Will bounce back loan and CBILS borrowing mean more charity insolvencies?

There are over 170,000 charities registered with the Charity Commission in England and Wales alone and it’s hard to imagine a more challenging period for any of them than what the last 18 months have delivered.


Bounce back loan borrowing might mean more charity insolvencies

Charity borrowing

 

 

Whether they provide essential services to users, look after those that can’t look after themselves or even care for and protect the environment – all will have had their operations and funding disrupted by Covid-19 and the subsequent year of lockdowns

 

Another point the public often overlook is that charities have to function as businesses too in order to pay their staff, raise and invest funds and provide their services without interruption so the majority will have been dealing with the various negative financial repercussions of the pandemic too. 

 

This explains why charities were eligible to apply both for bounce back loans and lending from the Coronavirus Business Interruption Loan Scheme (CBILS) too. 

 

Charities applying for CBILS funding were given a special exemption to the otherwise essential application criteria with the rule that at least 50% of an applicant’s income must come from trading being waived. 

 

Richard Sagar, policy manager at the Charity Finance Group, said that although it was welcome that this potential stumbling block was removed, there was a downside.  

 

He said: “There are still fundamental concerns that charities are being saddled with debt at a time of profound uncertainty about their future finances. 

 

“This could hamper their financial sustainability and ability to deliver public benefit when the country emerges from the Covid-19 emergency.”

 

Charities also had other sources of funding they could look for including grants and a loan scheme specifically aimed at charities and social enterprises called the Resilience and Recovery Loan Fund (RRLF).

 

The scheme lent out £24 million to 77 various recipients administered by Social Investment Business including Autism Plus, the Big Issue, Jo’s Cervical Cancer Trust and the Royal Society for Blind Children.

 

The majority of organisations who obtained RRLF funding were companies limited by guarantee (CLG) and the main three areas of focus benefiting from successful loans are charities working with financially excluded or people living in poverty; vulnerable young people and vulnerable older people including people with dementia.

 

Before the scheme wound up on March 31st 2021, it could lend between £100,000 and £1.5 million for a maximum term of five years. 

 

The first 12 months would be interest free and fee free. 

 

Additionally, the Foundation for Social Investment made nearly £4 million in grants available alongside loans if it was apparent that the funding would be unviable without an additional grant of between 20-40% of the approved loan amount. 

 

Nick Temple, chief executive of SIB said: “We have learned a great deal from the fund, and we will be using those insights in designing a successor loan fund, as well as building on the partnerships that have helped us achieve so much in the last 12 months. 

 

“This will mean continuing to support charities and social enterprises with patience, flexibility and responsiveness in the post Covid-19 recovery

 


If I close my business, can I still be chased for outstanding bounce back loans or CBILS debt?


 

Some charities and social enterprises required an even bigger helping hand to secure their services and had to make use of the two main borrowing schemes available for UK businesses – bounce back loans and the coronavirus business interruption loan scheme (CBILS). 

 

According to final figures provided by the British Business Bank, the total number of loans to “social work activities without accommodation” – the industrial classification covering charities – was less than most other sectors but the amount lent still totaled over half a billion pounds.

 

 

The total number of loans granted was just over 13,000 and the average amount lent per individual loan is just over a quarter of a million pounds – £256,129.

 


 

Chris Horner, insolvency director with Business Rescue Expert, said: “A charity is just like any other business – especially if it can’t pay all of its bills when they come due. 

 

“But they are also unlike any other business because of their output, the services they provide and the unique place they occupy in society. 

 

“So in a lot of ways it’s always harder for them to function because their missions are so vital to many of their clients and service users that it can be easier to come up with reasons why loans and bills aren’t being repaid. 

 

“Sadly creditors rarely see things like that. They only see they haven’t been paid and for them reasons are simply excuses. 

 

From now until the end of September at the earliest, charities, social enterprises and community interest companies in financial difficulties have a vital window of opportunity to act to protect themselves and their services.

 

“They should begin by taking some professional advice about their situations and then consider their rescue and restructure options like administration or a CVA. These will allow a charity to keep operating while the debt is managed.

 

“If the situation is more serious and they can’t realistically make their debt repayments, including bounce back loans, CBILS or RRLF, then they should start to look at an efficient liquidation process like a creditors voluntary liquidation rather than prolong the inevitable.

 

“Whatever options they ultimately decide to pursue, they will have more room to maneuver if they make their decisions sooner rather than later.”

 


 

Charities are among the bedrocks that the rest of society is built on and helps function in certain key areas such as health, social care, leisure and many other aspects of our lives. 

 

Their unique social missions are always tempered by their structures and sometimes constrain or hinder them in their attempts to do more, often with less. 

 

2020 and 2021 is when this maxim met reality and sadly proved for many that in reality, you can only do less with less.  

 

But when it can feel like lives depends on you doing what you’ve always done, it can be easy to ignore those letters and emails, you’ll get round to them after you’ve finished doing the really important work you do every day. 

 

Unfortunately, creditors have rights and if a charity, social enterprise or community interest company can’t service its debts then it can be treated like any other insolvent business by them. 

 

If you’re worried about paying back your pandemic borrowing including bounce back loans or VAT arrears or how your charity can continue to make ends meet and keep providing your services then get in touch with us today

 

We offer a free, initial consultation where we can get a better understanding of your situation and work with you to reach a solution that will work to everybody’s benefit. 

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