Bounce Back Loan fraud lower than estimates, says Equifax

Fraudulent use of the Bounce Back Loan Scheme may be lower than previously thought, according to data analysis conducted by Equifax.

The Bounce Back Loan Scheme (BBLS), which launched in the wake of the pandemic in April 2020, has lent out more than £46.5bn of government-backed cash to pandemic hit businesses before starting to be wound down last month.

Early expectations were that much of this would eventually be written off through default and/fraud. Figures quoted in October last year put the figure of potential losses, including defaults at up to £26bn.

However, according to Equifax’s data analysis, companies that apply for multiple government-backed loans to exceed the £50,000 lending caps, could be far lower than anticipated.

It said 0.3 per cent of companies making use of the scheme have taken out total loans in excess of the £50k cap, with only 0.4 per cent in total securing facilities with multiple providers. 

In addition, just 12 per cent of businesses with a Bounce Back Loan are consistently spending more money than they are generating each month. The majority do however continue to dip in and out of month to month balance sheet health.

Only 2 per cent of businesses were consistently in positive financial territory across an entire six-month period and just 24 per cent have positive net cash flows in four or more months. 

Andrew Fielder, Commercial Lending Expert at Equifax UK, said: “Despite some speculation over the misuse of the UK government’s BBLS, a look under the lid shows levels of fraud are likely to be significantly lower than feared.”  

“Clearly any amount of fraud is too much and the full extent of losses won’t be known until borrowers begin repayments in early May, but data suggests that lender checks have stopped the most egregious cases at the door. It’s extremely encouraging to see the scheme is working as intended, helping otherwise viable companies hit hard by COVID-19 restrictions to stay afloat.”

The outlook for many companies still remains deeply uncertain, though he warns.  

“There are choppy waters to navigate ahead as the economy emerges from lockdown restrictions, and big data insights will continue to prove vital in shedding light on the health of the evolving business credit market.”