The overwhelming majority of lending to SMEs since the outbreak of coronavirus has been through the government’s emergency schemes.
A study by debt advisory specialist Altenburg Advisory shows 90 per cent of the £29bn in loans to SMEs in April and May came through the government’s lending schemes.
Figures released by the Treasury this week show over one million bounce back loans worth £31.7bn have been approved. It indicates the mainstream lenders’ main focus is on providing these emergency loans.
More than 54,500 of CBILS loans have also been approved by the government, worth £11.8bn. The Chancellor launched CBILS on 23 March to offer loans to firms with a turnover of up to £45m. And 80 per cent of the loans are guaranteed by the government.
However it did not take long for cracks to appear, with reports emerging of banks asking for additional security from applicants. The CBILS scheme had the added complication of having to comply with EU state aid rules. This prevented some firms from receiving aid because they were considered “undertakings in difficulty”.
Altenburg Advisory adds that CBILS can impose restrictions on how the SMEs 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,” it said.
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 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.”