90% of all SME lending is through emergency coronavirus funding
90%* of the £29bn of lending to UK SMEs in April and May was through the government’s emergency lending schemes of CBILS or BBLS, shows a study by Altenburg Advisory, the debt advisory specialist.
Together with data from UK Finance showing that banks are currently dealing with 14 times their usual number of business loan/overdraft applications, this indicates that mainstream lenders are currently having to focus on providing emergency lending.
Altenburg Advisory says that despite the other attractions of CBILS, they can impose restrictions on the how the borrowers can use the funds. Growth businesses who want to retain flexibility over how they expand and finance themselves may want to look further than emergency loan schemes.
Alternative lenders can lend with much fewer restrictions on how loans can be used, allowing a business to more easily pursue M&A and take on additional debt to fund growth. As an example, CBILS funding cannot be used by those looking to fund management buy ins (MBIs).
Altenburg Advisory adds the majority of CBILS lenders will require their debt to rank ahead of any other existing debt. This can be problematic where an existing lender does not want to allow another lender to take a first charge.
There is also no certainty that a CBILS lender will be willing or able to provide additional finance to help the borrower fund additional investment and growth without a government guarantee. This compares to facilities that can be arranged with alternative lenders that provide hard and/or soft commitments to provide future funding when required.
Dan Barrett, managing director at Altenburg Advisory, says: “There is an awful lot to applaud about the CBILS scheme – it is going to support a lot of businesses and retain jobs that would have almost certainly been lost. However, CBILS won’t be the right answer for all businesses and for businesses whose plans for the next few years are aimed at growth rather than just survival, alternative lenders can provide a more flexible and appropriate solution.”
“For ambitious businesses, the disruption caused by the lockdown will create plenty of opportunities to buy assets or businesses very cheaply – having access to the right financing is therefore essential.”
“For a business looking to grow, the opportunity cost of not being able to take advantage of opportunities in the current climate is likely to be far greater than the saving from 12 months of paying zero interest on a CBILS loan.
*Based on analysis on data from the Bank of England and the British Business Bank.
