Bounce back loan defaults to be lower than expected
Defaults on bounce back loans are estimated to be much lower than initially feared.
Officials and bankers interviewed by The Financial Times have suggested that as much as £5bn is at risk of not being repaid – significantly lower than previous estimates of up to £27bn.
The assessment was based on the first few months of debt servicing, which showed that between five per cent and 10 per cent of small- and medium-sized enterprises (SMEs) that took out bounce back loans have missed repayments so far.
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Bounce back loans were aimed at helping the smallest businesses in the country as quickly as possible, with the government underwriting the full value of the loan, which can be up to £50,000.
Bankers cited by The Financial Times attributed the promising data to the stronger than expected economic recovery.
One banking executive said that up to five per cent of all loans had already been repaid in full on the date that the 12-month interest-free payment period ended.
“It’s a best guess at the moment but the initial signs are that the losses are unlikely to be in the tens of billions as feared,” the executive told The Financial Times. “It’s clear that not all loans were taken out of desperation but out of caution.”
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The Office for Budget Responsibility (OBR) in December estimated that the losses could cost the taxpayer as much as £19bn.
In June, a report from the Public Accounts Committee of MPs said that the department for business, energy and industrial strategy has estimated that the bounce back loan scheme will result in £27bn in fraud or credit losses.
All bounce back loans come with a 90-day repayment period, so lenders will start to see defaults in the coming weeks as repayments on the first loans started in June.