Bounce back loan warning: Business & self-employed defaults may cost £27bn – what to do | Personal Finance | Finance

Rishi Sunak launched Bounce Back Loans (BBL) in early 2020 and while this support was designed to primarily help small businesses, Martin Lewis confirmed the self-employed could also benefit. The Money Saving Expert received written confirmation from the Treasury that the loans from BBL could be used to support “usual income” and this could be used to help individuals who had “fallen through the cracks” of SEISS.

The BBL scheme allowed eligible claimants to borrow between £2,000 and £50,000 to help them through the pandemic.

The loans would need to be paid back to the Government and in early February Hm Treasury confirmed businesses who took out a loan would be awarded greater flexibility to repay their debts.

Rishi Sunak laid out “Pay as You Grow” repayment flexibilities which included the option to delay all bounce back loan repayments for a further six months, meaning businesses can choose to make no payments on their loans until 18 months after they originally took them out.

However, despite the Government’s efforts new research from Business Rescue Expert warns default costs could soar.

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Following this, Business Rescue Expert looked at repayment projections from various official data sources such as the Office of Budget Responsibility, the Department for Business, Energy and Industrial Strategy and the National Audit Office.

All of these sources argued a “significant portion” of the BBL loans lent out will ultimately not be repaid and will have to be written off.

The Office of Budget Responsibility’s Fiscal Sustainability Report warned around 40 percent of all BBL borrowers would default on their loan agreements, with the Department for Business, Energy and Industrial Strategy putting the figure between 35 and 60 percent.

The latest estimates predict that up to £5billion will be written off collectively between the main loan schemes including BBL.

In using these predictions as benchmarks, Business Rescue Expert envisaged three different scenarios that could play out.

To illustrate the size of the sums that could be written off, they were compared to the most expensive building ever built in the UK, the new Wembley stadium, which adjusted for inflation cost around £1.2billion.

These scenarios, based off HM Treasury coronavirus business loan scheme statistics accessed in late March, are as follows:

  • Best case: Amount written off: £3.9billion, total BBL defaults: 229,624, number of Wembley stadiums: six
  • Median case: Amount written off: £18.6billion, total BBL defaults: 612,438, number of Wembley stadiums: 16
  • Worst case: Amount written off: £27.9billion, total BBL defaults: 918,657, number of Wembley stadiums: 23

Chris Horner, an Insolvency Director at Business Rescue Expert, commented on these findings: “The figures illustrate not only the size of the support measures that were available to businesses to borrow during the pandemic lockdown but also the potential cost if they can’t be repaid.

“In the first quarter of this year alone, over 42 percent of the liquidation cases we’ve handled had taken out a BBLS, and the average amount borrowed averaged £37,500 per company.

“As the first loan payments for the BBLS come due, businesses will have to seriously look at their ability to pay and their calculations might have been affected by not being able to reopen earlier than this month at best.

“Businesses that have topped-up their initial BBLS loan will also find out that not only are they unable to defer these payments, but they’ll come out at the same time as their original loan repayments – an unwelcome and expensive surprise.

“The most important thing we can is to remind business owners and directors that there are options available for them. If they get professional advice and quickly then they could yet find a way out of a seemingly impossibly tight situation. Ignoring it is only guaranteed to add to their problems.”

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