Predicting future default on the Covid-19 bounce back loan scheme: The £46.5 billion question

The UK has had a commitment to loan guarantee schemes since 1981 when it introduced the Small Firms Loan Guarantee (SFLG) scheme address access debt finance issues for smaller firms. Over last 40 years, its support been unwavering, and in Covid-19 crisis, once again turned guarantees as means of supporting firms through crisis-induced slump trading activities. Of three core schemes, Bounce Back (BBL) was most numerous with 1,531,095 loans issued amounting total £46.5bn lending. BBL provided 100% capital on between £2,000 £50,000, were allowed borrow up 25% their income, fixed interest rate 2.5% which first years paid by government lending bank. Our findings suggest that losses may range £7bn £12bn depending underlying assumptions; however, we estimate have protected 118,639 businesses 1,117,849 jobs. Looking future, new is justified more resembles former SFLG than restrictive Enterprise Finance (EFG) one million small will be heavily indebted unable invest future growth opportunities. This would ‘levelling-up’ agenda help prevent post-Covid-19 low investment–low scenario.