Covid loans “hobbling the restructuring space”
Lenders are unwilling to extend or amend borrowers’ Covid loans as it would remove the government guarantee, which is leaving some businesses “hamstrung”, a business advisory expert has said.
The coronavirus business interruption loan scheme (CBILS) was introduced during the pandemic to support struggling businesses. The UK government guaranteed 80 per cent of the value of each loan, to encourage lenders to get money out quickly to the businesses that needed it.
“We’re seeing over leveraged balance sheets where borrowers have got themselves into a bit of a pickle with Covid loans,” said James Dowdall, partner – deals advisory at ReSolve.
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“Despite being supported during those challenging times by their lenders, repayment holidays have come to an end and these firms now have cashflow constraints as capital obligations have kicked in.
“Some lenders are telling us that they’re happy with borrowers’ turnaround plans and forecasts but are unable to extend and amend their credit facilities. Their credit officer will not sign it off as it would remove the government guarantee. This issue is hobbling the restructuring space during this cycle.”
Dowdall noted that one iteration of the recovery loan scheme – a follow-on scheme introduced by the government post-pandemic to help businesses grow – is designed to refinance CBILS loans, but this comes with “a revenue and limit cap and some other limitations”.
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“Some larger corporates are hamstrung by the good intentions set out previously,” he added.
Dowdall said that ReSolve mostly tends to refinance from a mainstream lender to an alternative lender, as they have different levels of risk tolerance.
“We understand alternative lenders’ risk parameters and find them to be very responsive,” he said. “In general, they move much faster than clearing banks, are very competitive plus they understand the turnaround space, think creatively, and often have a greater risk appetite.
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“Mainstream lenders, on the other hand, seem to be less willing to extend or amend facilities which would mean forgoing government guarantee(s). It’s not unheard of but they do seem to be taking fewer chances with these Covid loans.”
