More than two-thirds of the £31.3bn lent to businesses under state-backed bailout schemes have been through light-touch “bounce back” loans to the UK’s smallest companies, the Treasury said on Tuesday.
About 745,000 businesses have now received loans from banks backed by the Treasury — with more than £3.8bn going to 94,000 companies in the past week alone.
But the tens of billions lent in just a month since the government scheme launched has also caused concerns that many of these borrowers will be unable to repay their debt, with senior bankers telling the Financial Times this week that as many as half could default.
The bounce back loan scheme (BBLS) is aimed at small and medium-sized enterprises (SMEs) whose income has fallen because of the UK’s coronavirus lockdown.
The scale of demand for these loans — which provide up to £50,000 interest-free for a year with only basic checks over viability and fraud — shows how much SMEs are suffering during the pandemic.
The Treasury said £21.3bn had been provided by lenders through the BBLS — of which £2.8bn was lent over the past week to a further 91,000 borrowers.
In addition to the BBLS, the government has launched two other schemes with state guarantees that enable banks to lend to companies struggling to survive sharp falls in their revenues: the coronavirus business interruption loan scheme (CBILS) and the coronavirus large business interruption loan scheme (CLBILS).
Bankers say many companies are still struggling to access these, resulting in a lower uptake.
According to the Treasury, banks have now lent £8.9bn in support through CBILS to almost 46,000 businesses, of which about £750m was lent over the past week, while £1.1bn has been approved for larger and medium-sized businesses using CLBILS.
UK Finance, the trade group, said that the number of loans being made by banks represented “an unparalleled level of support from the industry”. In comparison, an average of 275,000 loans and overdrafts were provided each year by the 10 largest banking groups to UK SMEs over the past five years.
But the fact that this support has come as debt has caused bankers to worry that they will need to reclaim bad debts from tens of thousands of distressed borrowers.
City lobby groups have called on the government to help support the wave of problem borrowers by offering to swap debt for equity stakes, which would allow businesses to continue to trade without the burden of excessive debt.
Bankers also warn about the risk of fraud, with only light-touch checks made on the borrowers before they are lent the money
The Treasury also said on Tuesday that 8.7m jobs had been furloughed in the UK, with £17.5bn claimed in total to cover the wages of these jobs, ahead of the introduction of a more flexible scheme that will allow part-time workers to benefit from the payments. The scheme will be closed for new applications on June 10.