Revealed: 46,000 building firms default on bounce-back loans

A quarter of building firms that took bounce-back loans have defaulted or entered arrears on their repayments, Construction News can reveal.

Data obtained under the Freedom of Information Act shows that 46,323 defaulted on the loans up to the end of January this year. A further 18,878 were in arrears at the time.

The combined total of 65,201 defaults and arrears amounts to 25 per cent of the 260,912 bounce-back loans issued to the sector, the British Business Bank figures show.

A further 811 firms had defaulted on their larger-value Coronavirus Business Interruption Loan Scheme (CBILS) repayments, with another 217 in arrears on their payments at the end of January.

Available from April 2020 until April 2021, the loans were part of business support schemes that were meant to save companies from collapse when whole sections of the economy were closed due to lockdown.

While the number of CBILS defaults has risen recently, it has done so at a slower rate than it did between June and October last year, when it nearly doubled from 350 to 679.

Brendan Sharkey, head of construction and real estate at chartered accountants MHA, said: “Given the length of time since the loans were given there may have been a bit of levelling out, but the industry is under a lot of challenge financially with insolvencies being generated and they will have a knock-on effect on other suppliers.”

Today, a CN analysis of more than 1,000 Companies House filings reveals that at least a quarter of construction firms going into administration or receivership between April 2020 and December 2022 had received Covid loans.

Critics say that the figures show the breathing space afforded by the loans was artificial, temporarily keeping unviable firms afloat – at a huge cost to the taxpayer.

Chris Davies, managing director of DRS Bond Management, said: “People were given loans from banks that would never normally give them loans at all because of the government guarantee that sat behind the schemes. With the benefit of hindsight, a lot of Covid policy around a variety of things doesn’t appear to have done well.”

However, others say Whitehall had a difficult job in providing support in unprecedented times.

Christina Fitzgerald, president of insolvency trade body R3 and Edwin Coe partner, said: “Covid was something that nobody saw coming and required the government to find a means of supporting businesses right across the economy almost overnight after lockdown was introduced.”

To read the full feature – including the names of the 20 failed contractors that were lent the most money through the schemes – click here.