£3.8bn of bounce back loans currently in arrears
145,000 bounce back loans (BBLs) worth £3.8bn are currently in arrears, with most of those at least 90 days overdue, new research has shown.
Purbeck Personal Guarantee Insurance submitted a Freedom of Information (FoI) request to the British Business Bank, which administered the government’s Covid loan schemes to support businesses during the pandemic.
The data showed that 29,087 BBLs are at least 30 days in arrears, equating to £714m, while 115,916 loans are 90 days or more in arrears, totalling £3.139bn.
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More than £47bn-worth of BBLs were taken out in total. Of these, nine per cent are currently in default, although this is down from 12 per cent in July 2022. The average defaulted loan size is £26,571.
The BBL scheme was introduced in May 2020, providing loans of up to £50,000. The loans were fully underwritten by the government, to encourage lenders to channel funds to struggling smaller firms as quickly as possible.
The quick approvals process and lack of risk for lenders meant the scheme was highly vulnerable to fraud. A report last year from the Public Accounts Committee estimated that £17bn paid out in BBLs is expected to be lost, of which £4.9bn is predicted to have been taken out fraudulently.
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Purbeck’s FoI request also extended to the coronavirus business interruption loan scheme (CBILS), which offered loans ranging from £50,000 to £5m to support mid-sized firms during the pandemic. Unlike BBLs, these loans were only 80 per cent guaranteed by the government.
£26.4bn was taken out under the scheme and less than two per cent of loans are currently in default, although this is a small rise from July last year when one per cent of loans were in default.
706 CBILS loans are 30 days or more in arrears, totalling £124m, while 1,288 loans are 90 days or more overdue, equating to £226m. The average amount owed is £175,000, up from £164,000 in July 2022.
The analysis also looked at the recovery loan scheme (RLS) – the government’s follow-on initiative to support businesses’ growth after the pandemic.
The data showed that businesses are typically borrowing £210,000 under the scheme which is open for applications until June 2024, and the average personal guarantee commitment made by business owners to secure a loan under the scheme is £472,000.
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21,109 loans have been taken out under the RLS, with a value of £4.45bn.
“The fractional reduction in BBL scheme debt levels and increase in CBILS defaults is not overly surprising given the economic environment,” said Todd Davison, managing director of Purbeck Personal Guarantee Insurance.
“The lower level of defaults in CBILS can be attributed to the 80 per cent government guarantee leaving 20 per cent of the responsibility of the business owner to pay back if the business fails. At Purbeck, we saw many CBILS applicants take personal guarantee insurance to mitigate that risk.
“What is very clear is that the RLS has provided a solution to those businesses seeking bigger amounts of cash but again this comes with a risk in the form of a personal guarantee. Most forms of business funding are now requiring personal guarantees from the owner/director to mitigate the risk.”
