VAT Loans

What is a VAT Loan? 

VAT loans are a specialist business loan that is designed to help companies pay their VAT liabilities to HMRC in time to avoid any penalties. They are short-term loans, designed to finance cashflow in the delay between the VAT needing to be paid to HMRC and its receipt from customers. 

VAT Bridging Loans 

A similar product is the VAT bridging loan. Although VAT bridging loans fulfil the same purpose – to bridge the gap between VAT needing to be paid and the funds being collected – VAT bridging loans are specifically for the VAT incurred on commercial properties and should be considered a property-based bridging loan, rather than a general loan for all businesses. 

VAT Loan Terms 

A VAT loan is a specific short-term loan for the payment of owed VAT to HMRC. They are usually unsecured loans, although businesses looking for larger VAT loans may be asked for collateral and may be able to secure better terms for the loan by doing so. 

As a short-term loan, VAT loans may be at higher interest rates than other forms of business finance. The loan will have a term length of between 3 and 12 months. 

How Cashflow Solutions Can Help 

At Cashflow Solutions, our team are experts in business loans of all types. We can help you find a short term VAT loan to cover your HMRC tax liabilities, freeing up the cashflow you need to keep your business growing. Contact us today for more information. 

FAQs

What happens if I pay my VAT late? 

HMRC will apply a penalty to your VAT for every day after it is due until the payment is paid in full. It is important to keep your account with HMRC in good order, which is why so many businesses enjoy the flexibility and support of a VAT loan. 

Can I use a VAT loan for other purposes? 

A VAT loan is designed specifically for paying VAT and thus is typically paid directly to HMRC. It is not meant for us for any other purpose. With a wide range of business loan products available to businesses, you should always look for a loan best suited to your needs. 

Is a VAT loan secured or unsecured? Do I need collateral? 

Typically VAT loans are unsecured, this means your credit history and financial standing will be assessed by the lender to make sure you can pay off the loan. However, businesses looking for larger VAT loans or those who wish to obtain better terms and rates of interest on their VAT loan may opt for a secured VAT loan. 

Is a VAT loan the same as a VAT bridging loan? 

The term “VAT bridging loan” refers to a specific form of VAT loan designed to facilitate the payment of VAT on commercial property purchases. While they fulfil the same purpose, they are different loans with the bridging loan forming a secured loan utilising the building as collateral. 

VAT Loan Pros and Cons 

Pros: 

• Quick to obtain 

• Manage cashflow, converting an annual HMRC payment to easier-to-manage monthly terms 
• Maintains good standing with HMRC 
• Paid directly to HMRC for ease of administration 
• Frees up company cashflow 

Cons: 

• Short-term loans tend to have higher rates of interest 
• Maximum term of 12 months 
• Cannot be used to fund other business needs 

Who is eligible for a VAT loan?

UK-registered businesses that are VAT registered and have a VAT liability can apply for a VAT loan. Your business’s financial health, the size of the VAT bill, and your ability to repay will usually be assessed by lenders.

How can I apply for a VAT loan?

You can apply for a VAT loan through specialised lenders, usually online. The process typically involves filling out an application form, providing details about your business and your VAT bill, and often requires some supporting financial documents.

Are there any disadvantages of VAT loans?

While VAT loans help manage cash flow, there can be disadvantages. Interest and fees are charged, so you’ll pay back more than you borrowed. Also, if you fail to repay the loan, your business could face financial difficulties or harm its credit rating.

How fast can I get a VAT loan?

The application process for a VAT loan can be relatively quick, often within a few days. It depends on the lender and how promptly you provide necessary information.

What are the repayment terms for a VAT loan?

VAT loans are typically repaid over three months, coinciding with the VAT quarter. This helps businesses spread the cost of their VAT bill and manage their cash flow more effectively.

What happens if I fail to repay my VAT loan on time?

If you fail to repay your VAT loan on time, this could negatively affect your business’s credit score. Depending on the terms and conditions of your loan, you may also face additional charges or fees, and legal action could be taken by the lender to recover the debt.

Working in partnership with our lending partners backed by the British Business Bank to deploy funds to support business growth and working capital

• Our connections to funders are second to none.
• We will use our experience to select the right lender to approach on your behalf
• We conduct diligence on each application before it goes – we like to answer the lenders questions before they ask them.
• We will produce a short credit paper which will go alongside your application.
• We can produce the cashflow for you in a format that will be acceptable to the lender
• We will ensure that your application is supported by all the key documents needed – if you make it easy for the lender it will cut days off the process and increase your chances of approval.