A Freedom of Information request revealed that more than 145,000 bounced loans worth £3.8 billion are in default as companies continue to battle economic headwinds.
The findings come as the latest estimates show that of the £47bn paid out in Bounceback loans, £17bn is already expected to be lost, of which £4.9bn – more than 10% of loans – is to fraud.
9% of returned loans are currently in default, down partially from 12% in July 2022 with the average loan in default remaining at £26,571.
While there are fewer non-performing loans by CBILS – less than 2% – this is up slightly from July of last year when 1% of loans were in default. The average amount owed is £175,000, up from £164,000 in July 2022.
The analysis also revealed that businesses typically borrow £210,000 under the recovery loan scheme which is open for applications until June 2024, and the average personal guarantee commitment made by business owners to secure a loan under the scheme is £472,000.
Todd Davison, managing director, Purbeck Personal Insurance, said: “The partial reduction in BBLS debt levels and the increase in defaults in CBILS is not overly surprising given the economic environment. The lower level of defaults in CBILS can be attributed to a government guarantee of 80% leaving 20% the employer’s responsibility to pay in the event of a business failure.In Purbeck, we’ve seen many CBILS applicants take out personal guarantee insurance to mitigate this risk.What is very clear is that RLS has offered a solution to those businesses seeking Larger amounts of cash but this again comes with risks in the form of a personal guarantee Most forms of business financing now require personal guarantees from the owner/manager to mitigate the risk.
That’s why in the first quarter of this year, more small and medium business owners applied for Personal Guarantee Insurance (PGI) to mitigate the risk of business failure, than ever before. PGI’s number of applications for business loans increased 93% year-over-year in the first quarter of 2023.”