
Test your forecast with your largest customer paying a month late. In the example, if £8,000 due in month 1 arrived in month 2, month 1 would fall from £2,400 to −£5,600. If one late payment breaks the plan, the repayments may be too tight.
Checklist before you apply
- The VAT amount due, the deadline and your VAT reference
- How much of the bill you can pay from cash without putting wages or suppliers at risk
- A month-by-month forecast that includes the quoted repayments
- Which customer payments are overdue and when you expect them
- Hire, lease or other finance commitments due during the loan term
Check eligibility or use the VAT loan calculator for an indicative repayment estimate. To discuss your company’s VAT bill, call 01494 956 871. Finance is subject to status, affordability and lender approval.