Lenders lose £240m in Covid loan guarantees

UK banks and other lenders have lost more than £240million in collateral due to mistakes made when distributing government-backed loan schemes during the pandemic.

More than 7,400 bounce-back loans have had their 100% government guarantee removed after lenders found errors in their own verification systems. These included the transfer of money to businesses created after March 2020 and errors in the way lenders processed loans.

The British Business Bank, which administers the scheme, told the FinancialTimes that “in many cases where lenders have encountered problems with their own processes, they have proactively come to us to request that the collateral be removed from the affected loans”.

This suggests that many other guarantees may be removed if further instances of lender error are discovered.

Read more: How vulnerable are Covid loan programs to fraud?

According to the British Business Bank, the first pandemic loan programs provided £80.4bn of funding between May 2020 and the end of March 2021, then from April 2021 to October 31, the recovery loan program has deployed over £1 billion to small businesses.

In June, the Fraud and Error Report from the Public Accounts Committee of MPs and the Department for Business, Energy and Industrial Strategy (BEIS) found that the bounce-back loan scheme alone would cost the taxpayer £27billion in fraud or credit losses.

Last week Lord Agnew resigned over Covid loan fraud, after it was revealed the Government had set aside £4.3billion fraudulently claiming Covid benefits. Lord Agnew said the total loss of fraud in government is estimated at £29billion a year.

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