Treasury’s £4.3bn fraud write-off likely to be eclipsed by £20bn defaults on Covid loans as CBILs and BBLs go unpaid

Tuesday 08 February 2022 10:24

Rishi Sunak is under scrutiny as more than a third of businesses surveyed said they were unlikely to be able to repay loans taken out during the pandemic.

The £4.3billion in Covid loans which may have to be written off by the Treasury due to fraud and highlighted by the recent resignation of Lord Agnew, could be overshadowed by companies failing to repay their loans from CBIL and BBL Covid support, industry expert warns.

£73.8bn has been lent under the above schemes to around a quarter of UK businesses by banks, building societies and other accredited lenders, said Duncan Swift, a restructuring partner and insolvency at Azets in London.

This includes more than 1.5m bounce-back loans, worth £47.4bn, where companies have been loaned up to £50,000, or a maximum of 25% of turnover. annual business, with the government guaranteeing reimbursements.

Swift said AM City support schemes are widely believed to have helped many businesses survive the challenges of the pandemic.

However, concerns have grown over potential losses and fraud within the Bounce Back Loan program in particular.

In 2021, the Department for Business, Energy and Industry strategy estimated that 37% of BBLS, or around £17.5 billion, may not be repaid, mainly because the companies affected do not would not survive in the longer term.

In late September 2021, the state-owned British Business Bank, which oversees the schemes, revealed that £2bn of loans had been repaid, but £1.3bn of loans were in default.

Swift warns that the value of defaulted loans is highly likely to far exceed the amount written off due to fraud.

“A substantial and growing number of businesses are already struggling to repay their CBIL or BBL loans,” he said, adding that “businesses and especially SMEs have had to endure two exceptionally difficult years and so many have closed, many of those who persevered only managed to survive thanks to loans and other government-supported interventions, such as furloughs.

“Up to £20bn of all CBIL and BBL loans will be in default in one form or another.”

Duncan Swift

“The CBIL and BBL loan facilities came to an end in March last year which, coupled with the end of local authority and Furlough grants, will cause serious cash flow and liquidity problems for more and more more businesses,” he continued.

“While most business owners have no intention of committing fraud, an increasing number are finding that their business does not have the assets, cash, or revenue to meet the requirements and deadlines for repayment of loans. Although banks have been instructed to be flexible, one way or another the loans will have to be repaid,” Swift added.

While the loans are guaranteed by the government – 80% for CBILs and 100% for BBLs – and the debt is owed to the lender, any delays or non-payments will ultimately be pursued and investigated by HMRC.

Swift warns worried business owners and directors to contact their lenders and HMRC quickly.

“The government is under immense financial pressure and will continue to repay these loans regardless of their status, whether they are fraudulent or in default,” he concluded.

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