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Michelle Monck

Consumer Finance Expert
Published: 03/03/2021
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The Budget is due later today and the Chancellor will announce the extension of the furlough scheme beyond the current April 2021 deadline to the end of September 2021. He is also expected to continue the business rates holiday for those in the hospitality, retail and leisure sectors and there is speculation of an announcement of a new government backed loans scheme for businesses.

The Chancellor, who is due to start the Budget at 12.30 in the Houses of Parliament today, may give an update on an extended or replacement for The Coronavirus Business Interruption Loans Scheme (CBILS). This was launched in March 2020 to boost lending to businesses and help them survive trading restrictions due to the pandemic. It has already been extended for applications to the end of March 2021. The current scheme provides lenders with a government guarantee to cover the defaults up to 80% of the loan value and The Times reports that any new government business loan scheme is likely to be similar but with ‘less generous terms for lenders.’ The Times article also states that the new scheme should have been announced by the Treasury at the end of January, so lenders had sufficient time to prepare for launch in April 2021, after CBILS currently ends. The article suggests the delays are due to discussions about the need for personal guarantees (current rules restrict these to loans more than £250,000) and the interest rates to be charged. The current lending schemes include a broad range of lenders from high street banks to alternative lenders and any new scheme is likely to need a mix of lenders to meet the demand from businesses.

Businesses that need to consider their funding requirements right now can still apply to CBILS, even if their bank has already turned them down. Our business broker can provide more information.

What to consider if you have taken a loan under CBILS

So far, over 92,000 business have borrowed more than £22 billion through CBILS since the scheme started in April 2020. This helped businesses that would not have been able to access business loans on traditional terms to access finance and help them survive the pandemic. Businesses will soon start to reach the end of their 12-month interest free and payment free period that was offered under CBILS. As businesses approach this deadline and with the economy not set to be fully unlocked until 21 June 2021 some will be deciding whether to payback CBILS or if they need to refinance or access alternative borrowing.

We gathered three business lending experts to discuss the options. This includes Evette Orams, Managing Director, Hilton-Baird Financial Solutions, Wesley Harfield, Investec and John Phillipou, Managing Director - SME Lending from Paragon Bank.

It should be noted that all answers were provided prior to any announcement about changes to CBILS or any new form of government backed lending scheme.

As businesses start to face making CBIL repayments should they consider refinancing this to get a better interest rate?

Evette Orams, Hilton-Baird Financial Solutions said “Yes, it is important that businesses look ahead to when repayments are due to commence and consider how they can afford them and whether refinancing will be beneficial. Especially given the current climate, the value of a revolving credit facility that provides ongoing access to working capital cannot be underestimated.”

John Phillipou, Paragon Bank said “Every business is different, so it’s a conversation they can have with their lender. However, refinancing to a new interest rate could be difficult for businesses to achieve. The lending decisions were based initially on supporting businesses impacted by Covid19 and the 80% Government-backed guarantee was the key security in facilitating the loan. If CBILS clients are able to refinance a deal at a lower rate without that Government support for the new lender, it does call into question the first lending decision. Funders would need to look very closely at a company looking to refinance unsupported CBILS debt.”

Wesley Harfield, Investec said “The pricing afforded from the CBILS scheme should mean that post Covid, borrowers are less likely to be able to access funding at a lower rate than their CBILS facility.”

Do you think any businesses will move from term loans under CBILS in preference of alternative finance, such as Invoice Finance? What reasons might there be to do this?

John Phillipou, Paragon Bank said “The switch from CBILS debt to other forms of finance may happen in time but it will be driven by cashflow pressures as the CBILS repayments start. Invoice Finance has specific benefits which suit certain markets and client behaviours and I expect there will be some movement, but it won’t be generic across sectors.”

Wesley Harfield, Investec said “Some businesses will have taken the CBILS Term Loans early in the pandemic as an insurance policy to ensure they didn’t risk running out of cash, those who have fared better than they had anticipated may pay back the loans. However, our expectation is that the majority will not repay early as the businesses will have utilised at least some of the cash to support revenue shortfalls during the pandemic.”

Evette Orams, Hilton-Baird Financial Solutions said “We expect invoice finance to have a significant role to play throughout the recovery, and moving away from CBILS loans to revolving credit facilities could bring savings in addition to the vital working capital support they provide. However, each business should explore the options available to them. What’s best for one business might be different to another. As we have seen after previous recessions, there are no tangible and beneficial revolving facilities on a par with invoice finance in terms of their proven ability and flexibility to support businesses in a fragile and recovering environment.”

Do you expect businesses to repay CBILS before they have to make payments?

Evette Orams, Hilton-Baird Financial Solutions said “I expect some will, whereas others will repay them according to the agreed schedule. Ultimately decision makers need to do what’s right for their business and we’d urge them to explore the options available to them sooner rather than later. The longer they leave it, the more likely it is they will find themselves at the back of a growing queue of businesses looking to refinance and move to a more supportive facility for their evolving requirements.”

John Phillipou, Paragon Bank said “We have had some requests already for clients who took CBILS “just in case” and now feel they won’t need the funding. The market data indicating excess liquidity in certain sectors would indicate that we will see more requests. However, there is still an undercurrent of uncertainty in the economy which may mean businesses keep the CBILS monies as long-term reserves.”

Wesley Harfield, Investec also commented on the value CBILS has brought to businesses so far “Participating in the CBILS scheme has been great for us as it’s enabled us to continue to support SME’s through the pandemic in scenarios where, without the scheme, we may not have been able to do so for a variety of reasons. We are looking forward to hearing about what might replace CBILS over the coming weeks so we can consider participating in the new scheme.”

Business can speak to Hilton-Baird Financial Solutions about their business borrowing requirements.

We have compiled further information in our guides about invoice finance and CBILS.


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