Covid loan default rates deemed “encouraging”

0
41

[ad_1]

More than 85 per cent of government-backed loans to support businesses during the pandemic are being repaid on time, with a restructuring expert calling the figures “encouraging”.

Official data, released today, showed that over 85 per cent of facilities have either fully repaid or are meeting monthly repayments as scheduled as at 31 March 2022, while seven per cent of loans have already been paid back in full, worth £9bn.

Eight per cent of all facilities have gone into default.

The new government data relies on information submitted to the British Business Bank’s lender portal by accredited lenders and focuses on three schemes that were established in the first half of 2020: the coronavirus business interruption loan scheme (CBILS), the coronavirus large business interruption loan scheme (CLBILS) and the bounce back loan scheme (BBLS).

Read more: Bounce back loan report ‘inconclusive’

As of 31 March 2022, businesses had borrowed a total of £77.1bn through the three schemes.

CBILS loans went up to £5m in size and 80 per cent of their value is guaranteed by the government, with the lender shouldering the remaining risk.

The new government figures showed that 28 per cent of CBILS facilities are being paid back on schedule, with just over one per cent currently in arrears (but not yet progressed to default) and fewer than one per cent currently in default.

CLBILS loans were for larger businesses with a group turnover of more than £45m that were looking for up to £200m in finance.

More than 73 per cent of CLBILS facilities are on schedule, with fewer than one per cent currently in arrears and none currently in default.

Read more: How exposed are the Covid loan schemes to fraud ?

Meanwhile, the BBLS was designed to get money out quickly to struggling microbusinesses during the height of the pandemic. It offered loans of up to £50,000, with 100 per cent of the value underwritten by the government.

More than 78 per cent of BBLS facilities are on schedule, with around seven per cent in arrears – equating to 113,488 loans – and four per cent, or 61,475, in default.

The BBLS has been the most susceptible scheme to fraud as lenders were encouraged to facilitate loans quickly and were not taking on any of the risk.

Lenders have identified around 18,000 BBLS loans and around 100 CBILS loans as ‘suspected fraud’, the government said, and reported it via the British Business Bank portal.

Lenders continue to review cases so this figure is subject to change.

“Looking more closely at CBILs and CLBILs in particular, as they were subject to a full viability assessment, the loans are actually performing quite well and in line with normal market expectations,” said Benjamin Wiles, managing director, restructuring at business advisory firm Kroll.

“The default rates are insignificant and bearing in mind, many of these are multi-year facilities, the fact most are on track and almost one-fifth are repaid is encouraging. The one caveat is that is this data is up to March, and quite a lot has happened and we have experienced many headwinds over the last four months, but it certainly does not ring out to me that these facilities will be the primary source of any trouble around the corner.”

The government data also showed the loan volumes that accredited lenders facilitated through the schemes.

Former peer-to-peer lending platform Funding Circle was the third-largest CBILS lender, having facilitated more than £2.9bn of facilities.

Funding Circle also lent out more than £35m through the BBLS.

The UK’s largest P2P firm, Assetz Capital, lent out £333m through CBILS.

“We are still early in the life of the schemes and in the lending cycle, so it is too soon to accurately assess levels of fraud and credit losses,” the government said.

Scheme performance data will be published half-yearly, based on end of March and end of September data.

The government data follows a recent report that BBLS arrears are higher than previously claimed.

A Freedom of Information request to the British Business Bank, seen by The Times, found that 151,000 businesses are behind by more than 90 days in repaying the loan, the benchmark for being considered in serious financial distress. Collectively, they owe £4.5bn.

Treasury and Cabinet Office minister Lord Agnew of Oulton resigned in January having criticised the government over its handling of fraud cases linked to the state-backed coronavirus loan schemes.

[ad_2]