Covid loan schemes will cause losses of around £20bn



New figures suggest that the government will lose less money than the three COVID loan schemes due to defaults or frauds in businesses.

An estimate by the Department for Business, Energy and Industrial Strategy (BEIS) found that of the £66.5 billion lent under the three schemes, around £19.8 million could be lost.



The data only runs as of March this year, and more than £10 billion was lent before the closure, so the final lost figure is likely to be slightly higher.

That’s a huge amount, but far behind earlier estimates that put losses on loans made in March between 35% and 60% – or about £23 billion to £40 billion.



While it is too early to give a definitive view about the ultimate level of default, this latest data suggests that the current levels of failure to repay are lower than some of the worst-case scenarios presented before repayment begins.British Business Bank

Some of the loss will be due to fraud and erroneous payments. Concerns were high over the Bounce Back Loan Scheme (BBLS), which funneled £46 billion to smaller companies by March.

To expedite payments from the scheme, lenders had to do nothing but the most basic checks before handing over money to companies. In the end, more than a million businesses took out bounce back loans.



The loose checks made many concerned that fraudsters could target the scheme in large numbers.

The government estimates that between £3.6 billion and £6.3 billion of debt could be destroyed due to fraud and error.

“Most of these expected losses arise from borrowers defaulting on loan repayments due to legitimate reasons, but the department has also taken into account the estimated losses due to frauds in BBLS,” the department said.

“It recognizes that the risk of fraud is significantly higher than the other two loan schemes due to the design of the scheme and the speed at which loans were issued through this scheme.”

It has worked with the Insolvency Service, Company House, other departments, banks and local authorities to track down the scammers.

This work is expected to continue for many years. Authorities have already made more than 65 arrests and recovered £3.5 million as a result.

According to the British Business Bank, which operates the scheme, about 4% of bounce back loans have been paid in full, meanwhile 2% have defaulted.

More than a fifth of businesses have opted for an option that lets them pay off their loans at a slower rate.

Only half a percent of loans have defaulted on two other schemes, CBILS and CLBILS.

British Business Bank said: “While it is too early to give a definitive view of the final level of default, this latest data suggests that the current risk of failure to repay is comparable to some of the worst-case scenarios presented before repayment begins.” Level is low.

“These levels are, however, subject to any change in market conditions or individual circumstances, and will therefore be expected to fluctuate in the future.”

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