Hospitality sector pleads for help when Covid business interruption loans fall due in spring

Pub closed

Hard-pressed owners of pubs and restaurants will be calling for forbearance on government-backed loans issued during the pandemic when they start falling due from the end of March.

The hospitality industry has warned ministers that loan repayments are due to start just as the downturn is expected to intensify and it may need lenders to give the sector breathing space.

UKHospitality is planning to ask for assistance with repayments on loans taken out under the government’s schemes when it lobbies Jeremy Hunt, the chancellor, before the spring budget. Kate Nicholls, chief executive of the trade association, said the government could ask banks to be more lenient with borrowers or demand that lenders automatically extend loan repayment terms to applicants.

She warned that the loans had become a “ticking time bomb” for the industry as it faced a decline in consumer spending and higher interest rates on other lending facilities.

The leisure sector was able to take out loans under the coronavirus business interruption loan scheme and the coronavirus large business interruption loan scheme. The government guaranteed facilities worth about £30 billion under the programmes.

Banks must automatically grant forbearance to borrowers that took part in the Treasury’s bounce back loan scheme, which was aimed at the smallest businesses, but other companies will need to negotiate with lenders if they want forbearance under the other schemes.

Nicholls said: “I think it’s a ticking time bomb and particularly for our sector, which is much more indebted than other areas of the economy. Other sectors have been able to start paying off those loans that they took out as a precautionary measure, but hospitality really needed those loans to be able to get by and have that working capital.

“The rest of the economy came out [of the pandemic] with savings and we didn’t. We are now hamstrung in the recovery. We are making the case to the Treasury that this is an extra area they could help with.”

Under the coronavirus business interruption loan scheme, companies could borrow up to £5 million from participating banks via term loans, overdrafts, invoice finance or asset finance. The debt was interest-free for the first 12 months. Banks were indemnified from losses.

“We are lobbying the government around it because clearly unless the banks are willing to have a bit more flexibility or to give forbearance, it’s not happening and the forbearance we are seeing is quite limited. We are asking the government to use their leverage and remind the banks that the guarantee is there and to encourage them to be a bit more flexible,” Nicholls said.

Cathryn Williams, restructuring partner at Crowell & Moring, a law firm, said the headwinds facing the sector would be “terminal” for some businesses as families had less money to spend in pubs and restaurants. Household budgets have come under pressure after food prices rose by a record 13.3 per cent in December 2022.

“The recent round of strikes in the transport sector has also had a significant effect, causing the usual corporate seasonal events to be cancelled or postponed at a time of year which is crucial to hospitality businesses to see them through the lean months of the new year,” Williams said.

“While many will have help with energy costs until the end of March, that assistance may not be enough to ensure that a number of businesses in the hospitality sector will still be trading in the spring.”