UK taxpayers have taken the risk of lending to many businesses that may not need financial support to survive the Covid crisis, according to an official review of government-led pandemic loan schemes. government backing.
Between 38 and 45 per cent of businesses surveyed in the report commissioned by the Corporate Bank of England, which manages some of the loans, said they would not seek a loan without government support , with many looking for capital to become more resilient against future risk.
Covid-19 loan guarantee programs may have saved between 150,000 and 500,000 businesses, it found, representing between 500,000 and 2.9 million jobs.
The government has secured around £78 billion in state-backed loans provided by banks to more than 1.5 million businesses during the pandemic, according to a report released on Tuesday. However, many businesses have obtained loans cheaply and easily despite not facing immediate cash flow problems.
The survey found that “a threat to value for money” [of the schemes] arising from the removal of measures aimed at securing loans in enterprises whose existence or stability is threatened by the Covid-19 pandemic”.
It said the findings showed that “the removal of targeting has led the public sector to assume default risks of lending to large numbers of businesses that may not need support to survive.” during the pandemic”.
It added that this means companies that take out loans will be more likely to pay back their money than previously expected, which has a positive effect on default rates.
The report was developed by London Economics and Ipsos into three loan guarantee schemes – the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Major Business Interruption Loan Scheme (CLBILS) and the Coronavirus Payback Loan Scheme. back (BBLS).
The findings are the first in a series of assessments of the performance of BBB programs. The payback loan scheme in particular has drawn criticism because lax checks on borrowers have opened the door to billions of pounds in loans potentially lost to fraudsters. .
Previous official estimates have suggested that losses from fraud and default in schemes could reach close to £5 billion. It is still too early to fully assess the extent of defaults and fraudulent claims, the report said.
“If lenders were to conduct their qualification checks on such a large number of applications, that would create a large backlog with smaller businesses having to wait significantly longer for loans. during times where the existence of the business may be at risk.”
However, it added, there is “mixed evidence that the survival of many borrowers depends on how quickly lending decisions are reached”, which could again raise questions. why more stringent checks are not in place to rule out fraud.
The report also flagged “recorded irregularities in lending decisions made by a single lender” referring to Greensill Capital, which is under investigation for allegedly abusing the loan scheme against larger companies. It says that the British Business Bank has reduced its allocation to zero for lenders.
