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Between March and May 2020, the Government established three business loans schemes in response to the pandemic: the Coronavirus Business Interruption Loans Scheme (CBILS), the Coronavirus Larger Business Interruption Loans Scheme (CLBILS) and the Bounce Back Loans Scheme (BBLS).

The schemes were launched to wide political and business support as part of the Government’s £330 billion package to support the economy through the pandemic. The schemes are overseen by the British Business Bank, but applications are made to and funding decisions are made by a range of accredited lenders.

By 20 October 2020, the three schemes had disbursed £62 billion through loans and similar facilities. BBLS accounted for 95% of loans made and 65% of funds disbursed.

The original CBILS was quickly modified in response to concerns about difficulty of access to and speed of funding, even though it already offered an 80% Government guarantee to lenders.

The BBLS, however, increased that guarantee to 100% and further simplified application processes. The scheme proved particularly popular, to the extent that some accredited lenders have sought to manage demand – for instance, by only accepting applications from existing customers. Others, such as challenger banks and fintech lenders, have found it difficult to get hold of funds to lend to businesses.

In order to simplify and so speed up the application process, the Government relaxed consumer protection provisions for BBLS, most notably the “unfair relationships” provisions of the Consumer Credit Act 1974. While all the schemes rely on ‘know your customer’ and anti-fraud checks, there have been concerns that the schemes are open to abuse by fraudsters.

The three schemes are due to close at the end of November 2020. Most borrowers benefit from not having to repay anything for the first year. No interest will be charged over that period either.

Although the schemes have certainly helped businesses to survive during the pandemic, the future of many businesses will be uncertain. The Office for Budget Responsibility has suggested that up to 40% of BBLS borrowers may default. Given the Government guarantee, this could lead to losses of as much as £33.7 billion.

Proposals to date about managing defaults and slow repayment have included setting up ‘bad bank’ structures or developing wider fiscal or monetary initiatives that would enable businesses to pay off debts at a more sustainable rate.

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