Lenders lose £240m in Covid loan guarantees

UK banks and other lenders have lost more than £240m worth of guarantees due to mistakes made while distributing government-backed loan schemes during the pandemic.

More than 7,400 bounce back loans have had their 100 per cent government guarantee removed after lenders found errors in their own vetting systems. These included passing money to companies created after March 2020, and errors in the way that the lenders processed the loans.

The British Business Bank, which administers the scheme, told the Financial Times that “in many instances where lenders have found issues with their own processes, they have come to us proactively to request that the guarantee is removed from those loans affected”.

This suggests that many more guarantees maybe removed if other instances of lender error are uncovered.

Read more: How exposed are the Covid loan schemes to fraud?

According to the British Business Bank, the first pandemic loan schemes delivered £80.4bn of finance between May 2020 and the end of March 2021, then from April 2021 to 31 October the recovery loan scheme deployed over £1bn to smaller businesses.

In June, the Fraud and Error report from the public accounts committee of MPs and the department for business, energy and industrial strategy (BEIS) estimated that the bounce back loan scheme alone will cost the taxpayer £27bn in fraud or credit losses.

Last week, Lord Agnew resigned over Covid loan fraud, after it was revealed that the government had written off £4.3bn in fraudulently claimed Covid benefits. Lord Agnew said that total fraud loss across government is estimated at £29bn a year.

Read more: The ‘real returns’ on offer from P2P lenders and how they beat other assets