In an attempt to recoup Covid-era funding, a government start-up fund that backed dozens of companies during the pandemic has been taking them to court to force their closure. 

The Future Fund began in 2020 as a way to support loss-making start-ups along with bounce back loans for SMEs and the coronavirus business interruption loan scheme for companies with a turnover up to a maximum of £45 million. 

So far The Future Fund has issued 32 winding up petitions which has seen 23 being placed into administration or being ordered to cease trading and the company wound up without the fund regaining its investment.  

The fund lent a total of £1.1 billion to 1,191 companies on three-year terms with the loans converting into shares when the business raised a “follow-on” investment. 

If the companies didn’t raise any further investment then they were required to repay double the loans back with additional interest.

Now the loans are maturing, the fund is using legal measures to pursue them. 

A spokesperson for the British Business Bank which administers the fund said: “Of the companies with loans outstanding at their maturity date, not every company has applied for an extension. And of those that have applied, not all of the applications have been successful.

“We have a duty to protect the interests of taxpayers. When companies get to the maturity date and their loans remain outstanding, we will take steps to recover funds, which may include seeking to wind up companies. 

“We will continue to work with liquidators to assist their investigations and their efforts to recover assets for creditors.”

At the end of March 2024, the Future Fund had converted 712 loans into stakes in companies and had 211 loans outstanding. 

Of these, 202 companies have become insolvent while 66 have resulted in cash returns for the fund. On a fair-value basis the fund lost £289 million last year. 

More established and successful companies that needed emergency Covid-era finance are also struggling with repayments. 

One in three (34%) of SMEs which took out bounce back loans applied to access a “pay-as-you-grow” scheme which gave extra flexibility including repayment holidays and extending the loan term to 10 years in some circumstances. 

No such safety valve exists for CBILS borrowers however as any extension is purely at the discretion of their lender. 

Martin McTague, national chair of the Federation of Small Businesses, said: “While CBILS was a vital part of the initial support brought in to help businesses stay afloat during the pandemic, we warned at the time that the lack of flexibility around repayment terms would store up problems for the future. 

“We asked for CBILS loans to be offered some of the same “pay-as-you-grow” help that bounce back loan applicants were given. 

“Some CBILS had a floating rate of interest and then interest rates soared far higher than those taking out a CBILS loan at the time could have forecast.

“These higher repayment costs for thousands of small firms come at a time of higher energy bills, a rising tax burden and increased wage costs.”

Katie Nicholls, chief executive of trade body UKHospitality, said: “One of the many obstacles to growth for the hospitality sector after the 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 current economic climate. 

“This is yet another cost that limits investment into the sector and we continue to urge the government to allow refinancing of these loans to enable repayments over a longer time period and without penalties. This would offer affected businesses the support they need to survive in the medium to long term, and it also frees up capital for further investment in hospitality, serving Britain’s wider economy a much-needed boost.”

We’ve recently written about how billions of bounce back loan arrears remain uncollected and how HMRC are stepping up their attempts to recoup outstanding arrears with a record number of directors being disqualified. 

This will continue throughout the rest of 2024 and beyond, all the while thousands of honest directors and business owners will continue doing what they’ve been doing since 2020 – their very best to keep their business going. 

This is why we’re proud to offer a free initial consultation to any of them who want to know how they can improve their prospects. 

Get in touch with us today to arrange yours and together we’ll get to work.