Covid-19 loan guarantee schemes save up to half a million UK businesses

The UK government’s Covid-19 loan guarantee schemes are estimated to have saved between 150,000 and 500,000 businesses from permanently closing, according to a new report commissioned by the British Business Bank.

The evaluation report by London Economics and Ipsos found in the absence of the support schemes, an additional 146,000 to 505,000 Bounce Back Loan Scheme (BBLS) borrowers and 5,000 to 21,000 Coronavirus Business Interruption Loan Scheme (CBILS) borrowers could have permanently ceased trading in 2020.

The emergency loans were “important lifelines” for many businesses and guaranteed finance for “even the smallest of businesses”, said Martin McTague, national chair of the Federation of Small Businesses (FSB).

“As today’s findings demonstrate, this swift action prevented vast numbers of businesses from going under; protecting jobs, livelihoods, and enabling these firms to be part of the economic recovery.”

Between 500,000 to 2.9 million jobs could have been lost without the £78bn of state-backed loans, according to the report.

The loan schemes, in some cases, were “instrumental in enabling businesses to remain operational in the midst of pandemic-induced disruption”, according to the report.

Alongside using the funds for working capital, businesses also used the resource to support the adoption and/or expansion of digital technologies and to build business resilience which they would have done to a lesser extent or not at all in the absence of the measures, found the report.

“The Covid-19 emergency loan schemes were designed to address a drastically altered economic landscape for smaller businesses as lockdowns took effect,” said Catherine Lewis La Torre, CEO at British Business Bank.

“This evaluation is the first indication of just how important those schemes were in saving livelihoods, businesses and hundreds of thousands of jobs, and we are proud to have played a vital role in their delivery.”

Bounce back loan fraud

The introduction of the bounce back loans helped to accelerate the timescale for loan approvals, noted the report.

Had lenders conducted their standard checks on such a volume of applications, it would have created “an extensive backlog” with businesses waiting “significantly longer” for a loan, putting the survival of the business at greater risk, it found.

The loose checks on borrowers for the bounce back loan opened the doors to billions of pounds lost to fraudsters. It is estimated that out of the £47bn paid out through the support measure, almost £5bn of that was lost to fraud, according to a government committee report.

“It’s still too early to fully assess the level of defaults and fraudulent claims,” according to the report.

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