How Pandemic Loans Are Affecting Small Businesses
The Covid-19 pandemic has drastically impacted businesses across the globe, with small businesses bearing the brunt of the economic fallout. In response, governments around the world have introduced a range of measures to provide financial relief, including loans and grants. However, as the pandemic continues, some small businesses are struggling to repay these loans, hindering their ability to invest and grow. This article explores the experiences of small business owners in the UK who have taken out pandemic loans, and the challenges they face in paying them back.
The Impact of Pandemic Loans
James Allcock, chef and owner of The Pig and Whistle restaurant in Beverley, took out a £45,000 payback loan at the height of the pandemic. According to Allcock, paying back the loan has become a significant overhead cost for the business, now costing “more than I spend on fish a month.” He extended the loan term and stopped payments over Christmas, switched to interest-only repayments for six months, but after that, he says, there will be “nowhere to go.” With higher costs, staff shortages, and customers with less money to spend, Allcock says this period is even more challenging than the pandemic itself.
Collette Osborne, who runs Hairven, a salon in Nottingham, borrowed £250,000 in 2020 from the Coronavirus Business Interruption Loan (CBIL). She estimates her losses from the pandemic to be around £700,000, and while CBILs were 80% backed by the government, had low-interest rates, and did not have to be repaid for the first year, extended Covid restrictions, an unregulated industry, and a lack of consumer confidence have made it a struggle. “There has been no recovery,” she says. Collette raised her concerns with Chancellor Rishi Sunak when he visited her establishment last June, but to no avail. Given the enormous impact of the pandemic on the hair and beauty industry, Collette would like to see more flexibility in paying down debt.
Government Response
The Federation of Small Businesses (FSB) says companies should have more flexibility to repay pandemic loans as higher debts hamper investment. The government said repayment holidays were an option. A government spokesperson added that the Pay As You Grow measures gave borrowers with Bounce Back Loans the option to repay their loan over a period of up to ten years. FSB Chairman Martin McTague says he would like to see those options extended to those with coronavirus business interruption loans as well. It said loan repayment levels were “strong” and defaults were “lower than previously estimated.” However, McTague warned that “many small businesses are constrained from growth and investment due to their higher levels of debt.”
Small Business Owners’ Resilience
Dave Hughes, who runs non-profit music venue and community center Hot Box in Chelmsford, has launched a crowdfunding campaign to save his business after failing to make repayments on his £50,000 Rebound Loan. Artists like Fat Boy Slim and Frank Turner agreed to give free concerts at the venue to help him survive. “Before the pandemic, we were a debt-free business,” he says, “I had never had a credit card.” Now, loans and piling up unpaid rent and bills mean he’s £90,000 in debt. “Commerce is back to where it was before Covid, and even better,” he says, “but costs have skyrocketed.”
Money Advice Trust, which runs a helpline for businesses struggling with debt, says data from a survey of more than 500 of its clients earlier this year found that more than a third of them had a Recovery Loan. “Of the people we help at Business Debtline, many are still dealing with the financial consequences of Covid-19,” said its chief executive, Joanna Elson. “The current crisis has further exacerbated these financial pressures, so making sure small business owners have access to the free advice they need has never been more important,” she added.
Summary
Small businesses in the UK have been hard hit by the Covid-19 pandemic, and many have turned to the government for financial relief in the form of loans and grants. However, as the pandemic continues, some small businesses are struggling to repay these loans. Small business owners, such as James Allcock and Collette Osborne, are finding that high loan repayments are impeding their ability to invest and grow. The Federation of Small Businesses (FSB) has called for more flexibility in loan repayment for small businesses, while the government maintains that current repayment levels are strong and defaults are lower than previously estimated. Some small business owners are getting creative to deal with their debt, such as Dave Hughes, who has launched a crowdfunding campaign to save his non-profit music venue. As the pandemic persists, it has become increasingly important for small business owners to have access to free advice to help them manage their finances and stay afloat.
Additional Piece
The Covid-19 pandemic has created significant financial burdens for small businesses worldwide and has tested their resilience. In the United States, the Paycheck Protection Program provided more than $780 billion in loans to small businesses; the majority of these loans went to businesses with fewer than 20 employees. However, as in the UK, some small businesses in the US are struggling to repay these loans.
In response, the US government has extended the repayment period for borrowers of Paycheck Protection Program loans from two to five years and lowered the interest rate on loans. Like the UK, small business owners still face challenges in paying back the loans, including decreased revenue and customer demand due to Covid-19, staff shortages, rising costs of goods and services, and regulatory hurdles. Some small businesses have turned to alternative financing sources, such as crowdfunding and revenue-based financing, to help them stay afloat.
