The Speed ​​at which UK Businesses Take Out Bounce Back Loans is an ‘Incredible Red Flag’

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Over £ 20 billion has been distributed to small businesses under the government’s Bounce Back loan scheme. (Barry Lewis / In pictures via Getty Images)

The speed at which small businesses have taken out loans under the government’s 100% state-guaranteed Bounce Back loan program is an “incredible red flag,” according to the Institute for Government.

Companies have now borrowed £ 23.7 billion under the scheme, despite fears that a significant proportion of the loans will need to be written off entirely.

Launched in early May, the Bounce Back program is by far the most popular form of coronavirus support loan offered to small and medium-sized businesses, with businesses borrowing more than double the total loaned by the other two support programs.

“I would raise a flag over the speed at which the Bounce Back loans were made,” said Giles Wilkes, senior researcher at the Institute for Government, at the House of Commons Treasury Select Committee.

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Warning that the program could support businesses that won’t survive, Wilkes said it could end up damaging the fabric of the UK economy.

“We’ll have to go through the story later, but I don’t think anything has ever sold out so quickly. You’re talking about something like 750,000 small businesses, around £ 20bn, ”he said, noting that there was“ absolutely massive bad debts already mentioned ”.

Wilkes said the injustice and ineffectiveness of such a program was “something to be seen”, arguing that it was “very rare” for state money to be taken so quickly “without it meaning that something has gone slightly wrong ”.

“And in this case, it must be the lack of commercial control that the private sector has had to apply to these loans,” he said.

“Our loan programs are helping hundreds of thousands of businesses weather the crisis, providing essential government-backed financing at low, affordable rates, interest-free in the first year, and repayment-free Bounce Back loans throughout that year. period, “said a spokesman for the Treasury.

“Borrowing won’t be the right answer for all businesses – and our varied support program also includes over £ 9.5 billion in grants to three-quarters of a million businesses, paying the salaries of millions of employees. on leave, deferral of tax invoices and suppression of businesses. rate, ”he said.

But state guarantees and subsidized loans “can start to damage the fabric of your economy” if they support businesses that could end up collapsing anyway, Wilkes said.

“There is a real problem of injustice there,” Wilkes said.

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“I think they have a huge problem, because the plan you would devise if you thought it was going to be a short-term crisis – a V-shaped crisis that a lot of people have been talking about, hopefully at first – would be very different than you would want if you thought it was going to last a lot longer and see a lot more structural changes in the economy.

The Bounce Back loans were launched in May in response to criticism of the government’s slow business interruption loans (CBILs) against coronaviruses, which are only 80% guaranteed by the state.

The 100% state guarantee obliges banks to perform only basic money laundering and fraud checks before granting loans.

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