Banks will get tougher on businesses that default on Bounce Back Loan repayments as the Government strips 100 per cent guarantees from questionable lending decisions.
More than £240m worth of guarantees has been stripped from UK banks owing to mistakes that allowed fraud and error to take place under the Bounce Back Loan Scheme, according to the Financial Times.
The banks themselves reported errors in their own vetting systems, which has led to the Government removing the guarantee from more than 7,400 Bounce Back Loans worth more than £240m.
MPs have called for fresh efforts to reclaim money from fraudsters that was illegally extracted from the system, which offered loans of up to £50,000 with only light checks applied and a full Government guarantee which would repay the lender.
Anti-fraud minister Lord Agnew resigned last week because of his frustration at what he saw as the lack of oversight and errors that have led to large-scale fraud in the Government’s Bounce Back Loan scheme, whish lent £47bn to more than 1.1m businesses during the pandemic.
In his resignation speech, Lord Agnew claimed that the taxpayer had already paid out £1bn to compensate banks for loans in default, with 26 per cent of that estimated to be because of fraudulent loan applications. And that was just the start, he said.
However, the British Business Bank said Lord Agnew was inaccurate. Banks may have claimed for about £1 billion, but they have received only £70m in Government guarantees, it told the Sunday Times.
A more nuanced point is that because banks are only allowed to ask the BBB for compensation every three months, with the first deadline having been in December, the 26 per cent fraud figure might be the highpoint because fraudsters are likely to default first.
And, given that the first loan repayments were due to start last May, most of the defaulting fraudsters may be known already.
PwC originally estimated that 11.1 per cent or £4.9bn worth of Bounce Back Loans would go bad. The accountancy giant has subsequently revised that down to 7.5 per cent, reducing taxpayer money at risk to about £3.5bn.
Martin McTague, national vice-chair of the Federation of Small Businesses (FSB), said that early indications are that repayment rates are good in the round but clearly not every case of a business taking out a bounce-back loan and then going bust suggests illegality.
As for banks taking a tougher approach with defaulters whose guarantees have been withdrawn, McTague warned that memories were still fresh as to how badly some banks behaved in the aftermath of the 2008 financial crisis, when banks unexpectedly called in loans.
McTague said: “The banks will be aware of the reputational risks of unfair treatment of small business customers, with memories of the global financial crisis and its aftermath yet to fade.”