The Government’s various support schemes to help businesses through the coronavirus pandemic have so far lent a total of £98.2bn to UK businesses. This equates to 98% of all bank lending during the same period last year.

But these support schemes cannot last indefinitely and most are due to be wound down in the coming months. This means there is likely to be a significant tightening of finance sources available to businesses. For businesses looking to grow, sourcing finance from alternative lenders could now be the smartest move. 

Lenders have been inundated with applications for Covid business loan schemes, which have been the primary driver for the jump in overall bank lending to businesses this year. Overall bank lending, which includes Covid-related support schemes alongside non Covid-related lending, to companies in the six months between March and August this year was up 63% to £200.8bn compared to the same period last year. 

However, the deadline for applications for CBILS loans is 30 November and the amount of lending through these schemes has been falling. Traditional lenders will be much less keen to lend without the Government underwriting part or all of the loan so businesses will likely need to start looking at alternative lenders. 

A recent warning by the National Audit Office that between £15bn and £26bn of CBILS and BBLS lending may be lost through fraud and weak underwriting, will also likely make traditional banks more cautious about lending. 

Once the government guarantee is removed, we expect that the decision-making process for business loans from high street banks will also slowdown. This is another reason why many businesses may have to look for alternative sources of finance. 

Alternative lenders remain keen to deploy capital and can give businesses greater flexibility over how funding is used and greater certainty over follow on funding, enabling them to invest in growth opportunities.

Whilst the Government funding schemes have helped many struggling businesses obtain credit they shouldn’t be viewed as a “free” option. Adding new funding after a CBILS loan has been accepted could be difficult, expensive and time-consuming. The majority of CBILS lenders will likely request a ‘first charge’, meaning they rank ahead of any other existing debt.

Any new funder would also need to agree an intercreditor agreement with the CBILS funder to govern the relationship between the two lenders given the difference in ranking. High street banks have historically been slow and inflexible in their response to these intercreditor requests. 

Due to levels of estimated fraud and abuse of the Government funding schemes, there may now be a PR backlash against larger companies that took funding when arguably they didn’t need it. This is even more likely if it looks like this funding was received at the expense of other less fortunate companies who were more in need. 

If it looks like a business “had to” take the emergency CBILS/BBLS funding, many lenders may consider that business to be a weaker credit. This issue has already occurred in the mortgage sector, with many mortgage lenders rejecting re-mortgage applications from consumers who took mortgage repayment holidays during the crisis. This has been the case even though these holidays were facilitated by HM Treasury and the FCA.

Businesses should always be seeking to put in place an appropriate debt financing solution that is aligned with the business’s growth plans. For many, this means CBILs funding will not be the right solution and there are alternative lenders out there that may be a better match. 

At Altenburg Advisory, we have strong working relationships with lenders and can help you determine which funding options are most suitable for your business. We advise from day one all the way through to drawdown.

Altenburg Advisory is part of ACP, a debt advisory led corporate finance association between Altenburg Advisory and Cadence Advisory.

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