Bounce Back Loan default fears ease

According to an early assessment of repayment data, defaults on emergency COVID loans look set to be lower than preliminary government figures initially predicted.

Bounce Back Loans were designed to provide small firms with quick access to funds in order to help them survive the COVID-19 crisis. As a result, a streamlined application process meant relatively light checks, thereby making them susceptible to fraud and default. This led to warnings that 35% to 60% of borrowers could default, with the Office for Budget Responsibility estimating that the scheme could cost the taxpayer up to £19bn.

However, recent analysis by officials and bankers, based on the first few months of debt servicing, found that only 5% to 10% of businesses have so far missed repayments. This implies that up to £5bn of loans are at risk of not being repaid.

Although some bankers fear that the government’s ‘pay as you grow’ scheme may have pushed back the worst of the problems, it would appear that a stronger than expected economic recovery has helped many firms regain their financial independence. Indeed, a recent Paragon Bank survey found that over half of SMEs are now meeting or exceeding their pre-pandemic turnover, with nine in 10 positive about their post-COVID recovery.