Hundreds of construction firms default on COVID loans

More than 350 construction firms have defaulted on their COVID loans at least once.

Around 2.5 per cent of all the construction firms who claimed COVID loans have defaulted on repayments, which could foreshadow a wave of administrations.

The warning comes from accountancy firm Price Bailey, which compiled the research via the Freedom of Information Act.

The scale of defaults in construction is much higher than in other sectors, with around 1.3 per cent of arts and entertainment companies and 0.8 per cent of healthcare companies defaulting on their loans.

The Coronavirus Business Interruption Loan Scheme (CBILS) programme was closed to new applications at the end of March last year, with a year’s grace period before companies had to start repaying.

That could mean many firms have only just started to pay back the loans, Price Bailey’s analysis suggests.

Civil Engineering Contractors Association (CECA) chief executive Alasdair Reisner said the CBILS loans were introduced “at a time of national emergency”.

“[They] were vital to ensuring our industry continued to function, building and maintaining the infrastructure that is fundamental both to our quality of life and the health of the economy,” he added.

“While a small minority of construction firms may be facing difficulties in repayment, this must be set in the wider context of inflationary pressures and the substantial increase in fuel costs in recent months.”

No industry took out more CBILS loans than construction in the first months of the pandemic, with firms securing loans of £7.93bn by the beginning of October 2020.

Price Bailey partner Chand Chudasama said construction firms were being squeezed “from multiple angles” with material and labour shortages hitting hard and some demand for construction work falling.

“Defaults on CBILS are an early warning of likely insolvencies to come,” he said. “In many cases it could be several months before businesses which have defaulted on CBILS repayments face debt recovery action from creditors.”

Around 14,200 construction firms claimed the loans.

In the UK, more than 97,000 businesses from a variety of sectors applied to the loans, of up to £5m each.

Administrations in the construction sector have ramped up in recent months, with more firms expected to go under in the months ahead, particularly those who are squeezed for cash.

Data from Creditsafe provided to Construction News showed that a total of 31 firms went under in February, followed by 24 in March, 22 in April and 11 in May.

One of the more recent companies to go under, Mechanical Facilities Services, had been propped up by a CBILS loan, but it still collapsed in April, owing suppliers more than £11.1m.

Experts have previously warned that, though some companies may have avoided administration, they could be in the “stages preceding it”.

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