A NEW financial headache could be on the cards for the treasury, over fears that companies could fail to repay their covid support loans.
This is the warning from Duncan Swift, Partner, Restructuring and Insolvency with Azets in London and the South East. The company has offices in Reading and Newbury.
It follows on from the resignation of Lord Agnew after it was revealed £4.3bn of covid loans are already expected to be written off for fraud.
Mr Swift said that the government had loaned £73.8bn to around a quarter of UK businesses by banks, building societies and other accredited lenders. This includes more than 1.5m Bounce Back Loans, worth £47.4bn, where businesses were provided with a loan of up to £50,000, or a maximum of 25% of annual turnover, with the government guaranteeing the repayments.
In 2021 the Department for Business, Energy and Industrial strategy estimated that 37% of BBLS (around £17.5 billion) may not be repaid, mostly because the businesses concerned would not survive over the longer term.
By the end of September 2021, the state-owned British Business Bank, which oversees the schemes, disclosed that £2bn worth of loans had been repaid, however £1.3bn worth of loans were in default.
Mr Swift warns that it is highly likely that the value of defaulted loans will far outweigh the amount written off due to fraud.
“A substantial and increasing number of businesses are already struggling to make their CBILs or BBLs loan repayments,” he said.
“Businesses and particularly SMEs have had to endure an exceptionally difficult two years and whilst many have closed, many of those which have persevered have only managed to survive due to the loans and other government-backed interventions, such as Furlough.
“As a result, we believe that, across the UK, as much as £20bn of all CBILs and BBLs loans will become defaulted in some shape or form.”
The loan schemes ended in March last year. Mr Swift said that while most business owners had no intention of committing fraud, an increasing number were finding their business lacks the assets, cash or income to meet loan repayment demands and deadlines.
“Although the banks have been instructed to be flexible, one way or the other loans will have to be repaid,” he said, adding that HMRC would investigate late or non-payment and urged struggling businesses to communicate early.
“Ignoring the loan repayment demands, or only making partial repayments will simply escalate the problem with all the risks that can bring in terms of the penalties and actions available to lenders and to HMRC,” he said.
“The government is under immense financial pressure and will be pursuing the repayment of these loans whatever their status, be they fraudulent or in default.
“For businesses struggling to meet loan repayments, the best course of action is to take professional advice to tackle the issue sooner rather than later.”
