Defaults on the government’s Bounce Back Loan scheme are set to total up to £5bn – much lower than the previous tens of billions expected.
The estimates from officials and bankers come from an assessment based on the first few months of debt servicing. So far, it shows that between five per cent and ten per cent of SMEs that used the Bounce Back Loan scheme have missed out on repayments.
Bankers said that the expected recovery from Covid-19 helped companies regain their financial independence. One banking executive said that five per cent were already repaid in full on the date that the 12-month interest-free payment ended, saying that not all of the loans were taken out of desperation, but out of caution.
However, some bankers feel they could have pushed back the worst of the issues through its ‘pay as you grow’ scheme, offering repayment holidays of up to six months as well as extended loan terms of up to ten years.
Last year the government predicted that between 35 per cent and 60 per cent of borrowers would default. In December, the Office for Budget Responsibility (OBR) estimated that the guarantees behind the Bounce Back Loans would cost the taxpayer as much as £19bn. Under the loan scheme, banks could offer state-guaranteed loans of up to £50,000, leaving the taxpayer to cover all of the losses.
As all of the loans came with a 90-day repayment period, banks will have to start reassessing early defaults in their portfolios over the weeks ahead as repayments on first borrowings came to an end in June.
Due to it being emergency funding, companies accessed bounce back loans through applications with limited checks to get money processed as quickly as possible. Bankers say that default estimates for emergency Covid loan schemes that had more thorough check were much lower. They said that the fraud rate for CBILS aimed at larger companies was less than one per cent.
Officials said they didn’t have figures showing how many fraudulent loans made up the £5bn.