More to follow the thousands already defaulting on bounce back loans

We’ve previously written about the size and scale of bounce back loan scheme fraud and the latest updates from the Department of Business, Energy and Industrial Strategy underlines how serious the issue is and how much public money has disappeared – potentially for good. 

A total of £7.4 billion has been written off by the government to bad loans with lenders claiming an additional £1.13 billion. 

With £2.23 billion more currently in arrears and £750 million in default, the total figure for Covid-era loans could reach £11.5 billion. 

The bounce back loan scheme lent a total of £46.6 billion with an additional £30.4 billion lent through schemes such as the Coronavirus Business Interruption Loan Scheme (CBILS). 

Nearly 15% of bounce back loans have been settled by the government with £1.7 billion being flagged by lenders for potential fraud which is a 43% on previous estimates. 

Looking closer at CBILS arrears and defaults, there is one industry that is head and shoulders above all others in keeping up and that is construction. 

The British Business Bank responded to a recent Freedom of Information request which showed that nearly 8% of all CBILS borrowers in the industry – 1,084 construction businesses – have defaulted on their loan at least once in the previous 12 months. 

This is a 40% increase in the default rate as only 775 construction companies had defaulted at the same time last year. 

Over 14,000 businesses in the construction sector took out a CBILS loan of up to a maximum of £5 million.

Defaulting on a CBILS or other loan payment could be a warning sign that a business could be heading towards insolvency. 

As we wrote last month, the construction industry has already seen more insolvencies than any other sector over the previous 12 months with 4,262 cases, which are at their highest level in over a decade. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “It’s going to be a tough economic climate for businesses who are repaying Covid-era loans as conditions continue to deteriorate. 

“Inflation remains high and more than three times the Bank of England’s target of 2%. Interest rates are probably going to rise again this week and the ongoing cost of living crisis for customers shows no signs of abating.

“The lending facilities such as bounce back loans and CBILS were valuable and vital at the time but it’s unfortunate and ironic that they have become such a millstone for many businesses trying to survive – and they don’t have to be.

“Construction businesses in particular need to pay attention to their cash flow situation. Several are highly leveraged and if interest rates rise higher for example, they will make CBILLS payments more expensive. 

“A lot of contractors get tied into fixed price contracts which can quickly become under-priced as inflation eats into margins. Coupled with construction cost inflation continuing to rise, contracts can quickly become unviable. 

“Larger builders working on multiple sites can offset losses on under-priced projects but smaller builders on a single site would have no option but to deliver projects at a loss. 

“Smaller constructors are finding it difficult to match the lower prices offered by their larger competitors with many avoiding passing on increases to customers because they don’t want to spoil customer relationships.  It’s these businesses which are the most vulnerable to cashflow problems and statistically most likely to default on repayments.”

If your business is juggling repayments right now then you should get in touch with us.

We offer a free, initial consultation to any business owner or director – it doesn’t matter whether they are in construction, retail, hospitality or any sector. 

One of our team of expert advisors will work with them to understand their situation better then be able to outline all the options available to them. 

There are routes such as administration or a CVA that will buy a business time to restructure and hopefully emerge stronger in the future. 

Or if there is no viable way forward, then ways to close the business down through a liquidation process would be more logical – especially as companies with outstanding bounce back loans and CBILS arrears can still close down too.