Research Briefing
Published Monday, 21 December, 2020
An overview of the development and rollout of the Coronavirus Business Interruption Loans Scheme, the Coronavirus Larger Business Interruption Loans Scheme and the Bounce Back Loans Scheme, including refinements and challenges.
Coronavirus: Business loans schemes (749 KB, PDF)
Download full reportDownload ‘Coronavirus: Business loans schemes’ report (749 KB, PDF)
In early 2020, the Government established three business loans schemes in response to the pandemic:
The schemes were part of the Government’s £330 billion package to support the economy through the pandemic. Their launch received wide political and business support.
The British Business Bank oversees the schemes. A range of accredited lenders make decisions on applications made to them.
By 13 December 2020, the three schemes had disbursed £68 billion through loans and similar facilities. BBLS accounted for 94.5% of loans made and 64% of funds disbursed.
The original CBILS was quickly modified in response to concerns about difficulty of access to and speed of funding. It already offered an 80% Government guarantee to lenders.
But the BBLS increased that guarantee to 100% and further simplified application processes. The scheme immediately proved to be particularly popular. Some accredited lenders have sought to manage demand – for instance, by only accepting applications from existing customers. Others, such as challenger banks and fintech lenders, have found it difficult to get hold of funds to lend to businesses.
To simplify the application process, the Government relaxed consumer protection provisions for BBLS. Although all the schemes rely on ‘know your customer’ and anti-fraud checks, there have been concerns that the schemes are open to abuse by fraudsters.
The three schemes are due to close at the end of March 2021. Most borrowers benefit from not having to repay anything for the first year. No interest will be charged over that period either.
Many businesses have certainly survived with the help of the schemes. But many face an uncertain future. The Office for Budget Responsibility has suggested that up to 40% of BBLS borrowers may default. Given the Government guarantee, this could lead to losses of as much as £33.7 billion.
There has been some discussion about managing defaults and slow repayment. Proposals include setting up ‘bad bank’ structures or developing wider initiatives to allow businesses to pay off debts more slowly.
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