The Bounce Back Loans Scheme: What Will Happen in 2021
The Bounce Back Loans Scheme(BBLS): the most popular support scheme launched by the Government to assist UK businesses because of the impact of the Covid-19 pandemic. 1.4 million businesses, small to large, have taken out loans totalling over £43 billion. The loans, interest-free for the first 12 months and then low-interest for the remaining duration, initially launched in April 2020. The maximum loan amount was £50,000 based on company turnover, however, some have commented on how the loans have loose qualifying criteria.
As soon as BBLS was launched, there were reports of fraud, with some financially stable businesses taking out Bounce Back Loans to pay off existing loans and credit. The Financial Conduct Authority (FCA) has highlighted further problems facing businesses who have taken out Bounce Back Loans to support their business through the pandemic.
In June 2020, the FCA warned that the BBLS would see many businesses struggling to pay back the emergency loans and that these loan lenders should be prepared for this. The Credit Services Association (CSA) also raised similar concerns about legitimate businesses possibly facing difficulty recovering from the pandemic and paying back what is owed. They even warned about the possible further issues which could be caused if these businesses fall into arrears.
The FCA has consulted with debt collectors, loan providers and banks to create guidance for how best to assist businesses who cannot repay their loans. We expect guidance to include a recommendation to these loan providers to offer a ‘pay as your business grows’ plan. This will extend the terms of the original BBLS agreement or offer flexible, monthly instalments, which increase a rate suitable to the companies developing turnover and profit.
The FCA guidance will also highlight the existing rules created to ensure firms are treated fairly and appropriately if debt collection is required. An FCA spokesperson said: ‘the current rules are not changing, however, it is of importance that those firms involved in debt collection and debt recovery activity are aware of the expectations of the FCA in respect of the collection of emergency Government loans.’
The official new guidance is expected to be published next month regarding the Coronavirus Business Interruption Loan Scheme and the Coronavirus Large Business Interruption Scheme. These schemes offered the following loans:
- Up to £5 million to companies with a turnover of up to £45 million
- Up to £25 million to companies with a turnover between £45m and £250m
- Up to £50 million to companies with a turnover greater than £250m
However, the CSA takes an alternative approach as the governing body of the UK debt collection and debt recovery sector. While the FCA is approaching debt collection of emergency loans as a last option, the CSA isn’t taking the same stance. The CSA highlighted in its latest report that the Government could recover an additional £6 billion by instructing debt collectors to collect BBLS arrears.
The CSA report also states that well established and professional debt collection firms should be appointed to control the BBLS recoveries, with a consistent standard of engagement implemented to achieve best practice. The report also presents the Office for Budget Responsibility’s estimation that the bill for defaults and fraud combined could be as high as £29.5 billion.
The Buy Back Loan Engagement Scheme
The CSA has proposed creating a Buy Back Loan Engagement Scheme, which could help cut the deficit. The scheme’s cost is estimated to be at £10 million per year for the first three years. However, the potential return to the Exchequer could range from £3 billion to £6 billion during the first three years.
This proposal from the CSA suggests that the FCA’s mis-sold PPI deadline campaign (reported to have cost £42 million) is an excellent example of the possible return on investment of the Buy Back Loan Engagement Scheme.
The co-author of the report said: ‘with the vast scale of the BBLS in both the millions of businesses that have taken out a loan and the billions of taxpayer pounds loaned out, there is a responsibility on the Government and its minister to ensure that there is an appropriate and effective approach to recovering BBLS debts…to put the additional £6 billion into perspective, for the taxpayer it is equivalent to the annual budget for building new NHS hospitals.’
If you want to recuperate any loans owed to you and prevent debt issues before they occur, then get in contact with us today. Not only do we excel in debt recovery, but we can help implement simple credit control procedures to minimise bad debt problems before they occur. To speak to our debt collection team about recovering money for your business, contact Iain Bould on firstname.lastname@example.org or Tracy Popperwell email@example.com.