Jess Christman, who runs a Scottish timber business, recalls banks “throwing money at him” during the Covid-19 pandemic as Rishi Sunak, then the chancellor, tried to help small businesses avoid collapse.
Christman, who runs Black Isle Firewood, near Inverness, which produces firewood, sawn timber and huts for the tourism market, eventually took out a government-backed loan under the coronavirus business interruption loan (CBILS).
However, he struggled to pay back the money as the economy remained “in the doldrums” until his lender, Close Brothers, allowed him to extend the term of his loan from five to nine years.
“CBILs were a lifeline. Without them I would have had to close the company,” he said of the company he founded in 2010 after leaving his previous job at a housing association.
“Before Covid, the company was doing well. But things haven’t improved since then. It’s been pretty quiet because the economy isn’t doing well and people have been sitting on their hands. My lender was willing to renew so I was lucky. I know people who have gone bankrupt due to CBILs,” he added.
CBILs were one of three main packages of £77 billion of government-backed pandemic loans disbursed under emergency conditions to pump money into small businesses and prevent an economic collapse. The loans from banks and other financial institutions were managed by the state-owned British Business Bank (BBB) and lenders made decisions on applications.
Four years into the pandemic, many smaller businesses are struggling to repay these loans as the economic downturn and higher inflation have reduced sales and increased the cost of wages and utility bills.
The Federation of Small Businesses (FSB), an industry association representing small businesses, believes those who have taken out CBILs should be given more flexibility to repay them, with higher debt holding back investment.
The best-known program was the rebound loan program, which was launched in May 2020 as a life support for small businesses during the lockdown. It offered fully government-guaranteed bank loans of up to £50,000 or 25% of turnover. The paperwork was minimal; applications were self-certified and there were no credit checks.
A quarter of all businesses used the scheme, but it has since proven controversial, with an estimated £1.8 billion worth of loans flagged as suspected fraud. UK businesses have drawn down £46.59 billion through the recovery programme, with 74% of loans by volume fully repaid or on track for repayment.
However, lenders have resorted to the government’s repayment guarantee for around 18% of all rebound loans by volume – worth around £9 billion in December 2023 – mainly as companies have gone bankrupt.
CBILs were offered for up to £5m to businesses with a turnover of less than £45m and the loans were 80% government backed. Companies have drawn down £25.84 billion, with 91% of CBILs by volume currently repaid or on track for repayment. So far, 5.35% of CBILs by volume have been called upon by the government guarantee.
The third scheme, the Coronavirus Major Business Interruption Loan (CLBILS), was aimed at businesses with an annual turnover of more than £45 million.
Businesses struggling to repay rebound loans can access a pay-as-you-grow scheme that offers flexibility including repayment breaks or extensions of loan terms up to 10 years. About 34% of companies with rebound loans have used pay-as-you-grow options.
However, no such formal arrangement exists for companies with CBILs; any extension of a loan is at the sole discretion of the bank.
Martin McTague, national chairman of the FSB, said: “While CBILS was a vital part of the initial support to help businesses stay afloat during the pandemic, we warned at the time that the lack of flexibility around repayment terms would pose challenges for the future.
“We have asked that CBILS loans be provided with some of the same pay-as-you-grow assistance that rebound loan applicants received. Some CBILS loans had variable interest rates, and subsequently interest rates rose much higher than those who took out a CBILS loan at the time could have predicted.
“These higher reimbursement costs for thousands of small businesses come at a time of higher utility bills, rising tax burdens and higher payroll costs.”
Kate Nicholls, the chief executive of trade body UKHospitality, said: “One of the many obstacles to the growth of the hospitality sector post-pandemic has been the repayment of Covid-related loans, with high interest rates increasing payments and making it hugely challenging for many businesses to thrive in the challenging economic environment.
“This is another cost limiting investment in the sector and we continue to urge the government to allow refinancing of these loans so that repayments can be made over a longer period and without penalties. This would provide affected businesses with the support they need to survive in the medium to long term, and it will also free up capital for further investment in the hospitality sector, giving the wider UK economy a much-needed boost.”
John Donald, 73, whose Edinburgh-based firm Robop took out a £160,000 CBILS loan in 2020, started to run into trouble when he faced repayments of £3,000 a month from 2021, when his business was still sluggish recovered.
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Donald co-founded the company, which produces a patented autonomous robot that resembles a peregrine falcon and deters birds from nesting on buildings. Customers include Network Rail and Caterpillar.
“We founded the company the day after September 11 and we have lived through economic shocks, including the 2008 financial crisis and the 2016 Brexit vote, which saw our UK orders fall. But until the pandemic we were growing at 330% per year,” Donald said.
“We assumed it would take six months to recover from the pandemic. Once the refunds started and money wasn’t coming in, we were really struggling and wanted to extend the terms, but that didn’t happen.”
Eventually, administrators were appointed and the company went bankrupt in 2022. Donald bought back some of the assets and founded a new company, Robop Systems Engineering.
Some businesses are still struggling to repay loans, even though companies have access to more lenient repayment plans. The Money Advice Trust, the charity that runs Business Debtline and helps struggling businesses, said 35% of its customers had recovered loans, with the average debt standing at £25,434.
Jane Tully, external affairs and partnerships director at Money Advice Trust, said: “The financial impact of Covid continues to impact many small businesses, a situation made worse by the high cost of living. Our advisors at Business Debtline are hearing from people who are now struggling to repay loans, including rebound loans, taken out during the pandemic.”
Dave Hughes, 62, who runs Hotbox, a not-for-profit music venue in Chelmsford, said he was struggling to repay a £50,000 loan, partly because other costs had risen, including rent.
He founded the venue seven years ago after a career in business, when his son was studying music at university. “I’ve always wanted to have a music venue,” he says. “But the last two years have been tough. During Covid we were closed for almost two years… Then inflation shot through the roof and electricity costs increased and people also spent less.
“Before Covid, I was completely debt free. We have been saddled with debt through no fault of our own.”
The British Business Bank said: “Where CBILS borrowers are in difficulty, lenders can in many cases extend the original loan terms for up to ten years if they need help to reduce monthly repayments. We would strongly encourage those who need this additional help to speak to their lender.”
The UK government said: “We have changed the lending rules to give lenders the option to extend the term from six to a maximum of ten years, to help borrowers who need financial help reduce their monthly payments and repay their loans.
“During the pandemic, we have also covered interest payments for the first twelve months of the loan to CBILS borrowers, keeping thousands of businesses afloat.”
However, many believe further action is now needed. McTague said: “What was the point of supporting these businesses during the Covid disruption, to the tune of billions of pounds, if we now let them go to the wall – and leave their debts unpaid? Helping them repay their CBILS debts on a schedule that is manageable certainly makes much more sense for all parties.”