Suppliers to firms with ‘bounce back loans’ beware - warns ICSM Credit - estimates suggest 40% of borrowers will default - heralding a nationwide collapse of small businesses
The Chancellor Rishi Sunak’s economic lifelines for the economy have been largely welcomed by one and all despite reservations about abuses of the furlough scheme and lack of help for some workers.
However as the summer of Covid 19 pans out there has been anecdotal evidence that the ‘bounce back loans’ have cynically been misused by some business owners. Flashy cars, paying off high interest loans and non-essential luxury goods have been purchased by rogue directors instead of using the loans to keep their businesses afloat during the lock down.
“Unfortunately it is human nature,” said Ian Carrotte of ICSM Credit, “when company directors or owners of a doomed business see there is no hope they become irrational. Some become depressed and stop working, while others take whatever funds are available to them and spend cash like there’s no tomorrow.”
He said the bounce back loans were not to be used for personal purchases but some may have been used for items which could be argued were business assets such as a car and could later be bought off the liquidator or sold before liquidation.
The Office for Budget Responsibility (OBR) has warned MPs that as many as 40% of ‘bounce back loans’ could be defaulted. Writing for the Daily Mail Lucy White noted today: “The taxpayer could be saddled with a £34bn bill as thousands of loans handed out under emergency Covid schemes turn sour. Treasury figures show £46.3bn has now been lent to 1.1m firms, including £31.7bn lent to 1m of the UK’s smallest companies through the Bounce Back scheme. But the UK’s budget watchdog has said losses under these taxpayer-backed schemes could hit £33.7bn in the worst-case scenario, as the economic downturn caused by the pandemic bites.”
“These are eye-wateringly high amounts,” said Ian Carrotte, “and what really concerns me are the amount of firms who have taken these loans have no intention of repaying. If they default as the OBR suggests then they will also default on invoices from their creditors. My advice to our members and to all SMEs and small businesses is if you are aware your customer has one of these loans then chase them up for payment of overdue invoices now – don’t get fobbed off with excuses as they have cash from the loan.”
Taxpayers will end up paying for the defaulted loans as the Government agreed to back them meaning the banks that facilitated the loans will not lose out.
About ICSM Credit
ICSM Credit has more than four decades of experience as a credit intelligence group whose members gain inside information about firms in trouble allowing them to avoid bad debts and rogue traders. To join costs less than a tank of fuel - while at the moment there's a special free temporary membership offer during the Covid-19 crisis which gives access to free legal letters. ICSM also has an effective debt collecting service which has a global reach - ask for details from Paul.
For details about ICSM Credit call 0844 854 1850 or visit the website www.icsmcredit.com or email Ian at Ian.carrotte@icsmcredit.com on how to subscribe and to join the UK’s credit intelligence network to avoid bad debts and late payers. Follow ICSM Credit on FaceBook, Twitter and YouTube and Ian Carrotte on LinkedIn.
To keep up to date subscribe to the FREE ICSM Credit Newsletter to hear all the latest insolvency news and to see who has gone out of business click on the orange panel on the top left of the home page of the website www.icsmcredit.com or send an email to Ian.carrotte@icsmcredit.com
For details for the work of the journalist Harry Mottram visit www.harrymottram.co.uk