Taxpayers could lose up to £26bn due to BBLS fraud and defaults, says watchdog

By John Reynolds on Wednesday 7 October 2020

Alternative Lending

The National Audit Office has raised questions about government estimates on how many businesses will default on the loans.

Taxpayers could lose up to £26bn due to BBLS fraud and defaults, says watchdog
Image source: British Business Bank logo/British Businesses Bank

Taxpayers might lose up to £26bn due to fraud and defaults on the Bounce Back Loan Scheme (BBLS), a spending watchdog has warned.

Concerns have been raised by the National Audit Office (NAO) about the BBLS, the government-backed emergency loans scheme designed to aid struggling small businesses hurt by Covid-19 with loans of up to £50,000.

Starling Bank and Tide are two fintechs which offered loans under the scheme, though both encountered problems with the scheme. In July, after hitting its £50m lending cap, Tide was unable to raise additional capital to keep lending and shut its scheme. Starling, meanwhile, faced a backlash after it stopped accepting new sole trader business accounts.

Treasury figures show that over £38bn has been approved for 1.3m small businesses under the BBLS, as of 20 September.

The NAO says that assuming the BBLS ends in November with £43bn of loans “this would imply a potential cost to government of £15bn to £26bn”.

“However, actual losses may differ from those forecast and indications of the extent of credit losses and fraudulent applications will not become apparent until borrowers are due to start repaying their loans,” the report adds.

The NAO said the government’s preliminary estimate that up to 60 per cent of borrowers may default on the loans was “highly uncertain”.

The report has come out just weeks after the government extended the deadlines for applications for coronavirus loans including BBLS by two months to the end of November.

The British Business Bank, the government-backed bank, is responsible for organising the BBLS scheme and other government emergency funding schemes.

The NAO added that the BBLS had "succeeded in quickly supporting small businesss".

 

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