Defaults expected

Unpaid Covid loans ‘likely to exceed fraud loss’

Blair Milne: warning

Firms may default on as much as £20 billion in loans received via government-backed schemes during the pandemic, according to a restructuring specialist.

The estimate of potential losses from unpaid loans would eclipse the £4.3bn that may have to be written-off by the Treasury due to fraud.

A quarter of UK businesses received £73.8 billion in loans via banks, building societies and other accredited lenders and the Department for Business, Energy and Industrial Strategy estimated last year that 37% of Bounce Bank Loans (BBL) – about £17.5bn – may not be repaid.

But Blair Milne, head of restructuring with Azets in Scotland, said it could go higher, far exceeding the amount lost to fraud.

“We believe that, across the UK, as much as £20bn of all CBILs [Coronavirus Business Interruption Loan Scheme] and BBLs loans will become defaulted in some shape or form,” he said.

By the end of September 2021, the state-owned British Business Bank, which oversees the schemes, disclosed that £2bn worth of loans had been repaid, however £1.3bn worth of loans were in default. In Scotland alone, more than £4.1bn has been loaned to around 100,000 businesses, of which more than £1 bn is likely to go into default, according to Azets.

Azets points out that whilst the loans are government-backed – 80% for CBILs and 100% for BBLs – and the debt is due to the lender, late or non-payment will ultimately be pursued and investigated by HMRC.  Blair Milne cautioned worried business owners and directors to communicate early with their lenders and HMRC, and to take advice:

“Ignoring the loan repayment demands, or only making partial repayments will simply escalate the problem with all the risks that can bring in terms of the penalties and actions available to lenders and to HMRC,” said Mr Milne.  

“The government is under immense financial pressure and will be pursuing the repayment of these loans whatever their status, be they fraudulent or in default.  If struggling to meet loan repayments the best course of action is to tackle the issue sooner rather than later.”

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