Following the resignation of Lord Agnew of Oulton, the counter-fraud minister, there has been increased scrutiny over the Covid-19 loans that have been handed over to businesses. In many cases money found its way into fraudsters pockets. The Treasury has suggested that around £4bn will not be recovered as a result of the frauds.
However, some insolvency practitioners are suggesting that as much as £20 billion of taxpayer-backed Covid loans may have to be written off because of defaults by struggling borrowers as the businesses goes bust.
Duncan Swift, Azets’ restructuring and insolvency partner, said that a “substantial and increasing number of businesses are already struggling to make their loan repayments” on the bounce back loan and coronavirus business interruption loan schemes (CBILS).
Keith Steven of KSA Group said "Many companies are restructuring CBILS into the Recovery Loan Schemes (RLS), sooner or later the payments have to be met. Many cannot afford the payments now."
Bounce Back Loans totalled £47 billion and was lent through 1.6 million loans, with a 100 per cent guarantee from the taxpayer; a further £26 billion was lent via 110,000 coronavirus business interruption loans, with the state providing an 80 per cent guarantee.
The business department has estimated that £17.5 billion of bounce back credit may not be repaid.
Swift said that companies, especially smaller businesses, “have had to endure an exceptionally difficult two years and while many have closed, many that have persevered have managed to survive only due to the loans and other government-backed interventions. We believe that, across the UK, as much as £20 billion of all coronavirus business interruption loans and bounce back loans will become defaulted in some shape or form."
This does seem to be a very large figure, almost half of all loans? There is going to be the inevitable situation where companies will owe HMRC money and have large government backed loans. HMRC are preferential creditors now, so will be able to claim more in insolvency than perhaps was the case prior to the pandemic. This is maybe what will result in large loan write offs. The only way out of this situation would be to further extend the loan paybacks especially if there is likely to be increased interest rates. Currently RLS loans are capped at 15% interest but further extensions may attract higher interest rates.