Thousands of businesses can’t afford crippling rates on taxpayer-backed Covid loans

Exclusive: Figures show £26bn was loaned out to around 100,000 firms under the government-backed scheme, but only one in four have paid off the debt

Thousands of businesses almost crippled by the pandemic now face closure due to soaring interest rate hikes on repayments to debts including government-backed Covid loans.

Among the hardest hit are hospitality businesses including pubs and restaurants still reeling from the aftermath of closures during the Covid crisis, many of which took out various forms of finance in order to stay afloat.

Chancellor Jeremy Hunt has been urged to push Britain’s banks into extending the extra support he secured for homeowners with mortgages to businesses, such as payment holidays or interest-only deals.

Hospitality UK, the Federation of Small Businesses and the British Beer and Pub Association told The Independent that desperate business owners should get the same flexibility given to hard-pressed homeowners.

Government figures show £26bn was loaned out to around 100,000 firms under the government-backed Coronavirus Business Interruption Loan Scheme (CBILS). Only one in four firms have paid off their crisis loan.

At the time the government-guaranteed loans were sold by banks such as HSBC who offered the CBILS for between £50k-£5m on both fixed and variable rates. On a variable rate with HSBC the highest rate spikes at 3.99 per cent above the Bank of England base rate – which in 2020 was just 0.1 per cent, but now sits at five per cent.

Forecasters predict the base rate could peak at 6 per cent meaning interest on the Covid loans could be as high as 10 per cent.

Beyond the CBILS many businesses also took out fixed rate Bounce Back Loan Scheme (BBLS) finance on top of already existing mortgages to weather the storm while rates were historically low.

Martin McTague, chair of the Federation of Small Businesses, said rising interest rates were “causing sleepless nights” for small firm owners across the country.

Calling on Mr Hunt to help, he said: “Protections to help anyone with debt in the consumer market must have a small business element, too … any move to empower regulators should take small firms’ needs and vulnerabilities into consideration as well.”

Of the 100,000 companies to have taken part in CBILS, only 24,000 have paid off their loan. Just over 1,500 firms are in arrears (1.5 per cent), while another 1,310 have defaulted (1.3 per cent), the latest figures show.

“Covid loans were created after years of ultra-low interest rates, when the steep spike now taking place was unforeseen,” said Mr McTague.

He added: “The government at the time of creating Covid loans said it would do ‘whatever it takes’, and the current government should be looking at extending consumer help to small business owners who could be facing a triple whammy of higher personal and business mortgage repayments, as well as higher CBILS repayments on top.”

To cushion businesses from the impact of rising interest rates, the FSB has also called on the government to increase the VAT threshold from £85,000 to £100,000, while the British Retail Consortium called on Mr Hunt to delay a planned increase to business rates and a £2bn-a-year packaging levy.

Kate Nicholls, chief executive of Hospitality UK, said pubs, restaurants and bars still struggle with “so much debt over the pandemic”. Some have seen interest payments rocket from three to eight or nine per cent over recent months – pushing up their costs by tens of thousands of pounds a year.

James Allcock, owner of Pig and Whistle Beverly, says he was spending more on his loan than fish a month (Pig and Whistle Beverly)

Ms Nicholls told The Independent: “We just want the same kind of forbearance in the domestic market extended to the commercial market,” said Ms Nicholls, saying it should be made easier to temporarily switch to interest-only payments or extend loan periods.

“These businesses are facing the perfect storm, with a tsunami of rising costs and now the credit crunch coming through. Without some breathing space, something will blow and that will precipitate business failure,” she added.

The FSB has called on the government to push for greater flexibility over repayment of the CBILS loans – including the option of a six-month payment holidays or a six-month interest-only deal given to those who took out loans under the BBLS. These loans were capped at £50,000.

James Allcock, chef and owner of The Pig and Whistle restaurant in Beverley, has struggled to repay a £45,000 bounce back loan taken out to get through Covid lockdowns.

The restaurateur said the £700 repayments were more than he was spending on fish, but was recently able to switch to interest-only payments for six months. Mr Allcock said those with CBILS loans should be able to do the same.

“Everything is a struggle at the moment – so why wouldn’t you give maximum flexibility? It’s the only way to make sure small businesses like mine don’t fall by the wayside,” he said.

Andrew Moss, managing director of Horizon Retail Marketing Solutions, said interest rates had pushed his firm’s loan payments “through the roof” – adding another £60,000 a year to costs.

Andrew Moss, managing director of Horizon Retail Marketing Solutions (Andrew Moss)

Interest rates on Mr Moss’s business loans – and on the mortgage for the plant where his company makes packaging and promotional material – have doubled from around 5 per cent to 9 per cent in the past couple of years, he said.

“The extra loan repayments are painful enough, but when you add it to the huge energy bills we’ve faced it’s pretty catastrophic – close to unbearable,” Mr Moss told The Independent.

“Businesses are the last ones to get any help – we need to get that flexibility with loans, because the red tape in getting extensions from a lender is a nightmare. You can’t allow businesses to stop investing or the economy will seize up.”

Emma McClarkin, chief executive of the British Beer and Pub Association, said the Bank of England’s move to hike the base rate to 5 per cent was a “further blow” to the sector, since many pubs were still paying back Covid loans.

Sunak and Hunt have urged the banks to help mortgage holders (Downing Street)

“Any measures introduced to help consumers deal with rising interest rates must also be reflected for pubs and brewers. Failing to do so will only harm businesses further and add to mounting pressures,” she said.

Former treasury minister and Labour MP Dame Angela Eagle told The Independent that the government should be ensuring banks treat people fairly. She said: “I would like to see the banks, exercise sense and forbearance given given the unexpected and persistent nature of the rate rises. ”

And think tank the New Economics Foundation (NEF) called on ministers to “prevent banks from profiteering” on the back of CBILS loans, introducing a cap on interest rates lenders can charge on the government-backed borrowing.

“Or, the government should offer business borrowers more flexibility on their repayment terms to alleviate difficulties,” said NEF economist

A Treasury spokesperson said: “The best way to help small businesses is to drive down inflation, and we have a clear plan to halve it by the end of the year and get it back down to 2 per cent thereafter.”

They added: “Banks have a range of products on offer and FCA rules dictate that they must be flexible to make sure businesses can manage their repayments, which can include extending terms to reduce monthly repayments.”

The chancellor last week secured a voluntary deal with lenders to ensure greater flexibility for struggling homeowners. But he has faced criticism from Labour for failing to make it “mandatory”. Shadow chancellor Rachel Reeves described it as a “bad cover version” of Sir Keir Starmer’s proposed plan.

But Mr Hunt said the measures agreed last week – including a minimum 12-month period before repossession – would “offer comfort to those who are anxious about the impact of high interest rates on their mortgages”.