Can the Treasury square the circle in recovering Bounce Back Loans?

It’s a difficult balance for the Government to strike; on the one hand the Bounce Back Loans (BBLs) scheme has provided swift financial support to nearly a quarter of Britain’s small firms. On the other hand, the Treasury have promised to guarantee £44bn of these loans so far with taxpayers’ money (more than the cost of furlough or self-employment support scheme). At the Credit Services Association, we believe that Ministers have a responsibility to pursue an effective – as well as a sensitive – approach to recovering that debt. Today’s (7 January 2021) new CSA report ‘Squaring The Circle’ sets out a series of recommendations that could ensure a consistent policy for repayment and recovery, and deploy the skills of professional collections agencies to ensure best practice and forbearance is applied.

Our report recommends that Ministers maximise dialogue with SMEs and could do so through a dedicated ‘BBL Engagement Scheme’, where around £10m annually for three years might boost engagement and also yield – we calculate potentially between £3bn and £6bn in additional returns to the Exchequer.

Pursuing such an engaged collections strategy consistently could perhaps save the taxpayer the equivalent of the NHS’s annual capital budget allocation, or the same as would be raised by a penny on income tax.

Engaging in dialogue and understanding the circumstances of those SMEs who have taken out Bounce Back Loans will take particular skills. There are some estimates suggesting between 35% and 60% of these loans may not be repaid in full. The Government must therefore be clear and consistent in its policy towards collections and communicate regularly with SME customers. We also recommend that the Government provide a warranty against fraud in the event that these BBL debts are sold on at some future date.

Ultimately, an approach that works with a borrower and is sensitive to their individual circumstances inevitably improves relationships and yields better returns – vital for the taxpayer and reflecting also these highly unusual circumstances which the BBL scheme was designed to address.

Squaring The Circle

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