Loans schemes such as the CBILS, CLBILS and the Bounce Back Loans (BBLS) have become a lifeline for businesses during the coronavirus crisis. But with a combined value of £52.7bn approved under the various schemes, questions have been raised over the businesses who have taken these loans.
As first reported by the Financial Times (behind a paywall), campaign groups and politicians have argued that the loans should not “be shrouded in secrecy”.
Darren Jones, Labour chair of the House of Commons business select committee, added his voice to the campaign and called for the information to be published. “The state’s relationship with these businesses will continue for some time, with the potential for refinancing, debt write off”, he said.
Transparency International and a former City of London minister in Gordon Brown’s Labour government have also backed the cause. “Businesses shouldn’t expect to be able to take [government-backed loans] without public transparency,” Duncan Hames, policy director of Transparency International UK, told the FT.
The lender has approved the loan
The chair of the Corporate Finance Network (CFN), Kirsty McGregor doesn’t believe there should a disclosed list of the businesses who have obtained a BLBILS, CBILS, or even a Bounce Back loan.
“These haven’t been approved by the government, the Treasury or the British Business Bank. A lender has made the commercial decision to approve this loan based upon their own underwriting criteria (in the case of CBILS/CLBILS) or by a self-certified application form with only KYC/AML checks by the lender (in the case of Bounce Back loans).”
The FT contrasted the government’s refusal to reveal the names of the businesses with that of the Bank of England and the Future Fund. But McGregor said the Future Fund is very different in nature to the other loan guarantee schemes.
“The Future Fund is potentially taking equity investments in private businesses if the companies choose to convert their loans at maturity. So I understand why that needs to be more transparent, especially as the decision for these loans, whilst subject to certain minimum criteria, lies with the British Business Bank.”
Risk of fraud or misuse
The state-backed coronavirus loans have come under added scrutiny due to the large number of businesses that have secured the support. The Bounce Back loan has been handed out to the biggest amount of businesses, with £35.5bn worth of loans being approved under the scheme. Meanwhile, 60,409 coronavirus business interruption scheme loans have been secured by businesses.
Although AccountingWEB members have supported clients to secure the loans, a minority of readers have flagged a few dodgy or dishonest coronavirus loan claims on Any Answers. In one incident a user raised concern that a fairly new client has obtained two bounce back loans with separate banks.
But The CFN’s McGregor is not surprised that 1.4m have obtained a Bounce Back loan considering there are five million businesses in the UK. “The Bounce Back loans were open to all businesses, whether incorporated or not, with employees or not and of whatever size,” she said. “Whether they were all used for the government’s intended objective, for business purposes, and how this is to be confirmed, remains to be seen.”
However, as many AccountingWEB readers have reported, the underwriting criteria for a CBILS or CLBILS was far more intense and McGregor believes this will make it more difficult for those 61,000 businesses to commit fraud or misuse the funds.
“I expect that the banks will know these businesses well and will keep a close eye on their risk, as they are not only subjected to 20% risk but are still responsible for collecting 100% of the facility through their normal channels if loans become bad.
"This is irrespective of whether the government eventually provides up to 80% as a repayment to the bank upon ultimate default. There will be a long process for the lender to chase the debt before that stage is able to be reached.”
Should businesses who secured these loans be named? Let us know what you think?
