Insolvency warning as South West firms struggle to repay Bounce Back Loans

The South West could see a sharp rise in the number of businesses going bust because they are struggling to replay Covid loans, a leading insolvency practitioner says.

Already one Plymouth hospitality business has gone belly-up because it can’t replay a Bounce Back Loan and there are fears others could follow.

Plymouth-based insolvency practitioner Geoffrey Kirk said he is receiving inquiries from troubled firms “every other day”, with a 100% increase on this time last year.

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They are from all across the South West but predominantly in the hospitality sector and predominantly involving unpaid Bounce Back Loans.

And the businesses are wondering what their options are as they face paying back up to £50,000 of borrowing with interest.

The loans were interest free for the first year but then had to be repaid at a rate of 2.5%, over six years, which can now be stretched to 10.

But with only 4% of the loans repaid in full so far, the British Business Bank, which administered the scheme, is already bracing itself for millions of pounds to be defaulted on.

Mr Kirk, who has offices at Sutton Harbour, said some of these firms will be faced with going into liquidation, unless the Government, which has fully backed the loans, acts to write off the repayments.

He said it is because many hospitality businesses have simply not earned enough income since reopening, following the Covid lockdowns, to start paying back money owed under the loan scheme which saw £47bn of credit forwarded to 1.5m UK businesses.

“I have had a lot of inquiries from directors that have taken out Bounce Back Loans,” said Mr Kirk. “In the past couple of months they have been falling due and some can’t make the payments. If it had been a gift from the Government it would have been fine, but loans have to be repaid – and they can’t do it.”

He said most of the businesses that have contacted him are small, sometimes only with two or three people involved, and have typically taken loans of £25,000 to £50,000.

He said the inquiries are mostly from hospitality businesses such as pubs and restaurants, though there are some IT consultants too, who have not received enough income since reopening post-lockdown.

“They need to get back to not just a normal time, but a very good time, to repay the loan,” he said. “Many are going for strike-off but we are telling them not to do that.”

If a firm opts to be dissolved it is struck off the register of companies at Companies House. But it must be solvent when it does this.

If it is not, and that includes being liable for repaying a Bounce Back Loan, is should consider going into liquidation, Mr Kirk said.

The first quarter of 2021 saw a vast increase in the number of companies being struck off compared to 2020 – a hike of more than 700% to 39,601 strike offs.

Meanwhile, recent figures from the Insolvency Service revealed an increase of more than 60% in corporate insolvencies compared to the same time in 2020.

How to contact William Telford and Business Live

Business Live’s South West Business Reporter is William Telford. William has more than a decade’s experience reporting on the business scene in Plymouth and the South West. He is based in Plymouth but covers the entire region.

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Insolvency and restructuring trade body R3 in the South West said significant numbers of company directors are facing the difficult decision to close their businesses after deeming post-pandemic survival in the medium to longer term unlikely.

A recent Begbies Traynor Red Flag Alert Report for the third quarter or 2021 said more than 39,000 South West businesses are in significant financial distress and the situation is expected to get worse.

“It’s staggering,” said Mr Kirk. “People are trying to find ways out.”

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William TelfordBusiness Editor, Plymouth Live