What this means for your company if you are repaying BBLS
It’s one of a director’s worst nightmares come true and it’s happening to more and more businesses all over the country.
Companies with outstanding or delinquent bounce back loans (BBLS) are receiving letters from their lending banks demanding repayment in full with the threat of further consequences if not.
A recent Freedom of Information (FOI) inquiry was submitted to the British Business Bank which administered the Covid loan schemes to help support businesses during the pandemic.
It revealed that 145,000 bounce back loans collectively worth approximately £3.8 billion are currently in arrears with most of those at least 90 days overdue.
Between 2020 and 2021, more than £47 billion worth of BBLS loans were taken out by companies.
Of those some 9% are currently in default which is a slight reduction on the 12% delinquency rate recorded in July 2022 while the average size of a defaulted bounce back loan is £26,571.
One of the vulnerabilities of the bounce back loan scheme was that it was set up with the emphasis on quickness and delivering funds to businesses who needed it rather than on the usual security and anti-fraud measures.
The government provided full underwriting to the loans of up to £50,000 to encourage swifter remittances but this meant that more businesses got accepted than would usually happen with regular due diligence.
The Public Accounts Committee issued a report in 2022 that £17 billion has been paid out in bounce back loans that is expected to be unrecovered, similar to our own estimates, of which £4.9 billion is predicted to have been obtained fraudulently.
Additionally loans obtained under the Coronavirus Business Interruption Loan Scheme (CBILS) which offered loans ranging from £50,000 to £5 million to support mid-sized firms during the pandemic. Unlike the BBLS these loans were only 80% guaranteed by the government which meant that lenders had more exposure to bad debts.
£26.4 billion was loaned under CBILS and currently 2% of all loans are in default which is a rise from the 1% recorded in July 2022.
According to the FOI inquiry, 706 CBILS loans are 30 days or more in arrears totalling £124 million while 1,288 loans are 90 days or more overdue which is equivalent to a further £226 million.
The average amount owed is £175,000 which is an £11,000 increase from £164,000 from July 2022.
Chris Horner, insolvency director with BusinessRescueExpert, said: “Banks can issue demands for full repayment if bounce back loan repayments are missed or if it comes to light that there was a breach of the terms of the loan in the first place such as over claiming on turnover to fraudulently obtain it in the first place.
“As well as demanding repayment, banks can also look to bring legal action which could lead to the winding up of a business or freeze any other accounts the company may have.
“This is why if your business receives a demand or if you feel that you might not be able to service your bounce back loan repayment or other debts in the near future you should get in touch with us.
“We might be able to offer some viable options to avoid these difficulties or handle them professionally but not if they have been left until the last minute and the wolf is actually at the door.”
This is why we offer a free initial consultation to any director or business owner who wants to discuss how they can protect and best prepare their business to survive some financial turbulence in the months ahead.
Depending on the unique circumstances and particular situation facing them there will be options available but the earlier they choose to get advice and implement decisions, the better their eventual outcomes will usually be.