Defaults on CBILS and BBLS loans could run as high as £22bn if initial estimates from the Office for Budget Responsibility (OBR) are correct, according to new calculations, shared with City A.M. today.
£22bn of defaults would represent around 30 per cent of the roughly £74bn lent under the BBLS and CBILS schemes.
“We may see billions in CBILS and BBLS loans default and the Pay as you Grow scheme for BBLS loans may only delay, rather than reduce the overall level of defaults,” said Dan Barrett, partner at debt advisory firm ACP Altenburg, who shared the data.
Barrett pointed out the forecast is based on Office of Budget Responsibility estimates applied to the final BBLS and CBILS lending figures, with the main source being CJRS amounts paid up to 16 August of this year.
“Businesses looking for funding to grow or acquire need to consider that many lenders are extremely busy as the market is seeing an upsurge in activity, and many lenders are still getting to grips with the vast amount of money they lent under CBILS and BBLS,” he added.
As scheduled payments have commenced on the majority (55 per cent) of CBILS and BBLS loans, following the initial 1-year period where neither interest nor principal payments were required, funding those payments is likely to be a key focus for many UK businesses, particularly where a CBILS loan was taken out with a high interest rate.
This focus is likely to be heightened following the recent closure of the Coronavirus Job Retention Scheme (CJRS), which was a key pillar of support for businesses during the pandemic, with £68.5bn claimed by employers.
The end of the CJRS will put a strain on the cashflows of many businesses, with many businesses also needing to find additional cash to repay deferred VAT.
One short term option for businesses struggling with their repayments is the Government’s ‘Pay as you Grow’ scheme, which allows companies to take a 6-month payment holiday on their BBLS payments.
However, this is not available for CBILS borrowers and using the Pay as you Grow scheme may adversely impact a businesses’ ability to obtain funding in the future, as the scheme only delays repayments.
The Government is also offering the Recovery Loan Scheme, which may be available for some businesses. However, this scheme only runs to the end of this year, Barrett pointed out, and while they Government is providing a guarantee to lenders, they will not be covering borrower interest payments for the first year, as was the case with CBILS and BBLS borrowing.