What is the scale of the fraud?
As more evidence of bounce back loan fraud is uncovered by various sources, adding to the total amount to be recovered, a new report commissioned by the British Business Bank reveals that 45% of borrowers didn’t need the funds at the time – but still took advantage of the scheme to obtain them anyway.
The report also found that between 38% and 45% of respondents would not have sought any additional debt financing if the bounce back loans were not 100% guaranteed by the government.
Instead many used the funding to “become more resilient against future risk” rather than use it to fund immediate business expenditure or for legitimate business expenses such as staff wages, investment or to pay bills. Taking advantage of the cheap and relatively easily available loans became a viable option for many companies, even if they were not facing immediate threat.
The survey found that “one threat to the value for money of the schemes arose from the removal of measures to target the loan guarantees at businesses whose survival or stability was threatened by the Covid-19 pandemic.”
It said the findings suggested that “the removal of targeting measures has led to the public sector assuming the default risk of lending to a large number of businesses that may not have needed support to survive the pandemic.”
This came with the caveat that this meant that companies that did take out bounce back loans would be more likely to pay back the money than previously expected which would have a positive effect on default rates.
While previous official estimates have suggested that overall fraud and default losses could reach as much as £5.5 billion, the report said it was “still too early to fully assess the level of defaults and fraudulent claims.”
A spokesperson for the British Business Bank said: “Had lenders conducted their standard checks on such a volume of applications, it would have created an extensive backlog with smaller businesses waiting significantly longer for a loan during which period the survival of the business may have been at risk.”
Although the report stated there was “mixed evidence that the survival of many borrowers was contingent on the level of acceleration of lending decisions achieved” which could also raise questions on why more stringent checks weren’t applied to weed out fraud.
The report singled out one lender – Greensill Capital – for “irregularities noted in the lending decisions” based on allegations that they abused the lending scheme on behalf of larger companies.
Meg Hillier MP, who heads the Commons public accounts committee, said that chasing bounce back loan fraud is “a good way of spending taxpayer money” and worth the investment not only in order to claw back improperly obtained money but also as a “deterrent effect” to make criminals think twice before targeting any future government schemes.
The National Audit Office (NAO) continues to monitor the efforts of the various agencies tasked with recovering the outstanding bounce back loans that are due including the National Investigation Service (Natis).
Natis received £6 million from the government to fund their work, despite asking for £39 million over three years. The NAO have said they found this decision “baffling” given the government has already said that for every £1 invested in Natis, it would recover £8 for the taxpayer.
The agency has its hands full already – by October 2021 it had received more than 2,100 intelligence reports but had previously only been able to process approximately 50 a year.
More evidence is being uncovered about the scale of fraud that the generous bounce back loan offer attracted.
Recent research from a fraud data company, Synectics Solutions, based on the anonymous records of two major lending banks found that nearly half, 45%, of applications were from businesses that showed no evidence of trading at all, before or after March 2020. Additionally, 6% of cases showed evidence that raised “concerns the money may be syphoned off to the other companies”.
Another ongoing issue is the fragmented approach to fraud enforcement and who is responsible for investigating fraud. Currently there are at least 16 agencies, not including police forces, across government nominally responsible for detection and enforcement including the local and regional police forces, Natis, the National Crime Agency and the Insolvency Service.
After the resignation of Treasury minister Lord Agnew earlier this year in protest at perceived lack of action on fraud, the chancellor announced the creation of the Public Sector Fraud Authority with a budget of £25 million of new funding which will launch in July.
The data analytics experts and economic crime investigators at the authority are expected to help existing agencies rather than launch their own investigations and prosecutions.
Lord Agnew is keeping up the pressure to do more on recovering outstanding fraudulent bounce back loans. He is working with a group called Spotlight on Corruption which is currently taking the British Business Bank to a tribunal, which Lord Agnew said he would attend as an expert witness, that would compel it to release the names of all bounce back loan borrowers. The bank is refusing saying it would harm commercial interests.
He said: “This mishandling is going to remain in the public domain for years, with anyone associated with it shredded by a thousand humiliations.
“Someone with some courage in government needs to do the right thing and open up the data. It will force the pace and make things happen.”
The British Business Bank has also recently confirmed through a Freedom of Information request that the overall default rate on bounce back loan and CBILS repayments was just over 2%.
This was based on 2,000 of 97,000 loans already defaulting on repayments after the first few months of eligibility.
Further analysis showed that the construction industry had a default rate of 2.5% which was the highest sector with a total amount of defaults estimated to be at £350 million so far.
The BBB also estimated that without the bounce back loan scheme and CBILS then anywhere between 500,000 and 2.9 million jobs would have been lost.
They said that between 146,000 and 505,000 businesses – a third of the total number of borrowers – that took out bounce back loans would have failed without the support.
An additional 5,000 to 21,000 companies that took out CBILS loans aimed at larger companies would also have gone out of business.
Catherine Lewis La Torre, CEO of the British Business Bank, said: “The Covid-19 emergency loan schemes were designed to address a drastically altered economic landscape for smaller businesses as lockdowns took effect.
“This evaluation is the first indication of just how important those schemes were in saving livelihoods, businesses and hundreds of thousands of jobs, and we are proud to have played a vital role in their delivery.”
Chris Horner, insolvency director with BusinessRescueExpert, said: “The bounce back loan scheme was especially effective for some businesses in getting access to funds quickly that were essential to their survival.
“Unfortunately, with such a large scheme and with the size of the funds involved, it was always going to attract dishonest actors and it’s a shame that more wasn’t in place to detect them and make it harder for them to obtain money they weren’t entitled to.
“Now all businesses are having to make repayments, the economic landscape is a lot tougher than most would have imagined during lockdown and they will cause real difficulty to service for a lot of companies across many industrial sectors.
“Interest rates are up and approaching double figures for the first time since the early eighties, costs everywhere are rising, customers are being squeezed, weakening demand and for many a repayment might just be one bill too far.
“This is why we offer a free initial consultation to any business owner or director that is facing difficult choices right now to help them find a way through this difficult period for everybody.”
Hope is a great virtue to have when running a business but it’s not a sustainable strategy.
If you have time to get some professional advice on how to improve the prospects of your company in the next few months then use it wisely and get in touch with us.
An experienced advisor will quickly understand your situation and then work with you to identify the best options that you could have to make the necessary changes beginning right away.
You will then have the confidence to continue down this path – but only if you take the vital first step of making that call first.