Why a grant is preferable to a loan
The Government has launched a raft of grants and loan guarantee arrangements since the COVID-19 lock-down started last month.
In almost all cases the grants are taxable and non-repayable unless HMRC at some future date consider that the grants were claimed fraudulently.
Grants are treated in your accounts as other income.
Loans are an obligation to repay. Even if the Government guarantees 80% of loans taken out, the loans received are classified as liabilities not as other income. You will be expected to repay the full amount borrowed and cover interest payments – once any Government agreement to cover interest and charges has expired.
Which is why it requires careful planning to ensure that if you borrow to see you through the coronavirus disruption, then you need to be reasonably certain that you can repay the amount borrowed from future profits, or past, retained profits.
Borrowing to fund losses that eventually exhaust your hard-won retained profits will inevitably lead to insolvency.
If you are considering a loan, you will probably be asked to submit forecasts to back up your application. Please call if you need help preparing this information. If you are able to handle the application process yourself consider the wisdom of taking out loans at this time.
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