Thousands of law firms have collectively borrowed almost £700m through government Covid-19 support schemes – but many have never touched a penny of it.
Research from chartered accountants and business advisers Hazlewoods found that firms in the UK took £694m through emergency loan schemes in the first 12 months since their introduction at the beginning of lockdown.
This included £515m from the Coronavirus Business Interruption Loan Scheme and £179m from the Bounce Back Loan Scheme. A total of 6,561 loans have been provided to UK law firms, with a CBILS loan worth an average £319,000 and BBLS loans averaging £36,000.
The majority of loan applications were made in May or June last year, with a small spike in the autumn around many firms’ renewal period for professional indemnity insurance.
But while businesses responded quickly to the potential disruption and revenue losses from the pandemic, in practice many have barely needed to call on the money they borrowed.
Jon Cartwright, partner at Hazlewoods, said: ‘The legal profession has weathered the storm far better than expected at the start of the Covid-19 crisis. The backstop funding from the government provided much reassurance, albeit many firms have ended up not spending much or any of it.’
Full-service firms were likely to see an initial reduction in business, and those with a reliance on commercial property and family suffered either through a reduction or delay in work, he said.
Hazlewoods said a number of firms have also seen off potential trouble with their finances through VAT deferrals, rent holidays or reductions with landlords.
Cartwright added: ‘The option to borrow money easily and defer costs such as tax bills has given law firms a temporarily respite, but they will of course need to be paid back at some stage.’
The schemes involved the government covering the cost of fees and interest for the first year, with repayments then made at a low flat rate. The Treasury has stressed that loans need to be repaid, but the National Audit Office has warned that the government faces a potential loss of billions as up to 60% of borrowers may default on their loans.