Business banking protections unavailable for bounce back loan borrowers?
The all-party parliamentary group (AAPG) on fair business banking rightly raises the point that business lending in the UK is unregulated, with no guaranteed protections from the Financial Conduct Authority (FCA) that personal borrowers would enjoy.
They would like to see the government introduce laws that could provide protection for small and medium sized businesses that borrow and give them some leverage in a court or a tribunal.
Kevin Hollinrake MP, Chair of the APPG, said: “The conversation is important now because of the huge amount of business debt just taken on during the Covid crisis.
“Some companies will inevitably default on their loans, triggering a chase by debt collectors. In many cases that will be done well and fairly but in other cases will be done not very well, and very unfairly.
“What we’ve learned from history is that we don’t learn from history. I could see this going wrong again.”
The FCA had to remind borrowers recently that the Recovery Loans Scheme, the replacement for the bounce back loan scheme that ended on March 31st 2021, was unregulated.
The APPG have proposed a series of “health warnings” on loan agreements since they believe that most small and medium sized businesses don’t understand the risks involved.
Only businesses with an annual turnover of £6.5 million or less have leave to appeal to the Financial Ombudsman Service if they believe they have been unfairly treated.
Some borrowers may have recourse to take their case to the relatively new Business Banking Resolution Service but this is a voluntary body with just seven lenders signed up and has itself been criticised for its eligibility criteria.
Without this legal protection, many businesses are instead relying on internal corporate policies and voluntary codes, neither of which hold much weight in a court of law.
Bounce back loan lenders have pledged to treat their customers fairly and may do their best to avoid triggering government guarantees while seeking to reclaim the owed amounts but the next few months will see them under increasing pressure from boards and shareholders to recover as much as possible.
Once the suspension of the use of winding up petitions and subsequent enforcement is lifted at the end of June, this will only increase the pressure for borrowers.
Chris Horner, insolvency director with Business Rescue Expert said: “Lenders will be keeping a close eye on bounce back loan repayments right now as the first installments become due for millions of borrowers.
“Yes, the loans were guaranteed by the government but this is a last resort for the lenders rather than a first resort.
“They will have to show that they’ve exhausted every avenue of recouping the funds available to them including legal measures.
“If you’ve borrowed under the bounce back loan scheme and either know for definite or are pretty sure that you’ll be unable to make your first repayments then you should get some professional advice before your lender gets in touch – which they soon will.
“These companies may have options available to them, including closing down, but they have to act right now.”
Nobody sensible sets off on a journey without a final destination in mind or directions on how to get there so why do so many businesses with financial challenges try to save themselves without them?
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We’ll go through all the issues facing you and give you some realistic and timely solutions that you can begin to implement straight away.
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