Businesses are being urged to consider other sources before rushing to the coronavirus business interruption loan scheme (CBILS).
Lenders have approved £10.5bn of CBILS applications since the emergency finance package was launched in April but Richard Churchill, a partner from advisory firm Blick Rothenberg, warns this could create problems for future funding needs.
“Interest rates for CBILS 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,” he said.
“Existing borrowings could consume so much of the free cashflow generated that additionally borrowing is simply not possible.”
He said any decision to move banks will require the current CBILS 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.
Churchill said that while CBILS has been useful, it may be wiser for businesses to plug immediate gaps in funding, if they can afford it, and access other cheaper more appropriate sources once a revised business plan is known.
“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,” he added.