Almost Two-Thirds of Bounce Back Loans Could Go Wrong, Government Says
Almost two-thirds of Bounce Back loans, designed to help small businesses survive Covid-19, may never be repaid, according to the government.
If so, it could mean the taxpayer will have to find more than £ 20bn to cover loans to small businesses that are in default.
The Bounce Back Loan Scheme (BBLS) offers private sector lenders a 100% state guarantee on low interest loans to small businesses. He has taken out £ 38bn of credit to 1.3m businesses to date.
Overall, the taxpayer faces losses of up to £ 23bn to date in bad debts across all of the state’s emergency coronavirus rescue programs.
Vulnerable to abuse
Yesterday it emerged that former British Business Bank (BBB) CEO Keith Morgan wrote to Business Secretary Alok Sharma in May, warning that the schemes risked wasting taxpayer money.
Mr Morgan said: “The program is vulnerable to abuse by individuals and organized crime participants.”
A draft review by PwC had classified the risk of fraud as “very high,” he added.
The BBB, which administers many government economic interventions, has issued official “reservation notices” expressing serious concerns about the BBLS and Future Fund before their launch.
In a formal notice of BBB concerns over BBLS, Morgan said imposing a flat 2.5% interest rate on all bounce back loans could strengthen the dominance of the big banks as the small competitors would be unable to compete.
Caroline Plumb, Founder of Small Business Loan FinTech Fluid, said: “The lack of credit checks, liability and an unmatched interest rate for businesses accessing the Bounce Back loan program have basically made it free money… personally I wouldn’t. extended the deadline to apply for a BBLS loan regardless of eligibility criteria. It just makes up a well-intentioned but flawed solution. “
Separately, Mr Morgan also questioned whether the Future Fund, which provided £ 720million via 711 loans, would offer ‘good value for money’.
Mr Morgan wrote that the best companies would be less likely to use the Future Fund because they would have already found investors.
“This will result in [the government] investment going to the second tier of businesses, which will likely result in higher associated loss rates, ”Morgan said.