In addition to the financial burdens, small business owners have also faced mental health challenges due to the pandemic. A survey from the National Bureau of Economic Research found that many small business owners experienced high levels of stress and anxiety due to the uncertainty and financial strain caused by the pandemic. It is crucial for small business owners to have access to support services to help them deal with the mental health challenges of running a business during a pandemic.
In conclusion, the Covid-19 pandemic has created unprecedented challenges for small businesses worldwide, and loans have been a critical lifeline for many. However, it is essential to recognize that loan repayment is not a straightforward process, and more flexibility is necessary to aid small businesses’ recovery. As we emerge from the pandemic, small business owners might face new challenges and opportunities, but for now, their ability to recover from the pandemic’s financial impact remains their most pressing concern.
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- By Esyllt Carr
- Business reporter, BBC News
image source, The Pig and the Whistle
Chef James Allcock says loan repayments cost more than the ingredients for his food business
James Allcock, chef and owner of The Pig and Whistle restaurant in Beverley, took out a £45,000 payback loan at the height of the Covid pandemic.
He says that paying for it has become a huge drag on the business, as it costs “more than I spend on fish a month.”
The Federation of Small Businesses (FSB) says companies should have more flexibility to repay pandemic loans as higher debts hamper investment.
The government said repayment holidays were an option.
A government spokesperson added that the Pay As You Grow measures gave borrowers with Bounce Back Loans the option to repay their loan over a period of up to ten years.
FSB Chairman Martin McTague says he would like to see those options extended to those with coronavirus business interruption loans as well.
It said loan repayment levels were “strong” and defaults were “lower than previously estimated.”
However, McTague warned that “many small businesses are constrained from growth and investment due to their higher levels of debt.”
James Allcock has already extended the term of his loan and stopped payments over Christmas.
He says that after a “disastrous” May, he took the last available option and switched to interest-only repayments for 6 months.
After that, he says, there will be “nowhere to go.”
With higher costs, staff shortages and customers with less money to spend, Allcock says this period is even more difficult than the pandemic.
“I don’t take more money than 4 years ago, but it’s costing a lot more to do it,” he says.
The latest government figures show that just over 6% of Rebound Loans are in default, and around two-thirds have been repaid on time. However, almost a third of borrowers have used at least one of the available options for distributing payments.
“There has been no recovery”
But that’s not possible for those who have taken out a Coronavirus Business Interruption Loan (CBIL), like Collette Osborne, who runs Hairven, a salon in Nottingham.
image source, collette osborne
Collette Osborne and Rishi Sunak
He borrowed £250,000 in 2020 when the lockdown halted his trading.
She estimates her losses from the pandemic to be around £700,000.
CBILs were 80% backed by the government, had low interest rates, and did not have to be paid back for the first year. Collette was given six years to repay the money.
“I was hoping that I could trade my way out of this,” he said, but extended Covid restrictions, an unregulated industry and a lack of consumer confidence have made it a struggle.
“There has been no recovery,” she says. “I can’t hire people, I can’t train people, I can’t invest.”
Collette said she raised her concerns with Rishi Sunak when he visited his hall as chancellor last June.
“He promised to see all my concerns; I’d like to have another meeting with him,” she says.
Given the enormous impact of the pandemic on the hair and beauty industry, Collette would like to see more flexibility in paying down debt.
“It should be repaid from profit, to give us a chance to grow,” he says.
“The wolves are at the door,” he adds, “nobody gives you space.”
Money Advice Trust, which runs a helpline for businesses struggling with debt, says data from a survey of more than 500 of its clients earlier this year found that more than a third of them had a Recovery Loan. .
“Of the people we help at Business Debtline, many are still dealing with the financial consequences of Covid-19,” said its chief executive, Joanna Elson.
“The current crisis has further exacerbated these financial pressures, so making sure small business owners have access to the free advice they need has never been more important,” he added.
Some are trying other ways to get out of debt.
Dave Hughes, who runs non-profit music venue and community center Hot Box in Chelmsford, has launched a crowdfunding campaign to try to save his business, after failing to make repayments on his £50,000 Rebound Loan .
Artists like Fat Boy Slim and Frank Turner agreed to give free concerts at the venue to help him survive.
“Before the pandemic, we were a debt-free business,” he says, “I had never had a credit card.”
Now, the loans and piling up unpaid rent and bills mean he’s £90,000 in debt.
“Commerce is back to where it was before Covid, and even better,” he says, “but costs have skyrocketed.”
Hughes says he hasn’t paid himself since last August and is being hounded by the companies he owes money to.
“I didn’t bring this on myself,” he says, “but they’re after you like you’re a criminal.”
https://www.bbc.co.uk/news/business-65766613.amp
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