UK banks are gearing up to 40 per cent (circa £11bn) of loans from the Bounce Back Loan Scheme (BBLS) to potentially be written off as irrecoverable according to RSM, and all this at the expense of the taxpayer.
Banks are already preparing and building their teams to pursue businesses that default on the BBLS, a scheme established by the Government in April to enable smaller businesses to access finance more quickly during the Coronavirus outbreak. The taxpayer-backed scheme allows borrowers to self-certify their eligibility and need for loans of up to £50,000; 100 per cent guaranteed, and; with no fees or interest payable for the first 12 months.
Since March 20, over 1 million UK businesses have borrowed nearly £43bn in Government backed loans (£29.5bn of which came through the BBLS), a figure which excludes any ‘normal’ commercial loans from funders. It also excludes HMRC deferred payments; arrears of rent; and any build-up in trade debts which have been necessary to ride out the crisis.
RSM has voiced concern over what it calls a ‘ticking time-bomb’ of Bounce Back debt waiting to go bad from Q2 2021. The incurred debt will turn out to be unaffordable for swaths of businesses who turned to the loan but only as a means of prolonging the inevitable.
Gareth Harris, partner at RSM Restructuring Advisory LLP, comments: ‘This is neither a matter of if or when. The banks are readying themselves because they already know that this will form one of next year’s problems. If the estimated rate of default materialises then we will see somewhere in the region of £11 billion written-off in BBLS alone. And because they’re 100 per cent Government-backed, this will all land on the taxpayer’s lap. What will be a particularly bitter pill to swallow is that between 10 to 15 per cent of the portion that’s due to go toxic will have been down to fraudulent applications.’
This latest news comes on top of figures for 2019 which suggested that UK corporate net debt had risen for the eighth year in a row; some 70 per cent higher than the low point in 2011; and with most of this increase in the period 2016-2019.