Why early repayment is not always the best option
by David Marshall
Over recent months, we have seen various Lenders operating the Government Loan Schemes according to different and sometimes fluid interpretations.
Much of the Alternative Finance Sector operate from “factories” where staff follow processes and decisions are made by algorithm. While everyone is undoubtedly doing their best, rules developed to operate in the pre Covid era can deliver unreliable outcomes in these abnormal times. Even the relatively few remaining skilled Lenders in the sector can find themselves bound by the “process”.
Recently, we have secured funding for Clients to overcome temporary cash flow pressure points where, in the near future, they might ordinarily repay these loans early. However, I suggest any business should consider very carefully before repaying any established loan facilities early, especially CBILS (Coronavirus Business Interruption Loan Scheme) and BBLS (Bounce Back Loan Scheme).
Looking forward, funding may be restricted by fewer active lenders, reduced appetite, government support and liquidity. The APR (true cost of borrowing) over the full term of CBILS/BBLS, factoring in the BIP (Business Interruption Payment) from the Government, represents good value especially in the absence of a Personal Guarantee, a feature we may not see so freely given again.
Be mindful not to clear loans in haste, only to find funding difficult to secure on similar terms (or worse unavailable) in the future.