Coronavirus: Business loans schemes

In early 2020, the Government established three main schemes to provide loans to businesses of different sizes affected by coronavirus:

• The Coronavirus Business Interruption Loan Scheme (CBILS) offered loans of up to £5m for businesses with a turnover under £45 million. The loans were 80% backed by the Government.
• The Coronavirus Larger Business Interruption Loan Scheme (CLBILS) extended the standard CBILS approach to larger businesses.
• The Bounce Back Loans Scheme (BBLS) offered up to £50,000 or 25% of turnover, with streamlined application procedures and a 100% Government guarantee.

The Government-owned British Business Bank (BBB) oversaw the schemes. A range of accredited lenders made decisions on applications made to them. The BBB and the lenders developed and launched the schemes very quickly – in the case of BBLS, within 11 days.

The three schemes closed at the end of March 2021. They were replaced by the Recovery Loan Scheme in April 2021. It will run until 30 June 2024.

Further details of eligibility and application processes for the original schemes appear in the Library briefing paper Coronavirus: Support for businesses.

The Bounce Back Loans Scheme

The original CBILS was quickly modified in response to concerns about difficulty of access to and speed of funding.

The BBLS increased the Government guarantee to 100% and further simplified application processes. This included more self-certification and reduced credit checks. It included know-your-customer checks to help prevent fraudulent applications, but some commentators raised concerns that the system was nevertheless open to abuse.

The BBLS immediately proved to be particularly popular. Some accredited lenders sought to manage demand – for instance, by only accepting applications from existing customers. Others, such as challenger banks and fintech lenders, found it difficult to get hold of funds to lend to businesses.

Given those facts and the increased risks involved, most subsequent attention has been given to BBLS.

Performance of the schemes

By 31 May 2021, the three schemes had disbursed over £79 billion through loans and similar facilities. The BBLS accounted for over 93% of loans made and almost 60% of funds disbursed. About a quarter of all businesses in the UK took out a Bounce Back loan.

There is widespread acceptance that the schemes have helped many businesses to survive the challenges of the pandemic.

But concerns have grown about potential losses and fraud within the Bounce Back Loans scheme. In 2021, the Department for Business, Energy and Industrial Strategy estimated that 37 % (or £17 billion) of Bounce Back loans would not be repaid – mostly because the businesses concerned would not survive over the longer term.

Estimates are subject to wide margins of error. In October 2022 the Department reported its “central estimate” of losses to fraud on outstanding debt as 3.5% (£1.1 billion), although this could vary from 1.5% (£480 million) to 7.2%. (£2.3 billion). It had already paid out £640 million to lenders for suspected fraudulent loans.

In January 2022, Lord Agnew, Minister of State at the Cabinet Office and the Treasury, resigned. He strongly criticised the management of fraud in BBLS by Government departments and the BBB.

Various select committees continue to investigate the issues involved. In April 2022, the Public Accounts Committee (PAC) concluded that management of fraud in the scheme had been “complacent” and called for renewed efforts to gather better data and improve recovery of funds.

The first stage of BBB’s evaluation of the three original schemes found that they may have saved up to 500,000 businesses and between 500,000 and 2.9 million jobs. While the speedier release of funds under BBLS helped to achieve this, it wasn’t clear that such a short turnaround in approving applications was critical to this.

The involvement of Greensill Capital in CLBILS

The PAC has also criticised Government departments and the BBB for having allowed the collapsed financial services company Greensill Capital to have been accredited as a lender for CBILS and CLBILS.