Lenders warned to expect 60pc of bounce back loans to default
Up to 60 per cent of government-backed bounce back loans (BBLs) will never be repaid, lenders have been warned.
According to business processing and software provider Target Group, lenders need to “act now” to minimise the risk of defaults.
Interest will begin to accrue on the first BBLs from 4 May 2021. More than 1.3 million businesses have borrowed £40.2bn from the BBL scheme so far.
Read more: FCA reports rising liquidity in retail lending, but 4,000 firms are “at risk”
Although the government has said that it will underwrite those loans, Target pointed out that “there will be high expectations and scrutiny on lenders when it comes to managing the process around those bad debts”
“Lenders have been put in a difficult position by the BBL scheme,” said Mark Gilliver, business development director at Target Group.
“There is no doubt it’s important that the industry plays its part in helping to support UK businesses at this crucial time. However, the estimated losses in bad debts are stratospheric.
Read more: Government urged to introduce more long-term credit support
“A combination of legitimate business failures, fraud and organised crime is likely to leave the UK taxpayer picking up a hefty bill, and so the pressure will be on those lenders involved to show they are doing all they can to recover lost money and minimise those losses.”
Gilliver added that lenders need to “act now and ensure they have their ducks in a row when it comes to credit collections and other crucial operational processes.”
Read more: British Business Bank investigates Covid loan scheme fraud
