Managing Your Cash Flow

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Debt is not the cure for this crisis – here’s how to avoid it

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This morning my bank texted me, offering a one month, interest-free overdraft. The text message suggested they were helping me.

So, what exactly is going to happen in a month’s time? Is this coronavirus mess going to be over? Will I, and everyone else, suddenly have enough money to pay off the overdraft in one swoop?

The truth is, of course, that when we take up these offers, we tend to end up in debt for months, even years.

With the coronavirus lockdown in full swing, people and businesses are at their most vulnerable for years. As a business owner who has experienced the downsides of debt myself, my advice is to be very careful with how you handle these offers disguised as help and, in most cases, avoid them completely. There are too many companies without morals aiming to profit from our vulnerability.

Just think about this, how many lenders have messaged you this week, offering to extend your credit limit, provide a free overdraft for a month, or loan you money?

The decisions you make over the coming weeks are going to affect you for years to come. Debt, loans and credit cards all have to be paid back. In reality, they are going to leave you far worse off in the long run.

Any other option

I know the situation is tough. We are feeling it, too. PopUp Business School lost all its income overnight – £250,000 vanished. But we have always avoided debt and built up reserves in the business to take us through.

Since the outbreak, we’ve been running Facebook Live events and hearing from business owners who have had to stop trading. And we’ve been coming up with alternative business models for them, and for us. We helped a lot of these people start up and, now, we are trying to keep them afloat.

For you readers, what I would say to you all is do anything but go into debt. Use the Government benefits system, apply for grants and take support wherever you can. Now is not the time to be proud. Now is the time for us all to work together to find our way through this.

Government loan schemes

The Government has set up the Coronavirus Business Interruption Loan Scheme, which aims to lend you up to £5m if you run a viable business. They are offering you debt to get through the hard times. You get one year interest-free, but you will then have to pay this debt back within six years. I’ve been unable to find out from the documentation how much the interest will be.

The Government is also offering other schemes and grants, as well as protection of jobs for employees. I hope they will do more for small businesses. Take all of the free help and support that’s available and swallow your pride.

We are all too aware that some businesses will not survive this crisis and many of us are going to see our personal finances weakened too. Perhaps, in a year’s time, business will be good, though I doubt we’ll ever go back to ‘business as usual’. But when the good times do resume, let’s all embrace them with as little debt as possible.

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