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Over a million bounce back loans approved for small businesses, Can they be repaid?

Today the Chancellor’s summer economic update to Parliament will take place, new figures reveal that the number of Bounce Back loans approved for small firms to help them survive the Coronavirus pandemic has passed the one million milestone.

The news story from HM Treasury is that the Bounce Back Loan Scheme has been a success in providing firms with vital government-backed loans at a low, affordable rate and with no interest or repayments due in the first year. Loans worth £30.93 billion have now been approved to date, but what happens in 12 months when repayments are due!

Funding Xchange, the leading government appointed portal that helps small businesses identify loan providers for small businesses that have been declined by their own high street bank, has hailed the achievement of the government’s bounce back loan scheme reaching out to over one million businesses as a key milestone towards economic recovery.

At the same time it is emphasising that the true celebrations should be held back until the loan repayments have made, and the businesses have been shown to survive.

katrin herrling funding XChange
Katrin Herrling

Speaking to The Fintech Times Chief Executive of Funding Xchange, Katrin Herrling claims that, “The data that we have indicates that it is unlikely that many of the borrowers who have benefited from bounce back loans will easily be able to cover repayments from their cashflow when the initial repayment and interest holiday is over, and banks will need to be working closely with them to set flexible repayment plans aligned to when they have surplus cash. The good news is that with the open banking technology that we now have we can create dynamic models to do just that. The work needs to begin now, so that businesses are well prepared when the time for repayment comes.”

Data collated by Funding Xchange in their latest Business Lending Monitor covering the April, May and June quarter demonstrates the importance of the bounce back loan scheme, in that over half a million of the borrowing businesses demonstrated inadequate free cashflow to be able to continue their operations without the loans. Those businesses however will now need to address how they will cover the repayment programmes from within their tight cashflow.

BBLS affordability Funding XChange SME Lening Monitor 2020 Q2 Part2

With over £30 billion of loans made available by the lenders, all benefiting from the government’s 100% guarantee, the management of the repayment stage of the recovery programme is key, not just for the businesses themselves but also the taxpayer.

“We are currently working with the banks,’ added Katrin Herrling, “with a view to making available the technology that we have developed at Funding Xchange. With the support of a tranche of the Pool E RBS Remedies funding currently being allocated by BCR, we are confident that we will be able to create the flexible repayment modelling that will be critical to smoothing the recovery process of hundreds of thousands of the businesses.”

The government supported bounce back loan scheme is part of the overall loan programme put in place by the government to provide emergency cashflow to small businesses affected by the coronavirus pandemic. The loans benefit from an interest margin of 2.5%, and carry a 12 month interest and repayment holiday.

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Author

  • Editorial Director of the The Fintech Times

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