Covid Scotland: Almost £2m of Scottish Government Covid loans at risk as companies go bust

Ministers have defended the decision to hand out almost £2 million in Covid-19 loans to three businesses which went bust within two years of receiving the money.

The money came from the SME liquidity fund, an emergency loan fund set up by the Scottish Government during the pandemic to help small and medium-sized housebuilders struggling for cash due to the halt to construction work.

The £100m fund was intended to support businesses to a maximum of 25 per cent of their annual turnover, with fixed interest rates of 2 per cent per year. Repayment terms were also flexible, with the option for payments to be offset for 12 months. However, the loans were expected to be repaid within two years.

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In total, £1.85m was handed out to three companies, including the former owners of the Lundin Links hotel in Leven, Fife, Kapital Residential, which received £850,000 in August 2020. It was one of the largest awards made as part of the scheme.

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The company is no longer responsible for the hotel, which was ravaged by fire in August, with Fife Council beginning the demolition of the derelict hotel at the start of September.

Kapital Residential, which entered voluntary liquidation in June, owes £728,686. It is not clear whether the funds will be paid back in full to the Government.

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Other companies which were provided loans include Ladybank Homes Ltd and S Ewing and Sons which received £550,000 and £450,000 in August and December 2020 respectively. Ladybank Homes entered administration around August last year, with the Government owed £561,000 of the loan plus interest.

S Ewing and Son also owe more than the original loan amount, with £462,040 owed to the Government. It entered voluntary liquidation in March and it is not clear if either company will be able to pay back the money owed.

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The charred remains of the former Lundin Links Hotel before demolition started

The Government defended the decision to hand out the cash to the companies which later folded, claiming that “appropriate due diligence checks” were carried out, including a credit report and copies of company accounts and statements.

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A Scottish Government spokesperson said: “The SME liquidity fund was introduced in May 2020 to provide urgent support to smaller housebuilders during the pandemic when all non-essential construction work had to be halted. It supported 38 companies, ensuring homes could continue to be delivered despite the intense difficulties for the sector.

“Appropriate due diligence checks were carried out on all applicants, including a credit report, checking ownership and directors, obtaining a copy of the company’s accounts and bank statements, as well as information on existing lenders. Applications were turned around quickly, but with due care.

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“Applicants were obliged to demonstrate their business was not in difficulty prior to Covid-19, and cashflow documents were scrutinised to establish whether they had the ability to repay a loan. All borrowers entered into a contractual legal agreement to repay.

Around £2m of Covid-19 loans may never be paid back.
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“A very small number of companies awarded funding have fallen into administration and we await the outcome of the liquidator’s assessment of the businesses involved.”

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