Top 8 myths about getting a Government-backed loan 

We speak with thousands of business owners considering their finance options, and there’s some common misconceptions that crop up time and time again. With that in mind, we look at some of the myths surrounding the Government-backed Growth Guarantee Scheme to separate fact from fiction.

1. Only businesses in trouble get loans

Some think of loans as a last resort when you’re in trouble, but really they’re a way to invest in your business. Like getting a mortgage to buy the house you want, a Government-backed loan can help you achieve the progress you wouldn’t be able to without funding. 

There are many reasons to borrow as a small business, such as buying new stock and equipment, hiring new staff or just growing your business. Extra cash flow can also help to manage seasonal dips, or provide greater flexibility to make the best decisions for your business. Finance can also be used for things such as marketing and advertising, that will help to bring in more revenue.

2. You can’t get a Government-backed loan if you’ve had one before 

You can still access finance through the Government’s Growth Guarantee Scheme if you have a Government scheme loan already, and there is no requirement to refinance any existing Government debt, such as a Bounce Back loan.

Growth Guarantee Scheme loans do count as a form of subsidy however, and there are limits on the amount of subsidy a business can receive. You can find more information on this on the British Business Bank’s website.

3. You need to have a perfect credit rating to get a loan

Many small businesses presume that if they have a bad credit history, or a limited one, then they won’t qualify for a loan.

While it’s fair to say that a good credit rating makes borrowing much easier, there are still options for those building their scores. For instance, loans with shorter terms are much more likely to be offered to those with a lower credit score. Or it may be that you’re still able to borrow the amount you want, but just on a higher interest rate.

A benefit of taking finance with us is that you can apply for both a Government-backed loan and a standard business loan in one, simple application. It only takes 10 minutes, and if you’re a limited company you can get a quote without affecting your credit score, so you can consider your options with peace of mind.

4. Taking out a loan makes your business less secure

A concern some businesses have is that taking out finance might make their business less secure. While it’s true that you’ll have monthly repayments to make, it’s important to remember that loan providers, like Funding Circle, will only lend what they believe your business can afford to repay.

On the upside, the extra investment can help with slow periods, allowing your business to become more resilient to changes in your business revenue. It can allow you to grow your business and diversify your products and services, which again makes you more resilient if there was a decline in one area. By growing, you could also benefit from economies of scale, saving on your operating costs.

The Growth Guarantee Scheme also gives lenders a 70% Government-backed guarantee on any outstanding balance if borrowers default. In essence, this significantly lowers the risk to the lender and broadens the number of loan applications they can accept. However it’s important to note that the borrower always remains 100% liable for the debt.

5. If your interest rates change, your repayments will increase

Interest rates are always a hot topic when it comes to small business loans. Some people worry that their interest rate may change during their loan period and they’ll no longer be able to make the repayments. However, a fixed interest loan can help you avoid ballooning repayments. 

All of our Government-backed loans and standard business loans are fixed rate, so you’ll know exactly how much you’ll need to repay each month and what the cost of borrowing is. There’s also no fee if you want to settle the loan early.

6. You can only afford the repayments if you invest and grow your business

Another common misconception is that repayments will be based on your business’ projected growth, so if your new venture doesn’t work as well as you’d hoped, you wouldn’t be able to make the repayments. However, at Funding Circle, your loan is assessed based on your business’ current activity. That means you’ll only be offered what your business can currently afford.

7. Getting approved for a Government-backed loan takes forever

In the old days, securing business financing required compiling endless records, heading to the bank and then waiting weeks, or even months, to see any return. Fortunately, this isn’t the case anymore.

At Funding Circle, for example, you can fill in one, simple application in just 10 minutes. We’ll then assess whether a Government-backed loan or standard business loan is more suitable for your business, and give you a decision in as little as 1 hour.

8. You should go to your bank first to get a Government-backed loan

While banks used to be the place to go to secure a small business loan, alternative finance options have become more popular in recent years.

In fact, a report by the British Business Bank showed that challenger and specialist bank lending reached a record high in 2022, and overtook the major banks for the first time – showing the increased competition in the market. 

Thanks to the fast and tailored service we offer, 4 out of 5 customers say they would recommend Funding Circle. Be sure to explore your options to get the best possible result for your business.

Looking for affordable finance to kickstart your next business venture? Check your eligibility for a Government-backed loan with us in just 30 seconds.

19/08/24: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.