"This rush for CBIL scheme lending could have serious ramifications for business in the future land businesses should consider other sources of finance to plug immediate funding gaps."
Richard Churchill, a business advisory partner with the firm, said: “This rush for CBIL scheme lending could have serious ramifications for business in the future land businesses should consider other sources of finance to plug immediate funding gaps.
“Interest rates for CBIL loans are often more expensive than conventional lending but with this cost and capital repayments deferred for 12 months many business owners have not considered the full impact of the loans they have taken out and the impact on cashflow in the future.
Existing borrowings could consume so much of the free cashflows generated that additionally borrowing is simply not possible. Any decision to move banks will require the current CBIL lending to be refinanced, that may well prove difficult when banks are required to submit a fully supported credit application as opposed to relying upon an historical assessment of affordability as permitted under the CBILs scheme.”
Richard added that one of the limiting factors for CBIL lending is that the maximum term for a loan is six years, saying it could be more appropriate for businesses to access funding spread over the longer term.
Richard continued: "The ability to access funding with no capital or interest repayments for 12 months was simply to good an opportunity to miss. But as the lockdown eases and business owners look to the future and plan for the months ahead, they need to be extremely careful about rushing into short term arrangements.
"For those businesses that can, is it not wiser to look to other sources of finance to plug the immediate gaps in funding and then, once a revised business plan is known for the future, access the most appropriate type of funding which may well be longer term and cheaper for the business? This could well include different working capital financing products as well as longer term debt propositions to fund a current structural deficit along with investment in a new or revised business plan.”
