A new report commissioned by the British Business Bank shows that 45% of bounce back loan borrowers didn’t need the funds at the time – but took advantage of the government backed lending scheme to obtain them anyway.

The survey found that the value for money of the scheme was threatened by the idea that any business could apply for and receive up to £50,000 – not just those that badly needed it to survive during the Covid-19 pandemic.

This is more important when the overall level of losses from fraud or repayment defaults could reach as much as £5.5 billion.

The report states that there is mixed evidence that the survival of borrowing businesses depended on the speed at which their applications were approved and accessed which is a key defence when questions are asked about why more robust security checks weren’t in place to stop fraudsters from being able to access the fund.

A British Business Bank spokesperson said: “Had lenders conducted their standard checks on the sheer volume of applications received then it could have created an extensive backlog with small and medium sized businesses having to wait significantly longer for loans during which their very survival could have been at risk.”

The House of Commons Public Accounts Committee is conducting an ongoing review into the effectiveness of the bounce back loan program and the progress of recovering loaned out funds.

Bounce Back Loan Programs

Chairwoman Meg Hillier MP said: “Chasing bounce back loan fraud is a good way of spending taxpayers money and worth the investment.

“Not only is it important to claw back as much improperly obtained money as possible but also as a deterrent effect that will make criminals think twice before targeting any future government schemes.”

The British Business Bank also recently revealed that the overall default rate of bounce back loans was just over 2%.

This is based on a total of 2,000 out of 97,000 loans already being in repayment default from their first eligibility when the scheme launched in March 2020.

Catherine Lewis La Torre, Chief Executive Officer of the British Business Bank defended the bank’s record. She said: “The Covid-19 emergency loan schemes were designed to address a drastically altered economic landscape for small businesses as lockdowns took effect.

“This evaluation is the first indication of just how important those schemes were in saving livelihoods, businesses and hundreds of thousands of jobs, and we are proud to have played a vital role in their delivery.”

According to their own estimates, without the bounce back loan scheme some 146,000 to 505,000 businesses – a third of the total number of borrowers – would have failed with the loss of between 500,000 and up to 2.9 million jobs would have been lost.

Chris Horner, insolvency director with BusinessRescueExpert, said: “The bounce back loan scheme was especially effective for some businesses in getting access to funds quickly that were essential to their survival.

“Unfortunately, with such a large scheme and with the size of the funds involved, it was always going to attract fraudsters. It’s a pity that there wasn’t more security in place to detect them and make it tougher for them to obtain these funds that thousands of honest business owners and directors needed.

“Repayments are going to be an issue for a lot of companies now because of the difficult trading environment they’re facing. Costs everywhere are rising along with interest rates and of course, energy bills.”

“This is why we offer a free initial consultation to any business owner or director that is facing difficult choices right now to help them find a way through this difficult period for everybody.”