In October, the National Audit Office (NAO) warned that the Bounce Back Loan (BBL) scheme could result in significant losses to the UK government.
The BBL was introduced in April 2020 to provide loans (up to £50,000) to small businesses during the pandemic to help their financial health. The British Business Bank (BBB) reported approximately £40bn to have been lent under this scheme at 22 October 2020, which is higher than the £18bn – £26bn anticipated at the scheme’s launch.
Businesses are expected to repay the BBL debt in full with failure to repay affecting credit scores and the ability to borrow in the future.
The National Audit Office has predicted that up to £26bn may be lost from the BBL with an estimated 35-60% of borrowers failing to pay back the loans as a result of default, fraud or organised crime.
Currently, BBL funds are distributed through commercial lenders, such as banks and building societies, and the government provides a 100% guarantee. If businesses fail to repay in full, the government will compensate the lender.
For many existing businesses applying for the BBL, most lenders approve loans within 72 hours as the eligibility criteria is less stringent than with other government-backed loan schemes. As a result, many business owners received quicker access to funds to support them during the pandemic.
The true extent of the losses, both credit and fraud, will not be clear until May 2021, when the loans are repaid. As business owners self-certified their applications and no credit checks were carried out, the NAO opines that there is an increased likelihood that business loans will not be repaid, leading to a loss of taxpayers’ money.
The NAO and the BBB have also identified a “very high” level of fraud risk caused by the lack of initial credit checks, as well as duplicate applications, lack of legitimate business and organised crime.
With the recent extension to the various COVID-19 loan schemes as part of the Winter Economy Plan, and the introduction of the “pay as you grow” scheme to give borrowers more flexibility with repayments, the government are looking to implement robust fraud investigation and debt collection arrangements in place to minimise any future impact to the taxpayer.
Three people have recently been arrested after investigations into alleged fraud linked to BBL funds, marking the first of the authorities’ steps taken to crack down on fraud linked to government-backed COVID-19 financial assistance. It is anticipated that more such arrests will take place as government attempts to limit the scheme’s exposure to risk.
If you have utilised one of the government’s loan schemes and would like assistance with cash flow management or tax advice, then please get in contact with our team.