Black Sheep far from alone with Covid loan woes

READERS of the weekend edition of The Yorkshire Post may have seen I recently travelled uptoMashamto visit the new boss of Black Sheep Brewery for what proved to be an enlightening conversation for many reasons.

Mark Williams is the CEO of a new organisation, Keystone Brewing Group, which has taken control of a set of financially struggling breweries including Black Sheep and has eyes on other acquisitions as part of ambitious plans to build a £100m-a-year revenue business by 2028 (Williams believes they can hit the target by 2026).

Keystone – and Williams – are part of a larger investment firm called Breal Group which specialises in buying up businesses, improving their operations and then eventually selling them on for a sizeable profit.

Over the course of more than an hour, we talked about both the plans for the future of Black Sheep but also the circumstances of the controversial deal which saw Breal buy the firm. It was conducted as a pre-pack administration sale – which meant around 1,000 shareholders had their value wiped out while creditors are expected to lose millions of pounds.

The interview also touched on the varied reasons for the financial difficulties which Black Sheep had got into and one of the factors Williams cited has particularly stuck with meduetoitslikely ramifications on many other businesses and taxpayers as well.

In common with many other businesses, Black Sheep sought government support to tide it over during the pandemic. In August 2020, it took out a £3.125m Coronavirus Business Interruption Loan Scheme (CBILS) and in July 2022, took out a further £1.6m from the Recovery Loan Scheme (RLS) initiative.

CBILS came with a Government guarantee to banks to cover 80 per cent of the value, with RLS loans having 70 per cent.

They were available at both fixed and variable rates and Williams says that Black Sheep was stung by the latter as the Bank of England base rate was repeatedly ratcheted up from 0.1 per cent in November 2021 to 5.25 per cent by August 2023, where it remains today.

By the time Black Sheep went into administration in May 2023, £2.5m of the CBILS loan and all £1.6m of the RLS loan payments remained outstanding. There will undoubtedly be many other small and medium-sized businesses out there placed into similar difficulties.

The most recent Covid-19 loan guarantee schemes performance data shows the Government has already paid out £9.2bn to settle lender claims while there is more than £3bn that is either due to be settled, has already been defaulted or is in arrears. Around £1.84bn has separately been flagged as suspected fraud.

However, it is also important to take the wider view. Of the £77bn provided to businesses, more than £20bn has been fully repaid with a further £24.5bn worth currently on schedule to be returned.

There is little doubt the schemes were vital in keeping many businesses operational during lockdown. But with rates set to stay much higher than they were at the point when these loans were taken out, it is likely many other businesses will be pushed to the brink by higher-than-expected repayments.

Chris Burn is Yorkshire Post Business and Features Editor.