JEsthe Christman, who runs a timber business in Scotland, recalls banks “handling money” to him during the coronavirus pandemic as the then chancellor of the exchequer, Rishi Sunak, tried to prevent small businesses from collapsing.
Mr Christman, who runs Black Isle Firewood, a company near Inverness that produces firewood, timber and sheds for the tourist market, has been awarded a government-backed loan under the Coronavirus Business Interruption Loan Scheme (CBILS).
But as the economy remained “sluggish”, he struggled to repay the debt until lender Close Brothers allowed him to extend the loan term from five to nine years.
“CBIL was a lifeline. Without it I would have had to close the business,” he said of the company he set up in 2010 after leaving his previous job at a housing association.
“Business was good before Covid-19, but it has not picked up since then. It is quite quiet as the economy is not doing well and people are sitting idly by. I was lucky as my lender was willing to extend the loan. I know people who have gone bankrupt because of CBIL,” he added.
The CBIL was one of three major packages of the government’s £77 billion pandemic lending package, given under emergency circumstances to inject cash into small businesses and prevent an economic collapse. The loans made by banks and other financial institutions were administered by the state-run British Business Bank (BBB), which made decisions on the applications of lending institutions.
Four years into the pandemic, a sluggish economy and soaring inflation have seen sales fall, wages and utility costs rise and many small businesses struggle to repay loans.
The Federation of Small Businesses (FSB), the trade body representing small businesses, believes that businesses that have borrowed against the CBIL should be given flexibility in repayment because rising debt is discouraging investment.
The best-known scheme is the Bounce Back Loan programme, launched in May 2020 as a lifeline for small businesses during lockdown. The scheme offered government-guaranteed bank loans of up to £50,000 or 25% of turnover. Paperwork was minimal, applications were self-certified and no credit checks were carried out.
A quarter of all businesses used the scheme, but since then an estimated £1.8 billion in suspected fraudulent loans have sparked controversy. UK businesses have raised £46.59 billion through the bounce-back scheme, with 74% of loans either fully repaid or due to be repaid.
But mainly because businesses have collapsed, lenders are relying on government repayment guarantees for around 18% of all bounce-back loans, worth around £9 billion as of December 2023.
Businesses with a turnover of up to £45 million were offered CBIL of up to £5 million, with 80% of the loans guaranteed by the Government. Businesses have borrowed £25.84 billion, with 91% of the CBIL now repaid or due to be repaid. So far, 5.35% of the CBIL has been guaranteed by the Government.
The third scheme, the Coronavirus Large Business Interruption Loan Scheme (CLBILS), was aimed at businesses with an annual turnover of more than £45 million.
Businesses struggling to repay their bounce back loans can take advantage of the pay as you grow facility, which offers flexibility such as payment deferrals and loan term extensions of up to 10 years. Around 34% of businesses with bounce back loans have taken up the pay as you grow option.
However, there is no formal facility available to companies with CBIL and extension of loans is entirely at the discretion of the banks.
FSB chairman Martin McTeigue said: “CBILS was a key piece of the initial support introduced to help businesses survive during the pandemic, but we warned at the time that a lack of flexibility in repayment terms would cause problems in future.”
“We have called for CBILS loans to be provided with some of the same growth-based payment support given to Bounce Back Loan applicants. Some CBILS loans had variable interest rates, but these rates have risen much higher than those who took out CBILS loans at the time expected.”
“For thousands of small businesses, these rising repayment costs come at a time of rising energy prices, higher tax burdens and rising wage costs.”
Kate Nicholls, chief executive of trade body UKHospitality, said: “Repaying Covid-related loans is one of the many obstacles preventing the hospitality sector from growing post-pandemic, with high interest rates increasing repayment costs and making it extremely difficult for many businesses to thrive in tough economic conditions.”
“This is a further cost that limits investment in the sector and we continue to call on the Government to allow these loans to be refinanced and repaid without penalty over a longer period. This will give affected businesses the support they need to survive in the medium to long term, while also freeing up capital for further investment in hospitality, providing a much-needed boost to the UK economy as a whole.”
John Donald, 73, of Edinburgh-based company Robop, took out a £160,000 CBILS loan in 2020 but began to struggle in 2021, facing monthly repayments of £3,000 as his business continues to recover slowly.
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Donald is co-founder of the company, which supplies patented autonomous robots that resemble peregrine falcons and stop birds from nesting on buildings, and whose clients include Network Rail and Caterpillar.
“We founded the company the day after 9/11 and have been through economic shocks before, such as the 2008 financial crisis and the 2016 Brexit vote which saw orders in the UK fall off, but we were growing at 330% a year until the pandemic hit,” Donald said.
“We assumed it would take six months to recover from the pandemic. When repayments started and money stopped coming in, we really struggled and wanted to extend the repayment period, but that didn’t happen.”
A receiver was eventually appointed and the company emerged from bankruptcy in 2022. Donald bought back some of the assets and formed a new company, Robop Systems Engineering.
Despite businesses being able to access more relaxed repayment regimes, some are still struggling to repay their bounce back loans. The Money Advice Trust, a charity that runs Business Debtline, which helps struggling businesses, said 35% of its clients were owed bounce back loans, owing an average of £25,434.
Jane Tully, director of external relations and partnerships at the Money Advice Trust, said: “The economic fallout from the Covid-19 pandemic is still affecting many small businesses, and the situation has been exacerbated by the rising cost of living. Business Debtline advisers are hearing from people struggling to repay loans, including bounce back loans taken out during the pandemic.”
Dave Hughes, 62, who runs the Hotbox, a not-for-profit music venue in Chelmsford, said he was struggling to repay a £50,000 default loan, partly because of rising rent and other costs.
After a career in business, he founded the venue seven years ago while his son was studying music at university. “I’d always wanted to own a music venue,” he says. “But the last two years have been tough. We were closed for the better part of two years because of Covid… Then inflation skyrocketed, electricity prices went up and people were spending less.
“We had no debt before COVID. We ended up in debt through no fault of our own.”
The British Business Bank said: “If CBILS borrowers are in difficulty and need help to reduce their monthly repayments, lenders can often extend the initial loan term by up to 10 years. We strongly encourage anyone who needs this additional support to speak to their lender.”
The UK government said it had “amended lending rules to give lenders the option to extend terms from six years to up to 10 years, to enable borrowers who need financial help to reduce their monthly payments and repay their loans.”
“Throughout the pandemic, we have also covered CBILS borrowers’ interest payments for the first 12 months, helping thousands of businesses stay afloat.”
But many believe more needs to be done. Mr McTeigue said: “What’s the point of spending billions of pounds to support these businesses through the chaos of Covid-19 and then allowing them to collapse now with their debts outstanding? It would be much wiser for all involved to support them to repay their CBILS debts on a manageable schedule.”
