Covid loan “approval rates need boosting”, says advisor
A leading corporate finance advisor has welcomed the government’s decision to extend the four Covid-19 business relief schemes, but believes action is needed to get more of the loans approved.
Andrew Feeke, head of corporate finance at Preston-based MHA Moore and Smalley, says chancellor Rishi Sunak’s decision to keep the CBILS, CLBILS, BBLS and The Future Fund loan schemes running is the right move, but lending is still too restrictive.
In an announcement on Thursday, Rishi Sunak announced an extension to the four schemes to November 30.
Commenting on the decision, Andrew said: “The four government Covid-19 loan schemes were due to wind down at the end of September. Pushing the application deadline back is good news for UK businesses of all sizes and definitely the right thing to do, especially with further lockdown restrictions being announced and potentially more stringent rules on the horizon.
“Hopefully, Rishi Sunak will take the opportunity to reform the schemes to improve the success rate of applicants. The overall approval rate is too low at 63%, and this number is skewed by the Bounce Bank Loan Scheme, which is running at an 82% approval rate, the most successful of the schemes in deploying liquidity.
“The Bounce Back scheme only provides loans of up to £50,000 though and the more substantial CBILS scheme, which larger SMEs desperately need access to, is only running at a 49% approval rate.*
“Access to funds up to £250,000 is relatively plentiful currently, but more needs to be done for those businesses requiring more funding.”
Andrew believes there are a number of options available to increase the understanding, flexibility and ease of access to the CBILS facilities.
These may include providing a framework leverage calculation, such as a fixed multiple of EBITDA. Flexibility over the ‘relevant earnings’ - and therefore debt serviceability, or indeed increasing the threshold at which personal guarantees are prohibited, may also help boost loan approvals.
“Some or all of the above could increase the applications and acceptance levels of CBILS so whilst we welcome the extension, we would like to see more,” added Andy.
CBILS (Coronavirus Business Interruption Loan Scheme) provides financial support to smaller businesses across the UK that are losing revenue, and seeing their cashflow disrupted, because of the Covid-19 pandemic. CLBILS (Coronavirus Large Business Interruption Loan Scheme) offers similar funding support but for larger businesses.
The BBLS (Bounce Back Loan Scheme) allows small businesses to access loans of up to £50,000. The Future Fund is a funding package designed specifically to help innovative UK companies battling the coronavirus pandemic.
*Source HMRC Covid-19 business loan statistics.