Cost of bounce back loans could be lower than first thought

Initial estimates suggested up to six in 10 businesses might default on their bounce back loans, forcing the Government to pay them back.

Business district
Business district

The Government could be liable for a lot less money than first thought from one of its emergency loan schemes that was launched during the pandemic, according to early data from banks.

Only around 5% to 10% of businesses that used the Bounce Back Loan Scheme last year have missed repayments, which became due from May this year, the Financial Times reported on Wednesday, citing sources.

Banking sources confirmed to the PA news agency that these figures broadly matched what they had seen in recent months.

Last week NatWest, which lent £9.1 billion under the scheme, said around 92% of customers who took a bounce back loan were paying on or ahead of schedule.

Around 5% have paid back in full already.

Earlier this year the British Business Bank, which administered the £47 billion scheme, said that around one in five businesses that had taken a bounce back loan had not spent any of it.

However, 23% said they had already spent all the money borrowed.

The bounce back loans were provided by normal high street banks, at up to £50,000 for each business.

To get money out quickly, banks did not have to check whether customers could pay back. Instead the Government said it would cover the loans if companies were unable to meet repayments.

Initially the Government estimated that between 35% and 60% of borrowers might default on the loans. This would leave the taxpayer on the hook for up to £28 billion.

The figures reported by the Financial Times suggest this number could be a lot lower, at only around £5 billion.

However the data might be skewed by grace periods on the loans. Companies can request a payment pause of up to six months, and can delay for a further 18 months by paying only interest on their loans.

NatWest said around 5% of borrowers had asked for a further payment holiday.

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