Remember the story of King Midas?

The ancient ruler who wished that everything he touched would turn to gold, thinking it would be the greatest benefit ever but rapidly discovered that it was an incredible curse. 

There’s been a lot of other similar stories about gifts that have proven to be too good to be true and ultimately, a negative such as the Trojan horse. 

Sadly, for hundreds of small businesses it’s beginning to look like the bounce back loan scheme is going to join the list of items titled “be careful what you wish for”. 

A new Freedom of Information Act request to the British Business Bank, which administered the original bounce back loan lending scheme, has revealed that 193,000 small businesses are now in default on their repayments. 

This is up from 106,209, the last total available in September 2021. This is the equivalent of one in eight of the original 1.5 million borrowers that accessed the scheme during the pandemic lockdown. 

While it’s true that the majority of borrowers were meeting their monthly repayments, this is still a sizable fraction that will add up to millions of pounds not being recouped by the Treasury. 

Of the arrears, 151,000 are more than 90 days behind in their scheduled repayments which is usually a sign of serious financial difficulties. 

The loan scheme issued £47 billion of loans of between £2,000 and £50,000 from May 2020 to March 2021 with fewer checks and safeguards to expedite their issue.  

As the loans were ultimately underwritten by the government, lenders were able to suspend their usual procedures and safeguards but this has contributed to the estimated £4.9 billion of bad debt that includes fraudulent borrowing as well as unpaid arrears. 

The recovery has already come under scrutiny this year with the National Audit Office (NAO) describing the anti-fraud measures employed as inadequate with the only checks being introduced being to prevent multiple applications a month after the scheme was launched. 

In January this year, Lord Agnew of Oulton resigned from the government over what he called the “cack handed implementation and catastrophic follow through” of the efforts of the BBB and BEIS in recovering owed amounts. 

A spokesperson for the BBB said: “Over 85% of facilities provided across three Covid loan schemes (bounce back loans, the coronavirus business interruption loan scheme (CBILS); and the scheme for larger companies called CLBILS) have either been fully repaid or are meeting monthly payments as scheduled, as at end of March 2022.

“If borrowers have concerns about being able to repay their bounceback loan, they should approach their lender in the first instance to explore the pay as you grow options available under the scheme, or alternative arrangements where appropriate.”

Chris Horner, Insolvency Director with BusinessRescueExpert, said: “The greatest strength of the bounce back loan scheme – the ease of access – ironically might end up being its greatest weakness.

“As we’ve seen with the latest corporate insolvency figures from the Insolvency Service for June, the number of insolvencies and liquidations, especially creditor voluntary liquidations (CVLs) are rising – especially year-on-year. 

“Summer is usually a time of respite for businesses when customers and staff can go on holiday and give the directors some space to think about their next moves and the direction they want to take their business in.

“Well, this year, to accompany the record breaking temperatures causing misery we can add rising inflation, higher interest rates, falling consumer spending, energy bills about to rocket once more, global supply chain disruption and the conflict in Ukraine playing out with several unforseen knock-on effects. 

“A business that’s already having trouble with bounce back loan arrears will soon have a lot of additional worries to contend with, so they should use what time they have now to get some professional advice on what they can do to improve their prospects for the rest of this year and the future.”

We offer a free initial consultation to any business owner or director who’s concerned about the future of their firm and we’re struggling to remember a time when it could be so valuable given a set of circumstances converging all at once.

Once our expert advisors have a clearer understanding of the unique factors and situation of the business, they will be able to go through all the options available – that will probably be more than you originally thought you had, especially if your business is already having trouble meeting all your obligations. 

The sooner you get in touch and get advice, the quicker you will be able to activate your recovery plan – which could start today if you click the link above and book your session now!