Up to 60% of bounce-back loans (BBLs) may never be repaid, according to a report from the National Audit Office (NAO).

Assuming the scheme lends £43 billion, this implies a potential loss to the Government of between £15bn and £26bn.

The extent of the losses due to credit and fraud risks will become significantly clearer when the BBLs are due to start being repaid from 4 May 2021.

The Government’s eligibility criteria for BBLs was less strict than other coronavirus-related business loan schemes, to improve quick access to finance for SMEs.

The scheme has relied on businesses self-certifying application details with limited verification and no credit checks performed by lenders for existing customers.

These lower levels of checks “prevent credit risks”, according to the NAO, increasing the likelihood that businesses will not be able to repay the loans.

The Government’s decision to provide funds quickly leaves public money exposed to the risk of fraud, caused by self-certification, multiple applications, lack of legitimate business, impersonation and organised crime.

Gareth Davies, head of the NAO, said:

“With concerns that many small businesses might run out of money as a result of the pandemic, the Government acted decisively to get cash into their hands as quickly as possible.

“Unfortunately, the cost to the taxpayer has the potential to be very high, if the estimated losses turn out to be correct.

“The Government will need to ensure that robust debt collection and fraud investigation arrangements are in place to minimise the impact of these potential losses to the public purse.”

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