UK government removes loan guarantees worth £979 million, leaving lenders accountable for unpaid amounts.
The UK government has canceled guarantees on approximately £979 million ($1.2 billion) in loans provided to struggling businesses during the COVID-19 pandemic. This move shifts the responsibility for unpaid loans to the lenders. Data obtained through a Freedom of Information (FOI) request reveals that the state-owned British Business Bank (BBB), which manages these loan programs, has eliminated state guarantees from 10,786 loans. While this amount is relatively small compared to the total of £77 billion in loans issued, it comes as a response to criticism from lawmakers and public spending watchdogs who found the programs to be too lenient. Notably, only £17 billion of the loans have been fully repaid by borrowers as of June 30.
Several financial institutions, including major banks like Barclays, NatWest, Lloyds, and HSBC, participated in these government-backed schemes. The largest of these programs, the “Bounce Back Loan” (BBL) scheme, was designed to support small businesses, offering quick access to funds with minimal credit checks. Under the BBL terms, the government assumed all the credit risk. However, some lenders now find themselves unable to claim on that guarantee, as revealed by the FOI response. Following the removal of the guarantee, any financial losses will be borne entirely by the lender.
The BBB mentioned various reasons for removing these guarantees, including data corrections, application errors resulting in duplicate funds sent to companies, and violations of scheme rules. Violations could include evidence of mistreatment of borrowers, and while the BBB has the authority to offset a portion of a lender’s future claims for repeated violations, it hasn’t done so yet.
Mistakes were identified voluntarily by lenders themselves or following discussions with the BBB, according to the FOI response. The BBB has conducted audits of all the lenders that participated in the emergency loan schemes. Unfortunately, the BBB declined to provide a breakdown of state guarantee removals by lender, citing potential harm to their commercial interests.
These lending schemes have been marred by controversies, including widespread fraud. The overall scheme data published in September showed suspected fraud across all schemes amounted to £1.7 billion as of June 30, a 43% increase from the previous estimate in March. The government had paid out £7.4 billion to lenders under the state guarantees. While suspected fraud is not necessarily a reason for removing a guarantee, it is essential for lenders to comply with scheme rules. Concerns about potential abuse were raised before the BBL scheme’s launch, but it proceeded due to the unprecedented circumstances faced by the country.
